Grand Falls Windsor Data Center Site Evaluation. Excite Corporation Grand Falls Windsor, NL, Canada

Transcription

1 Grand Falls Windsor Data Center Site Evaluation Excite Corporation Grand Falls Windsor, NL, Canada

2 Table of Contents Contents 1. Introduction & Background Summary of Findings Assumptions Evaluation Criteria and Site Analysis... 3 Tax and Regulatory Criteria... 3 Energy Cost, Source, and Availability... 4 Telecom/IT Connectivity... 5 Water and Wastewater... 5 Land Availability and Building Cost... 6 Climate and Natural Hazards... 6 Workforce Availability... 7 Other Factors Financial Analysis... 8 Assumptions... 8 Observation and Conclusions Area Maps References and Supplemental Research PN _Report COPYRIGHT 2011 BY CH2M HILL COMPANY CONFIDENTIAL Page 1 of 15

3 1. Introduction & Background CH2M HILL s Industrial and Advanced Technology Business Location Analysis group was contracted to perform an independent evaluation of a potential data center site in Grand Falls-Windsor (GFW), Newfoundland and Labrador (NL), Canada. CH2M HILL was selected based on our site selection experience and our understanding of data center design and operating economics and site selection requirements. CH2M HILL visited GFW and the selected site area, interviewed specialists, and conducted a financial analysis (without incentives) of the site as compared to similar sites in competing locations. 2. Summary of Findings The table below summarizes GFW s strengths and challenges as a potential data center location compared to competing locations analyzed as part of this study. Factors that require additional information and evaluation to determine whether they are strengths or challenges are listed in the Insufficient Data column. All data and information on GFW was provided by local economic development officials. CH2M HILL staff traveled to GFW to tour the area and the potential site and to hold meetings with officials, but CH2M HILL did not independently verify data and information provided by GFW. Strengths Insufficient Data Challenges Inexpensive electricity Low carbon/green power Cool climate and potential for lower cost mechanical cooling systems Low infrastructure disruption risk from natural disasters and extreme weather Good reliability from nearest electrical substation Good national and international network connectivity and transcontinental connections outside of U.S. Lower Project Net Present Value of costs than comparison locations (before incentives) Degree of relative incentive impact (e.g. GFW/NL incentives compared to competing locations) Site geotechnical conditions influence on construction cost Perception of greater travel time from major North American metropolitan areas than some comparison locations Perception that local government is not as ready or familiar with large fast-track data center projects as comparison locations 3. Assumptions A reference data center with the following characteristics was developed to allow for analysis of the GFW site s competitiveness against potential competing locations: 10 MW IT Load serving a cloud-compute market month build-out period Approximately $200 Million total investment in the first two years (building and IT equipment) 100,000 square feet (sf)/9,000 square meter (sm) building on a 15 acre site Employing 20 full time equivalent employees with average salary of approximately $60,000 Canadian Locations against which the GFW site was compared: Toronto, Canada New York, USA PN _Report COPYRIGHT 2011 BY CH2M HILL COMPANY CONFIDENTIAL Page 2 of 15

