June 27 (Bloomberg) -- Asian technology companies are set to follow Google Inc. and Facebook Inc. in putting data centers near the Arctic Circle to benefit from the lowest power prices in Europe, according to utility Vattenfall AB.
Internet services from China, Korea, Malaysia, Thailand and Indonesia will probably be next to take advantage of an expected record electricity glut in the Nordic region, Oskar Almen, vice president for business development at Sweden’s largest power producer, said by phone from Stockholm. Google opened a data center in Hamina, Finland, in 2011, while Facebook started its first overseas server in Luleaa, Sweden, last year.
Streaming services for movies, pictures and data are set to double global demand for server halls, requiring more than 500 terawatt-hours of power by 2025, or almost as much as Germany’s annual demand, according to Vattenfall. Energy use in Southeast Asia alone is expected to increase 80 percent by 2035, International Energy Agency data show.
“Local versions of YouTube, Google and Facebook exist in almost all Asian countries where English is not the major language,” Almen said in the June 25 interview. “With large populations and a strained power situation, these players will start to look for solutions in other places.”
Companies in need of more capacity are looking toward Nordic countries, attracted by a stable power grid as well as the chilly climate to keep equipment cool. With plans for more nuclear and wind generation, the region’s electricity surplus is expected to reach an unprecedented 50 terawatt-hours in 2025, or 13 percent of annual demand, according to Markedskraft AS, an analysis firm based in Arendal, Norway.
Consumption in the Nordic countries hasn’t returned to the levels reached before the financial crisis in 2008, due to a faltering base industry. Swedish wind power production gained five-fold since then, according to the nation’s statistical agency.
“We ask ourselves if this could be a new industrial era, where Sweden and the Nordics would form an international hub or cluster,” said Almen.
Vattenfall’s Chief Executive Officer Oeystein Loeseth has revised the company’s strategy to focus on the Nordic market after a write down of its continental assets by 29.7 billion kronor ($4.4 billion) and a 2013 net loss of 13.5 billion kronor.
Yandex NV, Russia’s largest search engine, will open a data center 60 kilometers (37 miles) from Helsinki this year, according to the Invest in Finland, a government agency that assists foreign investors. Vattenfall expects Asian companies to present similar plans within the next three to five years.
“Yandex will have a data center in Finland, and it is only a matter of time when Asian companies will follow and set up shop in the Nordics,” Jukka Manner, a professor in networking technology at Aalto University in Finland, said by e-mail yesterday. “I would be surprised if we didn’t see something happening by the end of the current decade.”
The average annual temperature in Luleaa, Sweden is 2 degrees Celsius (35.6 degrees Fahrenheit), with a peak of about 20 degrees in July, according to Norwegian weather service yr.no. That compares with a normal annual average of 26.5 degrees in Kuala Lumpur, Malaysia.
As many as 60 data centers of the same size as Facebook in Luleaa may be established in Europe in the next 15 years, according to Vattenfall’s Almen. The utility is working to get most of those servers in the Nordic area, filling a gap in consumption left by industry since the financial crisis.
Facebook plans to build a total of three server buildings in Luleaa, while Google is investing 450 million euros ($600 million) in two installations since taking over an old Stora Enso Oyj paper mill in Finland in 2009. Microsoft Corp. said in September it will invest 250 million euros in a new Finnish data center.
International fiber-optic connections are fast enough to offer services from Europe and the Nordic countries to customers in Asia, according to Tor Bjoern Minde, a research strategist at Luleaa University. The data transmission delay between the north of Scandinavia and Hong Kong is about half that for San Francisco to the Chinese city, he said.
Nordic year-ahead power prices slid 55 percent from a 2008 peak to close at 30.65 euros today on Nasdaq OMX Group Inc.’s commodities market in Oslo. That compares with an average 35.24 euros in the past year for Germany, Europe’s biggest power market.
Average annual prices will stay below 35 euros a megawatt-hour until 2020, Olav Botnen, a senior analyst at Markedskraft, said earlier this month at a conference in Stockholm.
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