Data Center Investor’s Due Diligence
Before selecting the site for your data center, it is prudent to subject the candidate sites to thorough scrutiny (due diligence). Here, technical and legal aspects go hand in hand. The list of items to be checked will depend on the nature of the project. In this article, we highlight some central legal aspects.
As any building activity in Finland, a data center will require a construction permit from the municipality. The permit is granted based on the local zoning plans. Even if a local zoning plan already exists at the site, it may not, however, be sufficient for building a data center and, consequently, it may have to be run through the local organs for amendment.
Environmental permits are required for many data center projects, mostly due to their need to construct emergency power generators, but also with respect to their use of cooling water. Additionally, if water from natural water sources is used, a water permit is required. Further special permits may be required depending on the circumstances.
In Finland, one-stop permitting process is under preparation and expected to come in force in 2020. This would make the permitting process less burdensome, as multiple permits could be applied at the same time and go through the same process, compared to the current system where various permissions must be applied for separately, and they are granted by different authorities.
Power supply and connectivity
Finland’s power market is largely liberalized; industrial consumers can freely choose their power vendor. Large consumers may decide to purchase their power directly from the power exchange or via a wholesale agent.
It is also possible to procure power directly from a specific producer through bilateral contracts. Power purchase greements, PPAs, are becoming more popular for purchasing power for data centers. In 2018, Google contracted three wind power projects through a 10-year PPA to power its Hamina data center. Finland is part of the common Nordic power market Nord Pool, which facilitates direct procurement even from sources outside Finland.
Data center operators can decide to rely on renewable energies utilizing green certificates. The certificate system is voluntary in Finland. Green certificates can be acquired before or after the actual power purchase. Renewable energy is becoming more and more competitive with conventional power, and especially through PPAs the renewable energy costs are competitive with the costs of power from the grid.
One criterion for site selection can be the possibility to utilize waste heat. District heating has a strong standing in Finland, and at many sites it will be possible to make mutually beneficial arrangements with the local utility companies for what may be referred to as “combined data and heat”.
Data connectivity arrangements need to be made with one or several backbone operators, depending on the desired degree of redundancy.
Real estate development
How will you obtain control over the real estate that you have picked for your data center? The legal rules around real estate in Finland differ in many aspects from what an investor may be accustomed to. For example, the actual owner of a site may not always be visible in the real estate registers. And registrations of encumbrances on the estate may be scattered around a number of different registers.
Data center sites are often offered by municipalities or other public owners that prefer not to sell the site but rather grant a long-term land lease right. When established carefully (but only then), such right is sufficient for the data center operator in many scenarios. In particular, the lease can be fully transferable, it will entail that the operator has ownership of the buildings and equipment, and it can be used as collateral much the same as real estate ownership.