4 New Jersey, USA Washington DC/Virginia, USA Incentive packages offered by each government were not analyzed because a specific incentive package for the GFW site was not available. However, discussions with provincial and municipal government officials indicate that incentives are available in the form of wage rebates, training and relocation allowances, and grants and loans to offset capital equipment costs. These incentives, as well as those available through the Provincial Government s EDGE Program are negotiated on a case-by-case basis. However, based on the requirements to qualify for the EDGE Program and verbal support from GFW and NL representatives, a project similar to the reference data center used in this report is very likely to qualify for government support. 4. Evaluation Criteria and Site Analysis Many factors affect a data center s location selection. These factors are described below, along with CH2M HILL s evaluation of the GFW site for each factor 1. Tax and Regulatory Criteria Global data center companies attempt to locate facilities in jurisdictions whose tax and regulatory climates benefit their business model. The short useful life of IT equipment in data centers results in very high ongoing capital reinvestment to keep data centers IT infrastructure efficient and competitive. In fact, it is not uncommon for data operators to reinvest 50 percent of their original capital investment in equipment upgrades every three years. The high levels of capital investment and rapid asset depreciation cause depreciation rules and property tax policy to have a significant impact on project NPV of costs between locations. The following taxes and accounting methods often vary significantly between locations: Sales tax Value Added Tax (VAT) Real and Personal Property tax Corporate income tax Depreciation methods on building and equipment The financial impact of each type of tax is projected in the financial analysis in Section 5. Based on input from local tax advisors, the GFW and NL tax assumptions used are as follows: HST/VAT that is applicable in GFW and NL is assumed to be fully recoverable and therefore zero net cost in the model. Different rules that apply to financial institutions were not considered in this analysis. Property and business taxes as follows: $10.25 commercial rate and an $8.00 business tax rate per $1,000 of land and building assessed value, and no property tax on personal property (equipment). Under the Provincial Government s EDGE Program incentives, these taxes would be rebated 100% for 15 years, followed by a five year rebate phase out period. Corporate income tax was calculated for each location using specified depreciation methods for building and equipment. For GFW and NL, building depreciation method is 4% per year, using a halfyear convention. For equipment, the infrastructure equipment category was assumed with 30% annual depreciation using a half-year convention. Income tax rates assumed are shown in Section 5. Under 1 For more details on these criteria, please see Viability of Data Centers in Newfoundland and Labrador produced by CH2M HILL for the NL Department of Business in October 2010 PN _Report COPYRIGHT 2011 BY CH2M HILL COMPANY CONFIDENTIAL Page 3 of 15

5 the Provincial Government s EDGE Program incentives, provincial corporate tax and payroll tax taxes would be rebated 100%, and federal corporate taxes rebated 50% for 15 years, followed by a five year phase-out of such rebates. In general, the tax climate of GFW and NL is more favorable to data centers than other locations. However, many competing locations also have tax abatements, tax holidays, and special depreciation schedules to become more competitive in data center recruitment, and the relative impact of incentives is not included in our analysis. Discussions with provincial and municipal government officials indicate that Grand Falls-Windsor/NL can offer financial incentives to data center companies beyond those available through the EDGE Program. Another potential regulatory advantage of GFW/NL is that it is located on major North American fiber routes that may not be subject to U.S. Patriot Act. Energy Cost, Source, and Availability Energy costs are a significant consideration in data center location due to their high energy consumption. The most competitive locations in North America have available power below $0.05 per kilowatt hour (kwh). The energy generation source is also an increasingly important factor, as companies prepare for potential carbon reduction or carbon tax legislation, and look to leverage green energy sources for public support. In addition to energy costs and generation source, reliability is also a factor, as highly reliable energy connections can create opportunities to reduce a data center s investment in back-up generators and UPS equipment and the risk of downtime. The GFW site is currently un-serviced (does not have onsite connected electric infrastructure or other improvements). The nearest substation, Stony Brook Terminal Station, is approximately 10km south (see map 2). If power were delivered directly from this substation via new transmission lines, energy could be bought directly from Newfoundland & Labrador Hydro at the current Industrial rate of $ per kwh with demand charges of $6.68 per month per kw of billing demand (based on anticipated annual maximum requirements). An annual Rate Stabilization Plan Adjustment (RSP) also can apply to levelize variation in hydraulic production, fuel costs, and load, slightly increasing or decreasing rates from those listed above. The cost to build these new transmission lines and terminal station dedicated to the data center (estimated to be 4 to 10 million CAD) would be borne by the data center tenant, including maintenance and operations cost of that infrastructure. Newfoundland & Labrador Hydro has stated that other financing options may be available; however these options and their potential cost variance have not been evaluated. Another option for electricity is to wheel power through Newfoundland Power s transmission lines already adjacent to the site (see map 4). In this case, General Service rates would apply with demand charges of $7.08 per kva (December to March) and $5.58 per kva (remaining months) and energy charges of $ per kwh for the first 100,000kWh, and per kwh beyond. While new transmission line construction cost would be avoided, a terminal station would still be required. Power in Grand Falls-Windsor, like Newfoundland Island as a whole, comes from approximately 80% hydroelectric sources, and is planned to be near 100% hydroelectric in 2016 after completion of the planned Lower Churchill Falls project and a high voltage direct current link to the Mainland is operational. The additional electrical load of a data center (based on the reference case for this project) is not anticipated to stress local power utilities, or influence rates. The availability of green power in GFW may be seen as a cost savings to companies concerned about potential carbon reduction or carbon tax legislation in the US and existing carbon-related taxes in the European Union. PN _Report COPYRIGHT 2011 BY CH2M HILL COMPANY CONFIDENTIAL Page 4 of 15

