%20(3).png)
Summary
Asia’s appetite for data centers is gigantic. The Asia-Pacific data center market is expected to hit $28 billion by 2024, with 13% coming from Southeast Asia.
Data centers are also huge energy guzzlers. For Southeast Asian countries like Singapore, data centers consume as much as 7% of the entire country’s electricity usage.
Given the high demand and energy usage, renewable energy is the only way for Southeast Asia to grow its data centers sustainably; countries like Singapore, Indonesia, and Thailand are taking the lead.
With the clear demand and financial potential for data centers combined with energy savings from renewable energy, data centers are primed to be a highly lucrative asset class for businesses and investors. This is only sweetened with new government green finance schemes coming from the Southeast Asian region.
Disclaimer: This article does not constitute investment advice*.
Data Centers: A Business Overview
Across 2018 through the start of 2020, hardly a month went by without a country in Southeast Asia being announced as a location for a shiny new data center for Microsoft, or Facebook, or Equinix, or… You probably get the idea.
According to a joint report by Digital Realty and Eco-Business, the market for data centers in the Asia-Pacific region is set to reach $28 billion by 2024. Southeast Asia, in particular, is set to be the fastest-growing data center region in the world.
This trend explains the surprisingly frequent occurrences for new data centers popping up in Southeast Asia, but what exactly is driving this trend, and what kinds of implications does this have on environmental sustainability? Let us dig deeper into this issue.
Data’s Pilgrimage to Southeast Asia
The key reasons for Southeast Asia’s rapid explosion of data centers comes down to three key factors: the rise of digital transformations, robust existing IT infrastructures, and quality tech talent.
A Technologically-Scaling Region
The rapid digitalization of the entire Southeast Asian region, with adoption of cloud computing, Internet-of-things, and other digital technologies has led to high demands for data servers. This digitalization has been key in driving some of the fastest-growing economies in the world such as Vietnam, Cambodia, and Indonesia. These economic opportunities unlocked by the existence of quality data infrastructure cannot be understated; a study by PricewaterhouseCoopers estimates that for every 10% increase in digitalization, unemployment falls by 0.84%, explaining why these countries are so desperate to get in bed with anyone who will build new data centers on their land.
Many countries in Southeast Asia also have robust IT infrastructure which can handle data and is still growing. For example, Singapore, Vietnam, and Indonesia are among many of the Southeast Asian nations that have already started rolling out 5G networks, which would provide much faster mobile data speeds to consumers and businesses.
Southeast Asia’s Growing Tech Talent Pool
Southeast Asia is, and will continue to be, a hub for nurturing upcoming digital talent. Companies in Southeast Asia already hire over 100,000 highly-skilled professionals in the tech sector, and this talent pool is expected to grow by 10% each year; these types of tech professionals are both potential hires and customers for data center businesses in the region, and are an important key factor in the growth for data center businesses.
Singapore: Southeast Asia’s Data Center Hotspot
No conversation about Southeast Asia’s data center market can be made without mentioning Singapore – the country has stayed at the top spot for data centers in the region for years, and consistently ranks among the top 5 locations for data centers in the world.
Digging deeper, it is perhaps unsurprising why Singapore has enjoyed such success in the field. Singapore is a technology and financial hub for the region with a multitude of multi-national companies setting up headquarters for the Asia-Pacific region in the country, citing its pro-business environment, political stability, and excellent network connectivity as main reasons to be there.
Facebook Hits Like on Singapore
In fact, the aforementioned factors were the exact reasons Facebook cited in a blog post explaining their move to spend a staggering $1.4 billion to build new data centers in Singapore which would open in 2022, joining the likes of Google, Amazon, and Alibaba which have also set up shop in the country.
Southeast Asia’s Energy Sustainability Problem
While Southeast Asia’s massive growth and undisputable economic potential has sounded great so far, the big problem many of us come back to is energy sustainability.
Carbon emissions, deforestation, and rising sea levels are just some of the many environmental issues in Southeast Asia, and not all countries in the region have been fulfilling their promises with their commitments to sustainability goals. But at least regarding some of these issues, this is where renewable energy has a great opportunity to compliment the growth of data centers in Southeast Asia.
Data Centers Guzzle Electricity
The energy usage of data centers can, in fact, be quite alarming, with already 2% of the world’s power consumption coming from data centers and networks. And in Southeast Asia, data center operators have to use even more power to fight the region’s hot and tropical climate, with Digital Realty reporting that in Southeast Asian countries, cooling systems alone can take up to 40% of a given data center’s total energy consumption.
However, much of the carbon emissions coming from this energy usage is set to be off-set by many factors, including the use of more efficient computing hardware, and adoption of renewable energy to fuel our data infrastructure. The energy savings from using renewable energy systems can also be a huge incentive for data center operators. Solar systems, for example, generally have an estimated payback period of 8 years, the amount of time before owners start to enjoy the returns on their investment, after which all of the energy generated from the solar panel system would be virtually free.
Read also
Southeast Asia: Walking on Sunshine
This leads to the question of what types of renewable energy might be used by data centers in Southeast Asia, and for now, the answer is leaning heavily towards solar. In Southeast Asia, many countries experience high amounts of sunshine per day, which lends itself well to solar systems in particular. Companies like Microsoft and Facebook have already started to use solar energy for its data centers in select parts of Southeast Asia, with the ultimate goal of using 100% renewable energy down the road.
In a bid to ensure data center operators take sustainability goals and renewable energy solutions into account, Singapore has even introduced a temporary pause on the building of new data centers until operators can provide a plan on how they can implement electricity-saving measures and renewable energy to run more sustainably. Given the recent growth of solar systems in Singapore, you can bet that local solar system integrators like Sunseap and Eigen Energy are certainly going to hop on this opportunity, and the country will see many more data centers popping up with solar panels proudly mounted atop them.
Pumping Green Financing into Renewable Energy
One final factor that gives us confidence in renewable energy solutions being adopted in data centers lies in the massive upswing in green financing and government incentives. The Wall Street Journal reports that now, trillions of dollars are pouring in to green finance as the world is transitioning to clean energy. The Association of Southeast Asian Nations (ASEAN) has also committed to a new framework for the newly-formed Asean Taxonomy Board, which has recently set a benchmark that can be worth up to $3 trillion for green financing among its member countries, making it much more likely for renewable energy innovators to start scaling as investments pour in.
Local governments are also launching new initiatives to incentivize the adoption of renewable energy, like the Energy Efficiency Fund in Singapore and the Solar Archipelago scheme from Indonesia. Decarbonization incentives from local governments like these further sweetens the deal as a significant amount of the upfront costs can be off-set with these schemes.
Combined with green financing, these government incentives and grants can be a lethal one-two punch of both environmental sustainability and financial sensibility for data centers in the region to start adopting renewable energy technology.
Conclusion: The New Asset Class*
The ever-increasing commercial demand for data centers, combined with the carbon-reducing and energy-saving benefits of renewable energy, makes it seem like a no-brainer asset class for both businesses and investors. And given the rapid digitalization, economic growth, green financing, and government incentives in Southeast Asia, we at REANGLE feel that so-called green data centers in this region will become a hot commodity in the coming years.
About REANGLE
Our mission is to bridge the gap between deserving talent and opportunities, particularly for digital and green businesses in the Asia-Pacific region. Contact REANGLE for digital talent development, business development and transformation, or consulting for green companies.
*Disclaimer: No Investment Advice
None of the information contained in this article constitutes professional and/or financial advice and does not constitute an offer (or solicitation of an offer) to buy or sell any currency, product, or financial instrument, to make any investment, or to participate in any particular investment strategy.
Comments