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Technology Update: Data Centres in Ireland

24 October 2017

Data centres are an increasingly prominent feature of Ireland's policy landscape, as well as its physical landscape. We provide an overview of the key legal issues arising in the context of data centre development in Ireland.

Post-Industrial Industry

Ireland has not been spared the data requirements of the current, service-intensive phase of internet development sweeping the globe. This technological trend has brought with it the need to concentrate vast amounts of computer processing power in large, industrial-scale data centres.

Ireland’s existing data centre population is concentrated in a ring around Dublin. It comprises a mix of hyper-scale data centres and co-location data centres. Hyper-scale facilities are owned by the likes of Google, Amazon, Microsoft and Facebook. Co-location data centres are owned by specialist service providers such as Digital Realty, Equinix and Telecity.

Decisions around data centre location tend to be driven by a combination of factors, including:

  • proximity to international data connections
  • availability of reliable electricity
  • taxation and regulatory environment
  • favourable climate

A key pillar of Ireland’s well-known focus on attracting foreign direct investment from major multinational tech companies has been the establishment of an attractive taxation and regulatory environment. It should come as no surprise that a wave of data centre development has followed the establishment of Irish operations by the various global technology brands. 

Permitting and resources

Clearly, the availability of “real world” resources needs to be taken into account when developing data centres in Ireland.

Planning permission is required for the development of data centres. This involves an application to the relevant local planning authority and the potential for an appeal to An Bord Pleanála, Ireland’s appellate planning authority. If it is proposed that the data centre will be connected to the electricity transmission system, an application directly to An Bord Pleanála for this transmission infrastructure will also need to be considered.

One of the issues that the planning authority will take into account in making its decision is the anticipated demand for electricity by the data centre. The availability of electricity will also be considered by the electricity transmission system operator (EirGrid) or distribution system operator (ESB) when a data centre applies for an electrical connection to its site.

Data centres are becoming, in their own right, a major demand on the Irish electricity grid. According to a recent report published by EirGrid, installed data centres account for approximately 250 Mega Volt Ampere (MVA) of electricity consumption from the Irish grid. This is said to be sufficient to power more than 210,000 homes. In addition, there are connection offers in place, or in the connection process, for up to 600 further MVA. Data centres could account for 75% of new demand on the grid by 2030. As well as requiring additional power generation to be built, this may have the less obvious result, of requiring reinforcements to the grid in order to meet the projected demand growth.

Ireland’s electricity generation fleet is undergoing a transformation from one based on fossil fuels, to one that delivers at least 40% renewable energy by 2020. While this transformation presents opportunities for the data centre operators that seek to pursue environmental objectives, it also presents operational difficulties. This is due to the difference between the baseload “shape” of data centre electricity requirements i.e. demand that is relatively constant, and the weather-dependent shape of renewable generation.

We are seeing increasingly sophisticated electricity supply arrangements being adopted by data centre developers, with on-site generation often being installed to supplement the supply that is available from the grid. For now, this is typically achieved through the use of fossil fuel generators (natural gas or diesel), although advances in fuel cell and battery technologies are expected to present cleaner alternatives in the near future.

Digital real estate

The legal considerations that accompany any major infrastructure project apply equally to data centres.  In particular, contractual protections – through sale and purchase agreements, construction contracts, contracts of insurance and wayleaves – need to be secured in relation to:

  • access rights
  • flight paths
  • neighbouring uses
  • geological risks
  • environmental concerns

For the operational phase of a data centre, the extent of the requisite legal agreements will depend on the business model that is being adopted. Hyper-scale data centres are typically developed and occupied by a single party. This structure avoids the complexities associated with shared use or a split between ownership and occupation.

On the other hand, in co-location arrangements, contracts known as “leases” are entered into between the data centre owner and its clients in order to manage shared usage. These arrangements can be denominated by data-processing capacity, rather than the floor-space metric which is more traditionally associated with real estate leases.   

Through these leases, data centre owners take on varying degrees of responsibility for the maintenance and operation of the equipment located at co-location facilities. They generally promise, in return for an agreed price, minimum levels of:

  • high-quality electricity supply
  • security
  • business recovery facilities
  • capacity of telecoms connections

We are seeing an increasing adoption of conventional project finance structures in the development of data centres in Ireland, with lenders prepared to advance construction finance based on the covenant of a suitable occupant under a long-term co-location lease.

Conclusion

Ireland continues to deliver a supportive taxation and regulatory environment for data centre location, along with proximity to international data connections and a plentiful supply of reliable electricity. It is likely, therefore, that the current vigorous level of local data centre development will continue. However, as with any major sphere of economic activity, data centre development attracts a mix of traditional and unique legal issues.

Specialist legal advice should be sought when seeking to finance, develop, acquire or procure services from data centres. For more information, please call a member of our Technology team.


The content of this article is provided for information purposes only and does not constitute legal or other advice.

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