How Iceland Is Reeling in its Newest Catch: Global Data Centers

For nearly three decades, the Danish Meteorological Institute (DMI) has placed its high-performance computers in its home city, Copenhagen. That changed earlier this year, when the group decided to install its next supercomputer 1,300 miles and half an ocean away, in Iceland.

Welcome to a cold truth about big computing: conventional data centers have historically required almost as much electricity to chill them as to operate them. If you can locate operations in an environment that is cool year-round, you could cut your power bill nearly in half. Unlike Denmark with its hot summers, Iceland’s Reykjavik area has a mild temperature range, averaging only 55 degrees Fahrenheit in the summertime and hovering at a forgiving 32 degrees in the winter, tempered by the Gulf Stream.

Add to that the country’s low utility bills and its unique green credentials—it generates all its electricity with renewable geothermal and hydro power (if you count water from melting glaciers as "renewable")—and the North Atlantic island-nation can be an alluring place to ensconce big iron.

It was all part of what attracted DMI to Iceland, along with a key partnership with the Icelandic Meteorological Office, which will host and operate DMI’s new $6 million-plus, two-cluster Cray XC supercomputer in Reykjavik starting early next year at 200 teraflops, and heading to 700 teraflops by early 2018.

DMI is hardly alone. German automaker BMW, credit card stalwart Visa, Norwegian browser maker Opera, London-based data center hosting firm Verne Global, a supercomputing consortium of Nordic universities called NHPC, Silicon Valley catastrophe risk modeling firm Risk Management Solutions (RMS), New Jersey-based data services company Datapipe, Hollywood computer-generated imagery (CGI) wizards RVX, numerous Bitcoin miners, and many other outfits over the last three years have set up compute-intensive operations in Iceland.

"Iceland is interesting because, for among other reasons, it has a supply of 100% green energy,  and it’s abundant," says DMI deputy head Jens Havskov Sørensen. DMI will rely on its Cray machine for many purposes, including climate modeling and weather forecasting for Denmark, Iceland, and Greenland. "They can produce as much energy as they want from geothermal and hydro power, and they have a climate which is ideal for the facility—we can expect free cooling year round."

The Long View

It was those reasons and more that convinced Verne Global to convert a disused NATO naval base in Keflavik (about 10 minutes from the country’s main airport and 30 miles from Reykjavik) into a data center, which it opened in February 2012. It is one of several data center operations hosting foreign companies in Iceland; others include Advania and Borealis.

Verne CEO Jeff Monroe notes that not only is electricity green and cheap in Iceland, but the local utilities are willing to offer long-term contracts that hold rates steady for as long as 20 years in some cases, which has considerable appeal in a world of volatile fossil-fuel prices. "We can get 20-year visibility into electricity prices. I defy you to find that anywhere else on the planet," says Monroe. Verne has landed clients including BMW, RMS, RVX, and Datapipe, and has more than doubled its size since opening, to around 150,000 square feet. The company’s main investor, health and science charity Wellcome Trust, is interested in sustainable computing for the many initiatives it supports, such as genome sequencing.

Utilities and users decline to reveal the exact electricity rates they are paying—prices tend to vary with different deals—but they consistently say the rates are low compared to other Western countries.  According to one ranking of 23 European countries that did not include Iceland, June household electricity prices in euro-cents per kilowatt-hour were highest in Copenhagen, Berlin, and Madrid at 30.62, 29.34, and 24.77 respectively,  and were lowest in Helsinki, Budapest, and especially Belgrade, at 13.28, 12.4, and 5.96. Industrial prices are different, but would reflect a similar spread; Iceland is believed to be near the bottom of the range, although not necessarily the absolute lowest.

"We are expecting a significant savings during the lifetime of the supercomputer," notes Thomas Lorenzen, DMI’s HPC system administrator.  "The prices in Iceland are expected to be less than half of what they are in Denmark."

When BMW announced three years ago it was moving certain high-performance computing operations into Verne’s Keflavik facilities, the company anticipated electricity savings of 82%. The carmaker uses the Icelandic center for crash simulations, aerodynamic analysis, computer-aided design, and other functions.

