$700m data centre for Southland: Proposal could hinge on an age-old question

Rich Lister Malcolm Dick and business partner Remi Galasso are proposing a giant, $700m data centre for Southland, which could pick up some of the slack from Meridian’s Manapouri Power Station if Rio Tinto does close its Tiwai Point smelter.

But although a high-tech twist for the region, it would involve an age-old question: should taxpayer-subsidised power be part of the deal?

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  • Paul Brislen: Rio exit could have a silver lining
  • $300m data centres for Hobsonville, Silverdale

A Muldoon-era aluminium smelter and a data centre for the cloud computing age come from different industrial ages, they have a key element in common: both are huge power hogs.

Barring a last-minute change in policy, Rio Tinto says it will close its smelter at Bluff in August next year. Its decision came as government snubbed a demand to double its annual power subsidy to $60m.

Is Dick’s server farm project, dubbed Datagrid, also looking for subsidised power from Meridian (the power company 51 per cent owned by the Crown, with the balance of shares listed on the NZX)?

Would there need to be subsidised electricity, at least initially, to help kick things off, the Herald asked Dick this morning.

“It is part of a commercial negotiation,” the rich-lister replied.

Meridian released a press statement saying it would partner with Datagrid on the project.

But a spokeswoman confirmed the power company had made no filing to the NZX about the possible project. “The announcement wasn’t deemed material,” the spokeswoman said.

New Zealand has had so far had a dearth of “hyperscale” (1000 square metres-plus) data centres, with almost all of our cloud computing reliant on links to data centres across the Tasman, or in the US.

But in October, CDC, 48 per cent owned by NZX-listed Infratil, revealed it had broken ground on a $300m-plus build that will see two hyperscale data centres: a 7000sq m server farm in Hobsonville in Auckland’s northwest, and an 11,000sq m effort in Silverdale, north of the city.

Data centres are power hogs and often classified by the amount of power they consume. Infratil says both Hobsonville and Silverdale will be “20 megawatts-plus” between them after they open in 2022.

CDC has been the fastest-growing asset in the Infratil group as the working-from-home boom has accelerated growth in the already hot cloud computing market – which requires huge data centres, and the closer the better for performance.

The CDC announcement came on the heels of Microsoft gaining Overseas Investment Office permission to open a hyperscale data centre in Auckland whose budget will be somewhere north of the OIO’s $100m approval threshold (CDC and Microsoft partner closely in Australia; neither has commented yet on whether their Auckland projects will be interconnected).

Auckland was the obvious location for CDC and Microsoft because of its proximity to international submarine fibre optic cables, and because the North Shore is home to NZ’s largest internet peering exchange.

But this brings us to the second part of Dick and Galasso’s data-centre plan: laying a new submarine cable to connect Invercargill directly to the east coast of Australia.

This is an area where the pair have experience.

French telco industry expat Galasso spent half a decade trying to drum up investor interest in Hawaiki Cable, a proposed second trans-Pacific cable that would take on the monopoly of the Southern Cross Cable, 50 per cent owned by Telecom at the time (Spark now owns around a third, having roped in Telstra).

He eventually landed backing from Dick – who had recently sold CallPlus Group to the company now known as Vocus for $250m – and a second rich-lister, Sir Eion Edgar, and convinced the Government to take an anchor bandwidth contract worth up to $65m. Dick, in turn, roped in 2degrees founder Tex Edwards, and suddenly it was all on.

In 2018, a $445m build was complete and the Hawaiki Cable entered service. Galasso had confounded the expectations of sceptics (including this reporter).

Now, the pair are hoping to do the same with Datagrid.

The vision is for it to be a 60 megawatt, 25,000sq m facility.

The Meridian statement released this morning says, “It is anticipated to scale to a 100 megawatt, 40,000sq m facility within several years, covering an area of more than five rugby fields and consuming as much power as a town of 80,000 people.”

That would make it far-and-away the largest data centre in New Zealand, if still modest by US standards (the largest data centre in North America is some 724,000sq m).

But Dick says NZ has an edge because Google, Amazon, Facebook, Apple and other big tech companies who are heavy data centre users have goals to be carbon-neutral – and only New Zealand, with its hydropower, can efficiently deliver that.

“Data centres are a huge growth area worldwide, with a forecast expenditure of $200 billion on infrastructure next year. But most of them are not carbon-neutral which is a real concern looking forward,” Dick told the Herald today.

“New Zealand has a real opportunity to build a carbon-neutral data centre in a politically stable environment. Apart from the local Australia/New Zealand market, there is also appetite for remote replication and data storage in stable, politically safe havens like New Zealand.”

Meridian’s Generation and Natural Resources GM, Guy Waipara, said in a statement that the Datagrid project demonstrates how New Zealand’s strong advantage in renewable energy can deliver economic benefits over the long term.

“A low-emissions data centre is a huge opportunity for Southland and all of New Zealand to leverage our abundant clean energy to create high-value jobs and diversify our economy even more into the digital space,” Waipara said.

“This project complements the power which will be available from the Manapōuri station after the exit of New Zealand Aluminium Smelters at Tiwai, and it’s great that the demand for it will remain in Southland.”

One report had Datagrid’s data centre opening as soon as 2023.

When approached by the Herald, Dick said, “We haven’t got an exact timeline, but are progressing the project and should have a clear one first quarter next year after completing discussions with all interested parties.”

The plan is for Datagrid’s facility to be constructed at a site in Makarewa, a small town about 7km north of Invercargill.

Asked if Datagrid had secured land for the build, Dick said, “We have options to purchase sufficient land for 100mwcapacity.” That is, the aforementioned five rugby fields’ worth.

Galasso said the data centre would cost $530m (US$400m), with the new cable accounting for the balance of the circa $700m project.

The Frenchman said the new cable to Australia would mean Datagrid could serve a market of around 20m people across NZ, Victoria, New South Wales and parts of Queensland at low latency (the lag that can bedevil longer cable connections).

A number of revitalisation projects have been favoured for Southland to fill the gap after Rio Tinto’s withdrawal, from pāua farming to a hydrogen plant at Tiwai – an idea recently championed by Meridian CEO Neal Barclay, and viewed by Energy Minister Megan Woods as a potentially significant export opportunity.

Woods kept a neutral line today, saying there were “a range of exciting possibilities for Southland and the use of its formidable renewable energy resource.”

But Dick says it’s not a matter of hydrogen vs data.

“I don’t believe they are mutually exclusive at all. We will only be using 100mw of spare capacity, of which there could be a significant surplus when the smelter closes down,” he told the Herald.

Manapouri has up to 800mw capacity.

Paul Brislen, who first championed the idea of a data centre filling the Tiwai breach back in April, is hoping Datagrid gets over the line.

“New Zealand is well placed to do this kind of thing. We’ve been talking about it for a decade or so, finally reality is catching up with the vision,” the tech commentator said today.

The Southland location makes a lot of financial sense for Datagrid.

Most server farms spend more on air-conditioning to cool their racks of tens of thousands of servers than they do to power the computers.

But with Makarewa’s average annual temperature below 10 degrees, the reverse would be true for Datagrid’s facility.

It would also be relatively low cost to run because, like all cloud-computing data centres, it would be largely automated.

Once built, it would only require around 25 staff to run, Dick and Galasso say.

That’s not great news for a region where the Tiwai smelter directly or indirectly keeps around 2600 people in work.

And neither is 25 jobs a great bargaining chip if you want subsidised electricity from a power company that’s majorly-owned by the Crown.

Meridian shares were up 3 per cent to $6.73 in late trading. The stock is up 30 per cent for the year.

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