6 Electrical service reliability statistics from the supply lines to the Stony Brook Terminal Station over the period 2006 to 2010 are excellent. Newfoundland and Labrador Hydro reports that the Stony Brook Terminal station experienced zero outages over this period and is fed from 4 redundant 230kV transmission lines. Telecom/IT Connectivity Data centers site selectors desire access to high-capacity fiber routes with capacity, multiple telecommunication carriers, and multiple physical fiber lines to ensure competitive rates and reliable service should one carrier have a service interruption. The GFW site is not currently serviced by fiber, but can reportedly access fiber lines from multiple telecommunication carriers. Bell Aliant s offices and local fiber hub is very close to the site. Bell Aliant operates two physically diverse fiber routes connecting the island portion of Newfoundland and Labrador to mainland Canada, and a third secure fiber route across the Gulf of St. Lawrence with connectivity to Montreal, QC, and Toronto, ON through Halifax, their regional communications hub. Latency from St. John s was reported with the following measured millisecond (ms) times provided as examples (UK via Hibernia Atlantic): Halifax - 19 ms Montreal - 44ms Toronto - 43 ms Boston - 38 ms Chicago - 62 ms Ashburn - 44 ms London - 83 ms Eastlink, part of the Transgulf Consortium, reports that Grand Falls-Windsor is within a few kilometers of their network backbone currently lit with a 40 wave DWDM service that is 10, 40 and 100G capable. They also have multiple dark fibers available on their ring, although strand counts were unavailable. The Provincial Government has rights to some dark fiber on this network. The Eastlink backbone interconnects back into their National network with connections into all the major Canadian Carrier Hotels such as 1250 Rene Levesque, 151 Front Street and 555 West Hastings, as well as connections into the US. Latency to major hubs nearby was reported as: Halifax - 16 ms Toronto - 40 ms Rogers Communications, also part of the Transgulf Consortium, also provides telecom connectivity in the area of Grand Falls-Windsor. Both lit and dark fibers are available connecting to Roger s fiber networks across Canada. According to a representative of the company, Rogers supports full Metro Ethernet Forum specifications for Ethernet access with speeds from 10Mbps to 10,000Mbps and can provide direct connectivity to several major cities in the US and Canada with latency around seven microseconds per route kilometer. Water and Wastewater Climate and data center design drive water consumption, but all designs require some level of water and wastewater services for employees, cooling, and for fire protection. Adequate water and wastewater discharge capacity has been reported by local economic development officials in proximity to the site (see map 4). Plans for improvements in the wastewater system are in place to keep pace with anticipated PN _Report COPYRIGHT 2011 BY CH2M HILL COMPANY CONFIDENTIAL Page 5 of 15

