Green data centres are hot assets in an even hotter sector, as investors get to grips with the existential need to make these power gobblers energy-efficient, but they have been warned that in this area, the term “green” is very much in the eye of the beholder.
Australia is among the top five countries with the largest data centre capacities, according to a Morgan Stanley estimate, and super funds have shown a clear appetite to invest locally and globally in the area.
The nation’s largest fund, AustralianSuper, said there is a “strong secular tailwind” behind the sector after it acquired a $2.4 billion stake in Vantage Data Centers EMEA last year.
In green assets specifically, the $75 billion REST last year bought into the Supernode green data campus in Brisbane – believed to be the largest in the southern hemisphere – through a $1 billion mandate with infrastructure manager Quinbrook. TelstraSuper also gained exposure to the asset by buying into Quinbrook’s net zero power fund earlier this year.
The campus is backed by locally produced solar, wind and hydropower, as well as high-voltage connections to the adjacent South Pine electricity substation. REST chief investment officer Andrew Lill said at the time that the investment is about “minimising their environmental impact” of “repositories for the storage, management and dissemination of data”.
But investors should keep in mind that the definition of green data centres is not so straightforward. Melbourne University Associate Professor in property Georgia Warren-Myers says it also might not be on par with the level of “green” that investors are accustomed to in other parts of real estate.
“What you’ve got to consider is, what does a normal data centre do…and therefore, when they are talking about a green one, what are the differentials that are emerging there?” Warren-Myers, who’s also head of ESG risks at JLL, says.
“In the commercial office space, we would assume a green building would be a high performance, probably net zero carbon, and ticking all the boxes under Green Star and things like that.
“We’ve got to readjust when we think about what’s the baseline in terms of the data centre environment.”
One natural place to start when thinking about green data centres is how energy-efficient they are, considering that their foreseeable future as a burden on the power grid has been well-documented. Power distribution and cooling is also the single biggest cost component in running data centres (18 per cent), according to a UBS estimate.
This is why a lot of green data centres so far have been heavily focused on leveraging renewable resources such as geothermal, wind, or solar energy, says Warren-Myers, and Nordic countries like Iceland have been data centre hotspots due to their natural cooling advantages.
There could also be operational efficiency adjustments, such as reducing the level of cooling in zones within the data centre that are not running at full capacity.
But Warren-Myers points out that there are other aspects such as recycling physical components and reusing resources like copper at the end of a data centre infrastructure’s life.
The possible combination of these different elements means it’s difficult to definitively say whether a data centre is green or not, she says.
“I think there is such a thing as green data centres, but to what level and where they are at on that [green] spectrum, is probably the bigger question at this point in time,” Warren-Myers says.
On whether these assets pay higher returns for funds at the end of the day, Warren-Myers says green features could help reduce carbon and energy expenses from a pure cost perspective, not to mention that many institutional investors are investing under some form of climate mandate.
But it’s also about future-proofing the assets in securing alternative energy supplies. In scenarios where there is a data centre outage, over 60 per cent resulted in at least US$100,000 in total losses and 15 per cent cost upward of $1 million, according to a Uptime Institute study in 2022. Investors and companies will rack up substantial costs not in a matter of days or hours, but in minutes.
“If your local grid can be affected by climate-related changes… then what are they [providers] doing to ensure that…these data centres continue to work in situations like 45-degree days and suddenly we end up with blackouts,” Warren-Myers says.
“That resilience would also be a consideration for investors and owners.”
