Singapore picks its data centre battle

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??This week: Singapore’s ability to maintain its status as a data centre hub and meet its climate goals will depend greatly on how far the country can green its electrical grid.

On May 30, Singapore launched its Green Data Centre Roadmap, which included plans to provide 300 megawatts (MW) of additional capacity in the near term and another 200 MW that could be available for operators that use green energy.

Singapore’s more than 70 data centres currently utilise about 1.4 gigawatts (GW) of capacity, so the newly announced expansion marks a capacity increase of more than 20 per cent.

Market intelligence firm BMI, however, said in a report soon after that “it is unlikely that the initiative will rekindle large-scale foreign investor interest in the Singaporean data centre market since neighbouring emerging markets are expecting over 2,500 MW of data centre capacity in the near-term”.

Singapore imposed a moratorium on new data centres between 2019 and 2022 over concerns about their environmental impact – data centres not only consume huge amounts of electricity, they also generate significant amounts of waste heat and use large amounts of water for cooling.

The moratorium led to an increase in data centre investments in other parts of the region, including Malaysia and Indonesia.

In its response to BMI’s report, Singapore’s Infocomm Media Development Authority said that the country “remains attractive” as a business and digital hub.

The Roadmap noted that Singapore’s operational data centre capacity per capita exceeds that of Australia, China, Japan, South Korea and the UK and the key data centre markets in each of those countries.

If absolute capacity is the yardstick, it’s unlikely that land- and resource-scarce Singapore will be able to claim the top spot in Asia.

The growing digital economy and the rise of artificial intelligence are fuelling immense hunger for data centres, and Singapore simply won’t be able to supply all of that demand.

At 1.4 GW of capacity, Singapore’s data centres already gobble up 7 per cent of the nation’s total electricity consumption. Water for cooling, too, is a scarce resource in Singapore.

Furthermore, Singapore is too expensive of a location to build too many data centres.

A Cushman & Wakefield report placed Singapore as having the highest land cost in the Asia-Pacific for medium-range and high-range data centres. Construction costs in the city-state are the second highest in the region, behind Japan.

A separate report by CBRE said in the current high-cost and high-demand environment, “ESG remains on (data centre) investors’ agenda but the lack of assets for sale means investors are more focused on pricing and underwriting rather than issues that, while making for good optics, aren’t necessarily essential”.

A closer look at Singapore’s Roadmap suggests Singapore isn’t trying to play the absolute capacity game, though. Instead, Singapore is positioning itself as a market in which sustainability solutions can be tested and pioneered.

It’s a well-worn playbook for the country, which has had to shift its manufacturing sector towards innovation and high-value products in the face of lower-cost competition elsewhere in Asia.

Singapore would rather aim for the better-paying research and development jobs required to build solutions and create standards than compete in the commoditised parts of the data centre space – where Singapore will lose against lower-cost rivals.

Even though, as CBRE pointed out, data centre investors may have placed ESG on the backburner, the large, institutional data centre users have their own ESG constraints and targets that are not as easily dismissed.

Sustainability remains on the agenda in the medium to long term for the data centres.

Singapore is placing itself smack in the middle of that global sustainability challenge, with a strategy familiar to anyone who’s spent any amount of time with the country’s foreign direct investment agency.

There’s the usual flaunting of the country’s stability – in this case not just in terms of the government and society, but also the relative lack of earthquakes and a robust power grid. And no Singapore call to arms would be complete without the ecosystem approach, garnished with a smattering of government grants.

The wild card is whether Singapore can supply enough green electricity to keep the data centres running while keeping within the national emissions budget.

The country aims to achieve peak emissions by 2030, and net zero by 2050. About 39 per cent of the country’s 53.7 million tonnes of carbon dioxide equivalent emissions in 2021 were generated by the power sector, and a data centre’s emissions mostly come from the electricity it consumes.

Singapore’s energy transition focuses on three prongs – green hydrogen imports, green electricity imports and the potential development of alternative renewable energy technologies such as nuclear or geothermal.

Because all of these pathways are still in their early stages, it’s still uncertain how the eventual energy mix for Singapore will look like.

Until then, Singapore is hoping it can have its data centres and sustainably run them, too.

??Top ESG reads:

1. Climate Impact X, the carbon exchange backed by Temasek and Singapore Exchange, has named chief operating officer Mark Glossoti as interim chief executive from Jul 1. He will replace Mikkel Larsen, who is stepping down to focus on his family.
2. The global community must move away from assigning blame and liability for the climate crisis, and towards collaborative investments in clean economies, says Singapore President Tharman Shanmugaratnam.
3. There are 12,900 large merchant vessels that could be retrofitted up to 2030 to work with clean fuels, Lloyd’s Register estimates.
4. With proper standards and incentives, transition bonds can give companies in hard-to-abate sectors a chance to change, says OCBC credit analyst Andrew Wong.
5. Singapore’s commitment to decarbonisation could imply a major shift away from the fossil fuel businesses that have formed a key industrial pillar for its economy, says Janice Heng of The Business Times.

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