7 development of the area around the proposed site. These system improvements are to be scheduled based on development timelines. The GFW sewage treatment facility is indicated on map 2 below. Water and wastewater costs in GFW are not metered and based on usage, but instead evaluated as a 3 mills (0.3%) tax on assessed property value (land and building) plus a $350 flat rate per year. It is unknown whether the planned improvements will impact water and wastewater cost, but no increases beyond regular periodic Municipal tax increases are currently anticipated. More detailed assessment of how the site would be serviced by water and waste water would likely be required prior to any data center investment in the GFW site. Land Availability and Building Cost Data centers prefer large, level, relatively rectangular sites. Land should be free of barriers to development, and zoning should allow data centers. The site should be free of environmental restrictions that would restrict data center site development and the site surface and geotechnical conditions should not require costly site preparation or foundation systems. The GFW site is part of a large area of currently un-serviced Crown Lands. As long as the land remains un-serviced, it may be sold by the town of GFW for $1 through the Provincial Government s EDGE Program. The site is zoned Industrial with no immediate existing neighboring uses, but if development proceeds according to the current plan, neighboring uses would likely be light industrial. Nearest existing neighboring properties include a large warehouse, career college, equipment rental, gas station, and courier service (see map 4). Land availability does not appear to be a constraint. Residential/commercial power lines run along the NW and SE edges of the site. A multi-use trail runs along the edge of the larger Crown Lands area, but not adjacent to the GFW site. To the west of the Crown Lands area is a nature trail area (Corduroy Brook), and to the east are residential lots, though neither with shared boundaries. The site falls about six meters in elevation towards the NW (see Map 3). In early June the ground was quite wet, with widespread standing water. According to local geologists, the area is underlain by sandstone/siltstone bedrock covered by several meters of till deposited directly by glaciers. It is composed of a mixture of pebbles, sand, silt and clay 2. It is not anticipated that site topography, environmental, or geotechnical conditions will drive construction costs or schedules beyond those typical of the reference data center used to evaluate this site. However specific environmental and geotechnical reports for this or nearby sites were not evaluated to confirm these assumptions and a site-specific geotechnical report would likely be required prior to any investment in the GFW site. Climate and Natural Hazards Data center facilities located in cool climates may realize significant cost savings in the form of reduced energy demand to operate cooling equipment, and potentially in reduced cooling capacity requirements overall. 2 Information on the surficial geology of the area can be found at: and at PN _Report COPYRIGHT 2011 BY CH2M HILL COMPANY CONFIDENTIAL Page 6 of 15

8 The GFW site s climate has many advantages from this perspective. GFW s distance from the coast, where ambient air is typically more humid and salty, has high potential to create design opportunities for simpler, lower cost cooling systems than comparison locations. Because of the large financial investment to build a data center, the value of IT and facility equipment, and the significant losses that can be realized in the event of infrastructure disruption and unpredicted down time, data center companies avoid placing data centers in areas with high risks of extreme weather and other natural hazards. Aside from a long snow season and occasional severe winter weather, GFW does not have a noted history of natural disasters such as flooding, tornados, earthquakes, hurricanes, etc. Low risk for these disruptive events is a significant strength. Workforce Availability While data centers are not major employers, they do require skilled IT staff to maintain the facility. From local area interviews, it appears that GFW has sufficient educated IT workers to supply needed data center workforce. The area s largest employer, Central Health, employs approximately 50 IT professionals, with about 20 in GFW. Local area IT expertise may come from the College of the North Atlantic, a trade college with 17 campuses in Newfoundland and Labrador that runs an IT program; Keyin College, which offers an IT program; and Memorial University in St. John s, which offers both computer engineering and computer science programs. Customized workforce trainings may be available as part of an incentive package with the government of NL. Data center companies may anticipate difficulty relocating key staff from existing operations, but these perceptions may be unfounded. Other Factors Due to the limited exposure of data center projects to the region, GFW may appear remote to potential data center companies; however, transportation from the mainland to the Newfoundland Island is readily available by airplane or ferry. Gander (an hour drive from GFW) is the nearest major airport, and has flights to several major US and European cities, as does the St. John s airport, approximately four hours drive from GFW. Ferries run from Nova Scotia to Port aux Basques, on the SW corner of the island (see map 1). Delivery of building materials and computer equipment may be slightly slower than to sites on the mainland, but with appropriate planning this should not be a serious impediment to building and operating a data center in GFW. Long, cool winters make GFW a great location for efficient energy use, but may influence construction schedules more than in locations with more temperate climates. However, GFW has minimal history of severe winter storms, and is well prepared to deal with normal snow and other winter weather. GFW and NL have targeted the data center industry for development. Through this and other reports, the local government is increasing their familiarity with the operating pace and business needs of the industry. PN _Report COPYRIGHT 2011 BY CH2M HILL COMPANY CONFIDENTIAL Page 7 of 15

