Data Center, USN | Will investment in data centers create more jobs and create increased value in the Ringerik region?

Data Center, USN |  Will investment in data centers create more jobs and create increased value in the Ringerik region?

Chronicle This is a history, written by an external contributor. The record expresses the positions of the writer.

Low household incomes and tax receipts well below the national average mean that it is absolutely essential to create more jobs while creating higher value in the Ringgreek area. This is to ensure future well-being and good living conditions in the area. Our analyzes, which were conducted as a USN Spring 23 master’s thesis, show that investing in data centers in the region will be able to provide more jobs while creating higher value.

In order to see the issue from different perspectives, we chose to perform analyzes within four different theoretical approaches. Collectively, analyzes within strategy, accounting, finance and social economics concluded that investing in data centers can create more jobs and increase value creation in the region. This is despite the fact that our analyzes also showed a decline in overall profitability in the industry. However, in our analyses, we did not consider alternative uses of energy and areas. It also means that analytics does not provide a basis for assessing whether data center investment is the industry that will be able to provide the greatest job growth and value creation. Analyzes were conducted on the basis of national data, interviews and reports.

Strategy approach:

Based on a strategic analysis using Porter’s Five Forces model, we have discovered that the data center industry is a young industry and has a limited customer base. This leads to high competition to attract customers. However, we conclude that Ringerike will be able to carve out its own niche as a data center area. There are not many threats from customers, suppliers and substitutes in this market.

Energy is a scarce resource and a critical input factor for data centers. Data centers use large amounts of electricity related to cooling and operating equipment. This use of electricity has been the subject of debate and opposition.

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Already in 2016, many experts estimated that data storage and transmission to and from data centers account for 1% of all electricity consumption in the world. Projections indicate that this consumption will rise to 3.2% of total demand by 2030. The Norwegian data center industry estimates that its electricity consumption is about 0.8% of total electricity consumption in Norway, which was 146 TWh in 2022. With a forecast of 17% per annum Growth, Norwegian data centers will eventually account for 3.6% of total electricity consumption.

However, it is important to note that data centers also generate large amounts of excess heat which, with proper planning, can be reused for other purposes. This heat can be used for district heating, drying of biomass, grain, sawdust, and other industrial processes. This reduces the need to purchase additional electricity or reduces the energy consumption of other industries, which helps lighten the power grid.

Accounting approach:

We have used the main numbers as an analysis tool based on the accounting approach. Historical analysis of key figures in the data center industry shows that financing, which deals with the company’s asset composition and solvency, which describes the company’s ability to withstand losses and is closely related to financing, is satisfactory. At the same time, liquidity is also satisfactory, which is related to the company’s ability to pay. However, profitability, which is one of the most important key figures, is not entirely satisfactory in the short term. But since solvency and liquidity are positive things, it is possible for the industry to be satisfactory in the long run.

Here we see that profitability in the general data center industry is low. It may be that focusing on other industries and industries creates higher value creation, more jobs, higher wages for employees and higher tax revenue. This is due to the current low profitability in the data center industry.

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Funding approach:

Based on the financial approach, we made an evaluation of a concrete project in the Ringerik district. This is as a test to see if it is profitable to invest in data centers in the region. Here we used real options as an analysis tool. After calculating the net present value (NPV) using the traditional valuation method, we found out that the NPV gave a negative result. But using the real choice method for project evaluation, which takes flexibility into account, the result was different. We calculated three types of options, and gave all three positive values.

The present value of the project without elasticity was -23,432,000. However, when we included the wait time option, the project value increased to 72,395,000. Taking into account the flexibility to expand the project by 30%, the value increased to 104 425,000 On the other hand, by reducing the size of the project, the value decreased to 26,747,000.

Socioeconomic Approach:

The data center will have ripple effects in Ringerike. We based our calculations on national figures and generalized them to the data center at Nedre Kilemoen. The initial capacity of the data center is 5 megawatts of power consumption. This will contribute NOK 144 million to Norway’s GDP and will create a total of 113 jobs, of which 87 will be direct and indirect jobs in 2024. The data center will impact both direct and indirect, induced and motivated areas within the business world. Compared to a large-scale data center, this type of data center (co-location) has a significant economic impact on Ringerike municipality.

Some points of reflection regarding the master’s thesis and the data center industry

  • One point that may face criticism in financial analysis is the claim that the inclusion of flexibility will exclusively increase the value of the enterprise. However, the results of real option analysis may lead to overestimation. Decisions made in the analysis are favorable, but it is important to be critical of the results. This is because real option analysis is based on many assumptions that can provide incorrect information. In this task, we used some assumptions, and it must be borne in mind that these assumptions do not necessarily apply in reality. The key thing about this analysis is that even if the classical net present value (NPV) is negative, a data center is a long-term investment. It may be possible for the project value to be positive using the real option method.
  • Although we have shown that building data centers can be a good solution for creating more jobs and creating increased value, it would be interesting to conduct similar studies for other energy-intensive industries as well. Effective allocation of resources is important from an economic perspective. By using electricity and labor in a different type of production within the energy-intensive industry, better profitability can be achieved for the municipality.
  • National security is an important aspect of setting up data centers in Norway. Without data centers in the country, we would have to use data centers abroad, and this necessarily entails the transfer of data outside the borders of Norway and thus possible exposure to foreign systems. In 2022, the NSC expressed concern that regulation was not good enough. However, the government has recently introduced stricter regulations. This means that the industry will be subject to regulation. All data centers using more than 100 kW of electricity must now be registered. The registration obligation also entails reporting the purpose of these data centers.
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Hanisi Anenih

Hanisi Anenih

"Web specialist. Lifelong zombie maven. Coffee ninja. Hipster-friendly analyst."

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