Rising Energy Prices May Shock the Bottom Line of Colocation Providers

Trends That First Appeared in the UK Could Be Precursors to Price Increases Worldwide

A multitude of factors combined to impact energy prices in the UK and EU, and those factors provide important lessons about energy price considerations for data center owners and operators throughout the world. This short article examines why high energy prices are impacting certain colocation providers and what steps data center operators might take to mitigate the risk of increasing energy prices. Based on our analysis, after many years of low and stable energy prices, five key factors combined into a perfect storm to drive up electricity prices in the UK and EU.

Depleted natural gas storage levels: A cold 2020-21 winter led to suppressed storage levels in the summer and fall
Chinese energy demand surged: Fewer shipments of liquified natural gas (“LNG”) coming into UK and EU ports
A fire forced the closure of one of the UK’s largest power cables coming from France: Further crippled energy supply into the UK, as UK has only ~1% of total natural gas storage of all of EU
OFGEM price caps and legacy policies: UK regulatory body enables price cap changes bi-annually; lasting regulatory changes from 2014 increased total competitors, many of which are now being paralyzed as energy prices have become volatile
Russian restriction of gas exports to the EU: Additional upward pricing pressure due to heavy EU reliance on Russian gas imports