9 5. Financial Analysis To assess the cost competitiveness of locating a data center in GFW, we have reviewed the cost and income tax climate of locations that GFW might compete against for a large data center project. Using an assumed data center size, we estimated the expected capital expenditures and annual operating costs for a facility over a ten-year period. This analysis reflects these costs by year and summarizes the total Net Present Value (NPV) of costs in millions for each location (see chart 1). Assumptions The base case assumptions used for all locations were: 100,000SF building $1,000/SF construction cost for total $100M facility cost, adjusted by building cost index specific to each location $100M equipment cost, replaced every three years 20 employees, base salary using NAICS code 517 Telecommunications average cost for each location Electricity consumption for each location was adjusted based on location specific local climate and facility design The key assumptions used in the cost model for each location: Key Assumptions: Newfoundland Ontario New York New Jersey Virginia Construction cost index Labor (average yearly salary in CAN $) Electricity consumption (annual kwh) Electricity cost/kwh (in CAN $) $58,000 $61,900 $79,700 $86,500 $85, ,624, ,252, ,128, ,004, ,880,000 $ $ $ $ $ Federal income tax rate 16.5% 16.5% 34.0% 34.0% 34.0% Provincial/State income tax rate 14.0% 11.0% 7.1% 9.0% 6.0% Sales tax on equipment n/a n/a 8.375% 7.000% 5.000% HST/VAT tax Refundable* Refundable* n/a n/a n/a Property tax rate-building (per $ value) 1.825% 1.825% 4.400% 1.700% 1.750% Property tax rate-equipment 0.000% 0.000% 0.000% 1.700% 4.500% (per $ value) * HST/VAT is assumed to be fully recoverable. Special rules apply to financial institutions, however, which could change this assumption if user of data center is a financial institution. PN _Report COPYRIGHT 2011 BY CH2M HILL COMPANY CONFIDENTIAL Page 8 of 15

10 Project NPV of Costs by Location (in CAN $ Millions) $600.0 Electricity $500.0 Labor $400.0 Equipment costs, cash basis $300.0 Building costs, cash basis Property tax $200.0 Other costs (not expected to vary by location) $100.0 Federal income tax $ Grand Falls Windsor Newfoundland Toronto, Ontario New York New Jersey Virginia State franchise or income tax Chart 1: Project NPV of Costs Location Analysis Observation and Conclusions Based on this cost model comparison, GFW does offer a significant cost advantage. This advantage is due predominately to the low cost of electricity and some contribution from lower building costs. The key cost differences are: The GFW site s electricity rate, which is over 60% cheaper than the average of the other four locations, would save a data center approximately $7 million per year, or a NPV of more than $30 million over the ten-year period. This is a significant cost advantage. If interested parties could be provided assurance as to future rate escalations and availability of electricity, it would prove even stronger. Building costs are also estimated to be significantly lower in NL based on construction cost indices for all locations except Virginia. Virginia suggests the lowest building costs of the five locations compared. PN _Report COPYRIGHT 2011 BY CH2M HILL COMPANY CONFIDENTIAL Page 9 of 15

