Why data centres are at the heart of Ireland’s digital economy


12 Oct 20201.83k Views

Leo Clancy, IDA Ireland. Image: Andrew Collings

IDA Ireland’s Leo Clancy discusses the growth of data centres in Ireland and the role they play in the country’s economy.

We spend increasingly large parts of our daily lives online. Data underpins the digital economy and data centres organise this data to help us connect, discover, communicate, work and learn with ever greater efficiency and impact.

This has never been truer than in the recent months of dealing with Covid-19. We have all depended on global technology platforms more so than ever and will continue to do so once the crisis ends.

Data centres can be thought of as the factories of the digital services age. Those companies that invest in data centres here don’t operate big factories full of people on assembly lines. They do however employ tens of thousands of people in Ireland who engage with the products from other locations.

In Ireland, recognising the growth potential of the emerging cloud industry, we worked hard to win some of the first European data centre investments from the leading players in the world. Key to Ireland’s pitch for this business was a visionary Government investment in telecommunications and a long-standing quality of our electricity grid, not to mention huge IDA efforts to win a position in a growing market. That we were first in Europe and continue to be is not an accident.

These were essential wins for Ireland. Marquee names such as Microsoft, Google and Amazon Web Services all invested in data centres here in the 2000s, when this industry was much smaller scale, followed by Facebook in 2015. The investments now made are huge and high impact.

For example, Facebook’s data centre investment in Clonee spent an average of €229m per annum over four years on construction from 2015 to 2018. According to a study IDA conducted in 2018, data centres contributed a total of more than €7bn of economic activity in Ireland over the previous seven years, directly and indirectly.

In addition to this direct impact, from IDA’s latest figures, we can see that more than 20,000 jobs are in the computers, electronics and optical equipment sector. These jobs would largely be supported by those who operate very large data centre infrastructure here. The national impact in terms of salaries alone is very substantial, for what are very high-quality jobs. Job levels at these companies continue to grow. In July 2020 Amazon announced 1,000 new jobs in Ireland, 18 months after Facebook said it was adding 1,000 jobs.

This growth could not have happened at this scale without Ireland winning and building out the data centres that accompany the business. We would not have centres of excellence in Ireland without these facilities.

Furthermore, in this emerging data economy, companies follow the success of others. As a result of large tech investment, Ireland is always ‘on the list’ for digital investments by companies across all sectors. Technology is pervading everything from pharma and food to cars and services and our credibility in this space puts us at the heart of that conversation as far as Europe is concerned.

This is a high-growth industry where we have a real advantage. In comparative terms, Germany’s automotive industry employs 1pc of population and has a huge footprint of factories. It is also an industry at risk of competitive shocks and decline. We have an industry that, in relative terms, employs around half that proportion of our population on a full-time basis (and many more for construction and services) but that is growing faster and is more secure than almost most other industries.

Benefit for Irish companies

The impact has been much wider than the billions of direct investments in Ireland and tens of thousands of multinational jobs.

Local Irish companies have won significant contracts outside the country. Around 80 Irish companies offer services in this space, not counting many companies who only supply local services, and Enterprise Ireland estimates that Irish firm exports annually are around €2bn in the data centre market across all suppliers. This would not have happened without the presence of foreign direct investment in Ireland.

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The Construction Industry Federation estimated in 2016 alone that Irish construction firms had €2.2bn of contracts for data centres outside Ireland.

Compare this to €13bn of food and drink exports (our longest established industry) and it’s evident this is an industry of growing scale for Ireland less than 20 years on from its starting point.

As Irish firms built the first world-class data centres in Europe, here in Ireland, they continue to win an outsize share of business elsewhere based on experience and reputation. This is one of a few areas where Ireland can claim a world-leading position that is important to a global-leading industry.

Sustainability

Data centres are often mentioned in the same breath as growth in Ireland’s energy or water demand, frequently in a very negative context. EirGrid has published figures that show different scenarios for growth in the coming years and data centre load is certainly a large component. Technology-related energy growth is a global phenomenon, primarily driven by those digitised products that we increasingly need.

Ireland has set some of the most ambitious targets in the world for renewable electricity, aiming to reach 70pc of supply from renewables by 2030. This plan was created with a full awareness of data centre loads. It will be challenging to achieve, but I believe that data centres are already contributing positively. Operators of these facilities intend to achieve the highest possible standards on all measures of sustainability and hold themselves to high account for both their own sake and the demands of their customers.

In line with this, all the ‘hyperscale’ data centre operators have committed to becoming 100pc renewably powered by 2025 globally, a more ambitious target than that we have set for ourselves in our Irish plan. We can harness that intent to assist us with achieving our Irish targets.

Amazon provides an excellent example of what’s possible here, purchasing power from three projects in Donegal, Cork and Galway totalling almost 230MW of power output. Crucially, these projects are not subsidised by the Public Service Obligation levy.

Facebook announced a similar project during August in Tipperary. This can certainly continue and have impact if the right conditions exist in Ireland as data centre companies continue to invest in sustainability to achieve ambitious renewable energy goals.

Some commentators have mentioned future costs of renewables related to data centres. What is often missed is that some commentaries have included the full cost of new renewable projects such as wind and solar farms. These are not direct state investments but private ones that are paid for by the people who buy the energy. They also represent jobs and investment in the communities where they are built.

That said, any industry worth having requires investment and robust, sustainable infrastructure, be that water, electricity, roads or land and buildings. The costs of these infrastructure are recovered by regulated rates from users including data centres. Investment generates jobs and future prosperity – it is important to weigh up the benefits as well as the costs of an industry for the infrastructure it requires and to understand the full context for it including economic and societal benefits.

By Leo Clancy

Leo Clancy is the head of technology, consumer and business services at IDA Ireland.