Think Twice

Iceland is not for everyone. Even Verne’s Monroe acknowledges that, noting transactions in which ultra-fast speed is of the essence are not suited for Icelandic hosting. While connections are fast via subsea fiber cables—two connect Iceland to Europe and one to North America via Greenland—the 19-millisecond latency between Verne’s Keflavik center and London are not swift enough to support financial transactions, for instance.

However, that leaves a big universe of other functions that would sit well in Iceland.

"The heavy number-crunching core computing is the piece that is really the sweet spot for Iceland," says Monroe. "And that’s a segment that’s growing rapidly because of digitization of the world and how many more companies can now do digitally what they used to do physically, like aerodynamic testing, which has traditionally required huge buildings."

Latency aside, another reason to think twice about locating in Iceland is that it would make it difficult to hop in a car and check on equipment if you are colocating as opposed to outright outsourcing, notes Tim Anker, founder of Guildford, U.K.-based data center broker Colo-X. "If it’s your hardware and you’ve got to support it, do you want to drive for an hour and get to the data center or do you want to drive to the airport and then fly?"

Issues of data protection and ownership also might deter companies from setting up in Iceland.

"Many companies prefer to locate their data centers within the EU for data protection and governance reasons, and may prefer Sweden or Finland instead," notes IDC analyst Andeas Olah, who points out that while Iceland is part of the European Economic Area, it is not part of the European Union.

"Any traditional enterprise that handles sensitive information is going to be a little skeptical about making that type of migration," concurs Sophia Vargas, an analyst with Forrester Research. By locating in Iceland, companies can potentially run into disputes over how to legally protect the data of a company based in another country, she says. For example, the EU’s highest court in October invalidated the 15-year-old Safe Harbor agreement under which the U.S. and European countries could store information for each other. European data protection activists had complained that personal data stored by Facebook in the U.S. was not adequately protected.

Iceland also faces competition from other cold-weather countries. Sweden is home to a huge Facebook data center, as is Finland to Google. Norway is also building data centers, such as the massive Lefdal Mine underground facility (IBM is a partner) and the Green Mountain center, situated in a former NATO munitions cave and powered by hydroelectricity.

Cold Bytes or Hot?

Cold weather countries are not the only places that can slash cooling costs. "There’s less to differentiate them now," notes Sophia Flucker, director of London-based data center consultancy Operational Intelligence. Breakthroughs in cooling technologies such as indirect air cooling can keep operations cool in warm climates, she points out, and computers are generally able to run at higher temperatures these days than they could five or 10 years ago.

Perhaps that is why Iceland’s government in June sweetened an already attractive set of incentives to lure industry to the windswept country of about 329,000 people, known economy-wise for fishing, aluminum smelting, tourism, and a 2008 banking crash. Among the enhancements: it lowered an already-low corporate tax rate from 20% to 15% and locked it in for 10 years; it waived import duties on suppliers of building materials to data centers (it had already waived duties on data equipment); it now allows depreciation down to 0% of value; it allowed municipalities to give property tax breaks to data centers, and gave companies tax breaks on social security.

"The competition is out there, so we have to act on it," says Einar Hansen Tómasson, data center project manager for Invest in Iceland, a joint government and industry body. He even debunks the notion that proximity is a problem, noting Iceland is well served by daily flights, in many cases several flights a day, to places including Boston and New York, and European cities including the EU’s big four data center locations (London, Amsterdam, Paris, and Frankfurt).

"There’s no place that competes with Iceland and ticks every one of the boxes," notes Verne’s Monroe, who cannot stop rattling off Icelandic advantages, including lesser-known attributes like an efficient electricity grid and the elimination of humidification costs that colder-weather countries can require in winter.

With that, he hopes to rack up additional customers from thousands of miles away to help add "data" as an Icelandic economic staple. 

Mark Halper is a freelance journalist based near Bristol, England. He covers everything from media moguls to subatomic particles.