Data centers – A Case for New Zealand

Overview

Over recent years, New Zealand has attracted interest as a viable location for data centers. Recently, this interest is heating up as data centers become one of the hottest global sectors, with exciting implications for infrastructure and real estate. With the pandemic-driven demand for remote working and its knock-on effect on internet use, storage requirements, data management and the wider adoption of 5G, the spotlight is now on emerging cities and countries favored by hyperscale data center providers. New Zealand’s geographical advantages, renewable resources and economic and political stability make it an ideal location to meet the demands of these billion-dollar projects.

Global Players

In May 2020, Microsoft announced plans to set up two data centers in Auckland, making it the first hyperscale provider to do so. Amazon Web Services (AWS) quickly followed in September last year when it announced its USD7.5 billion plan to establish at least three data centers in Auckland. This project will make Auckland one of 25 AWS data center regions in the world. Other key players such as Datagrid, Canberra Data Centers (partially owned by Infratil) and DCI Data Centers also have numerous projects underway.

Why New Zealand?

New Zealand’s key competitive edge lies in renewable energy. By international standards, a relatively high proportion of New Zealand's electricity is generated by renewable energy resources. 

Data centers consume immense amounts of electricity, making them the target of heightened scrutiny in this age of global concern about greenhouse gas emissions. There is significant pressure on tech players to meet Environmental, Social and Corporate Governance (ESG) objectives. New Zealand's focus on making renewable energy increasingly available offers data center providers the opportunity to reduce the environmental impact of their higher energy demand.

Geographically, New Zealand’s moderate climate also promotes energy efficiency because less power is required to combat the heat generated by these data centers and keep them running at their operational temperature. The availability of large areas of bare land means it is also comparatively cheap to acquire suitable sites, particularly in the South Island which, conveniently, is also home to New Zealand's main hydro-power dams.

New Zealand benefits from economic and political stability, and its management of the COVID-19 pandemic has earned it global recognition as a safe haven for international investment. The government's support of international investment makes it easy for overseas businesses to set up shop there. While Overseas Investment Office consent is required for certain acquisitions, overall, the general approval process is not considered an onerous undertaking, and foreign investment rules are favorable. Data centers are also garnering support domestically in recognition of the benefits they bring to New Zealand.

New Zealand is also seen as a relatively safe country in terms of its legislative approach to data protection – in particular, it benefits from an “adequacy decision” under Article 45 of the general data protection regulation (GDPR), making New Zealand data centers an ideal backup or redundancy site for data exported from the EU/UK (though the adequacy decision is currently under review). Additionally, New Zealand public sector agencies' ability to access data held in New Zealand is more tightly regulated than jurisdictions such as the US.

Locations of interest

So far, the North Island has been favored due to its strong infrastructure and established metropolitan centers. Once construction of the Hawaiki Nui and Humboldt Cables are completed, greater interest in the South Island as a location for data centers is likely to follow. Together these cables will connect Invercargill, Dunedin and Christchurch with Los Angeles, Singapore, Jakarta, Chile, and other major cities.

Datagrid has already shown foresight in announcing its plan for a USD700 million data center on approximately 43 hectares just outside Invercargill. The South Island is well positioned as an attractive location for data centers with its cool climate, substantial renewable energy resources, available land and ongoing investment in infrastructure.

Looking at AWS’ existing Data Centre locations, there is a wide global spread with a bias towards the major centers in the respective countries (Cape Town, Sao Paulo, Jakarta, Frankfurt, London, Tokyo, Osaka). AWS seems to be following this trend by choosing Auckland as the site for their data centers in New Zealand, though there is opportunity for expansion into the South Island.   

Other views

New Zealand has a rich history as a country of innovators and early adopters. With the increasing uptake of technology requiring low-latency network architecture (such as IoT devices and applications), onshore data centers are a welcome development for New Zealand businesses and consumers.

Domestically, there is an eagerness for greater data sovereignty and for New Zealanders' data currently held overseas to be repatriated – a prime example being vaccine records and health data. The domestic branch of KMPG has already announced its plan to migrate its cloud services from Australia to Microsoft’s data center in Auckland once constructed. Other major customers such as BNZ, Fonterra and Spark have done the same. However, despite re-locating to New Zealand, there are still concerns that these international companies are unable to guarantee that New Zealand data is safe from overseas governments. Similar sentiments are echoed by Māori organizations with a strong preference for domestic providers whose values align with theirs.

There are also concerns around the transparency of domestic data center projects. Commentators have demanded more detailed plans from these tech companies on how much electricity these centers will need and how these needs will be met. Some have gone one step further to argue that these companies should also invest in utility-scale renewable energy projects to power their data centers.

Closing comments

Now that companies such as Microsoft and Amazon have publicly announced their investment in New Zealand, other hyperscale providers will follow to not lose market share. This is just the start.

Perhaps the global trend towards increased data usage has necessitated expansion into this area but New Zealand offers a compelling business case for other key players looking to locate there.