Iceland wants your backup data centers

Iceland is trying to convince European and U.S. companies to locate backup data centers there, promising cheap and clean energy, as well as low tax rates. But will fears of network latency and volcanic eruptions usurp the discussions?

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ORLANDO, Fla. -- Imagine having your backup data center powered by hydroelectric and geothermal energy -- water and hot springs. Sounds like something Jules Verne would have written about if he had heard about data centers, right?

It would be fitting for Verne to then talk about the Invest in Iceland Agency, because that is where his Journey to the Center of the Earth novel began. The agency, which is part of the Icelandic government, will soon start trying to lure companies from Europe and the U.S. to build their backup data centers in Iceland. The hook is stable temperatures, a stable economy, and yes, cheap power, thanks to the country's hot springs and waterfalls.

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"The price can vary highly depending on what kind of quantity and stability in electricity you need," said Thortur Hilmarsson, general manager of the agency. "As an example, a heavy industry with 10-to-15 megawatts can have prices of 3.5 cents per kilowatt hour. If you're a smaller consumer, then you're looking at 6, 7, 8 cents per kilowatt hour."

The U.S. electric rate for commercial customers was about 9 cents per kilowatt hour in November, according to the Department of Energy, but you can get it as cheap as 5 cents per kilowatt hour if you're in Idaho.

About 72% of Iceland's energy consumption comes from hydroelectric and geothermal energy; the only fossil fuels used are for cars and fishing vessels. Temperatures are cold but stable, between 32 degrees and 55 degrees Fahrenheit throughout the year. And the corporate tax rate in Iceland is about 18%, less than half of the 39% in the U.S., according to figures from the Congressional Budget Office.

But before the agency is able to get anyone to set up shop there, it's going to have to tackle a huge obstacle: latency, or at least the perception of latency. The distance to Reyjavik, Iceland's capital, from New York City is about 2,600 miles, as the crow flies, and 1,200 miles from London.

Hilmarsson said the agency is working on a comprehensive study about just this topic, which he said will be ready in the next three months. The study will look at latency issues from Iceland to Europe and Iceland to the U.S. But it will still have to convince data centers that it's worth the extra effort to locate there.

Users at The Uptime Institute's conference in Orlando last week cited latency as the No. 1 concern for placing a data center in Iceland if they're located in the U.S. Especially for large financial firms -- many of which were represented at the event -- the difference of a few seconds in the amount of time it takes data to replicate could mean a lot of trouble and millions of dollars in lost information.

Joe Checchi, an assistant vice president in critical systems for JPMorgan Chase & Co. in Bear, Del., said the idea of being able to tap into Iceland's low-cost energy is appealing but wasn't convinced it was enough.

"I would think that the communications connectivity would be our main concern," he said.

And remember that Journey to the Center of the Earth starts in Iceland because its main characters climb down a volcano to start their descent. Don't think data center managers won't think of that.

"I know they pretty much sit on a volcano," Checchi said. "Natural disasters and connectivity would be the biggest issues."

According to the Icelandic Tourist Board, a volcano erupts in Iceland about every five years. Eruptions tend to occur on the eastern side of the country, while development near the capital city of Reykjavik is on the western side, but problems occasionally arise. In 2004, for example, a volcanic eruption sent ash spewing high into the air and caused some disruption of airline traffic into Iceland, though no one was hurt.

Hilmarsson acknowledged that Iceland isn't for everybody.

"You have to look at what kind of businesses we're talking about," he said. "The distance for some is a constraint in terms of the latency, but generally speaking, as a backup recovery location, it's a good location."

Let us know what you think about the story; e-mail: Mark Fontecchio, News Writer.

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