11 The comparison shows that equipment costs would be higher in all US locations due to sales taxes in these states. However, many states offer sales tax exemptions as part of their incentive packages, so it is possible that this advantage may be entirely mitigated. Property taxes are also much lower in NL compared to the US locations, but again these taxes are very often abated over a five to ten year period as an incentive to new companies. While the combined federal and provincial/state income tax rates in NL are lower than the US locations, the overall impact of this advantage is not significant. Due to relatively low cost of labor overall, the estimated salary cost differences do not amount to a sizeable difference between locations. Most locations offer new companies various incentives to locate their business locally. These incentives typically include a combination of sales tax exemptions, property tax abatements, grants, loans, and tax credits. Based on the cost comparison and assumptions used (incentives have been noted, but not included in the financial model), the total value of the incentive packages of these other locations would have to exceed approximately $29 million (NPV) to fully eliminate GFW s pre incentive cost advantage over Ontario, the closest comparison location. An incentive package of nearly $107 million in project NPV would have to be offered by New York, the highest cost location in the comparison, to be more advantageous than GFW. The amount of these incentive packages would need to be equal to 10-30% of the project investment to make these locations cost competitive. Any incentives from GFW and NL (such as property and federal/provincial tax rebates available through the EDGE Program) would further increase this NPV of cost differential. PN _Report COPYRIGHT 2011 BY CH2M HILL COMPANY CONFIDENTIAL Page 10 of 15

12 6. Area Maps The attached maps illustrate the location of the GFW site with respect to the town of GFW, adjacent businesses, roads, utilities, and other relevant landmarks, etc. Map 1: Location of Grand Falls-Windsor on the Island of Newfoundland PN _Report COPYRIGHT 2011 BY CH2M HILL COMPANY CONFIDENTIAL Page 11 of 15

13 Map 2: Location of site, nearest substation and water/sewage treatment facility in Grand Falls-Windsor PN _Report COPYRIGHT 2011 BY CH2M HILL COMPANY CONFIDENTIAL Page 12 of 15

14 Site Evaluation Findings Map 3: Site, zoning and topography PN _Report COPYRIGHT 2011 BY CH2M HILL COMPANY CONFIDENTIAL Page 13 of 15

15 Site Evaluation Findings Map 4: Site, power, water, and neighbors PN _Report COPYRIGHT 2011 BY CH2M HILL COMPANY CONFIDENTIAL Page 14 of 15

16 References 7. References and Supplemental Research Compass International. (2010). Global Construction Costs Yearbook. Marine Atlantic. (2010). Marine Atlantic Commercial Traffic. Retrieved on 10/6/10 from Newfoundland and Labrador, Department of Innovation, Trade and Rural Development. (nd). EDGE Program. Retrieved on 9/13/2011 from Public Safety Canada. (2010). Natural Hazards of Canada: A historical mapping of significant natural disasters. Retrieved on 9/22/2010 from RS Means. (2011). Labor Rates for the Construction Industry, 37th Annual Edition. Statistics Canada. (2010). Earnings, average weekly, by province and territory. Retrieved on 9/21/2010 from Statistics Canada. (2011). Average hourly earnings for salaried employees (paid a fixed salary) (SEPH), including overtime, unadjusted for seasonal variation, for selected industries classified using the North American Industry Classification System (NAICS), monthly (current dollars), Jan 1991 to Jun Retrieved on 6/28/2011 from Uptime Institute. (2010). Uptime Institute Resource Center, Understanding Tiers. Retrieved on 9/22/2010 from US Bureau of Labor Statistics. (2011). Quarterly Census of Employment and Wages, State and County Wages. Retrieved on 6/28/2011 from US Federal Emergency Management Agency. (2010). Presidential Disaster Declarations, December 24, 1964 to January 1, Retrieved on 9/22/2010 from PN _Report COPYRIGHT 2011 BY CH2M HILL COMPANY CONFIDENTIAL Page 15 of 15

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