Interview with the Head of Dutch Data Centers Association: Estonia is in a good position for the next tech leap

In late October, the head of the Dutch Data Centers Association and board member of the European Data Centers Association, Stijn Grove, visited Estonia for the first time. We explored why the Netherlands has become a key node in the global digital infrastructure, what awaits Estonia, and the factors that will significantly impact IT-intensive companies in the near future.

Head of the Dutch Data Centers Association and board member of the European Data Centers Association, Stijn Grove.

Despite being in Estonia for the first time, you are not unfamiliar with the developments here. How do you see Estonia in the broader European context?

Looking at the bigger picture, all economies are moving towards greater digitalisation at a rapid pace. Estonia is a peculiar case here. It excels in digitalisation, as demonstrated by its founding member status in Digital Nations, a consortium of leading digitalised countries However, the infrastructure on which the digital society relies is still evolving, yet substantial progress is evident here too.

Why is this so important?

The quality of digital infrastructure, such as data centers or connectivity networks, significantly affects reliability and efficiency. The need for better digital infrastructure is not unique to Estonia but applies across Europe. Take internet connections, for instance. Without wide-coverage quality connections, managing homeschooling or remote work during the COVID period would have been unthinkable. Some countries had to look for alternatives. For example, Serbia initiated school television as it was the only way to reach many children at once. This illustrates the role of digital infrastructure.

How is the digital infrastructure evolving across Europe?

It's uneven. Some regions have more quality infrastructure. A good example here is the FLAP region (Frankfurt, London, Amsterdam, and Paris - ed), where internet exchange nodes and dozens of data centers are concentrated. This, in turn, attracts internet-based businesses like streaming platforms or cloud services. With a physical limit to node development primarily due to available electricity, regional nodes like Berlin, Milan, or Marseille have been actively growing recently. For instance, many submarine cables from Africa and Asia land in Marseille.

This development is also supported by a substantial local market. There are a lot of people, e.g., potential customers, and large organisations are keen on serving them. For instance, Microsoft has more than 10 data centers in all different countries in Europe, whereas five years ago, they only had 2.

Which other countries stand out in the European context?

Certainly, Ireland. While across Europe, about 3-4% of energy goes to data centers, in Ireland, it's already nearing 20%. This is due to a tax policy conducive to large corporations, attracting them to set up there. It is a good example of how a country can play itself into being a node. In Sweden, for example, there's legislation favourable to Bitcoin mining.

Nowadays, more and more data centers are being built in Nordic countries partially due to climate warming and extreme weather conditions experienced in Southern and Central Europe. All in all, the technical footprint necessary for sustaining a digital society is growing everywhere, but in some regions, it's simply growing faster.

We cannot overlook the Netherlands, which has always been a leader in terms of data centers. How did you become one?

Historically, the Netherlands has been very open to business, trade, and the accompanying logistics. Geographically, we are close to Scandinavia, Great Britain, France, and Germany, making it a natural center point. Data centers are essentially about logistics, information logistics. Hence, the Netherlands has been a logical hub where connectivity networks converge.

But there's another reason too. Though a small country, the Netherlands is very open to various opportunities. For example, the Dutch company KPN, which managed the country's telephone networks before opening them to the free market (like Eesti Telefon did in Estonia - ed), did not take as cautious a position regarding being an internet exchange point as German or French telecoms did. The latter saw it primarily as a cost item. KPN was willing to try and didn’t wait. Today, the Amsterdam Internet Exchange is one of the largest in the world, setting the stage for flourishing internet-dependent businesses. By the way, the first website in Europe was also created in the Netherlands.

As energy is a major input in the data-intensive business, how have energy and digital infrastructure been made to work together?

In the Netherlands, some data centers contribute to electricity price stabilisation by supplying locally produced or previously stored energy to the grid at peak demand times. There are also experiments with hydrogen-powered generators in data centers to power buildings when the regular grid connection fails or when it's more economical to generate electricity independently.

In the coming years, a pipeline infrastructure for transporting hydrogen will be developed in the Netherlands, allowing data centers to use this energy source primarily. This makes sense because a significant amount of energy is produced during the summer months, much more than is consumed. For instance, while the national need in summer is about 14 GWh, we sometimes produce 22 GWh. Every year, a new wind or solar park is opened. Hence, the focus now is on preserving electricity as hydrogen and establishing the necessary infrastructure for its transportation.

Given the growing energy demand of data centers, it would be excellent if complexes could generate electricity from hydrogen independently and use it as needed. Considering that the waste heat from data centers is given to district heating plants, hydrogen eventually reaches homes as room warmth. Thus, hydrogen is a crucial component in building a green future, and data centers play a key role in the green transition.

The Netherlands and Central Europe are undoubtedly far ahead of the Baltics in development. Based on your experience, what lies ahead for us?

Demand will grow. Investments in digital infrastructure are logical given your position. As you are already at the forefront of digitalisation, this will only accelerate the process.

A comparable example is Belgium, which has never been a hub for the internet and related businesses. Until recently, it was about ten years behind the Netherlands. Now, it's catching up at a very rapid pace, and external interest in them has significantly increased. Large cloud service providers want to rent considerably more data center volumes there than are available locally. For instance, while the Netherlands sometimes struggles to secure electricity capacities for new facilities, Belgium does not have this obstacle yet. This scenario may await you too. Demand from both local and international organisations will grow.

To illustrate, I have an acquaintance who worked as the IT head at Booking.com. He mentioned that their IT systems were not duplicated for reliability but were triplicated. Considering the cost of a few minutes of downtime, quadruplicating could have been justified easily. Therefore, many organisations need not just a reliable place to keep their IT equipment and thus their business but also a second and third location. This is the cheapest insurance nowadays. For instance, the Amsterdam Internet Exchange is in 14 different physical locations, and at least 8 of them are backups.

Undoubtedly, rapid development awaits the Baltic region. What mistakes could we avoid on this path?

From the standpoint of professionalising the digital infrastructure sector, you could establish a professional association to represent the members' views while interacting with the government, energy providers, international connectivity providers, and participate in the establishment of terrestrial and submarine communication cables, and explain the sector's role in ensuring our daily lives to the broader public. Considering the size of the region, the association could be Baltic-wide. The sooner you start with this, the better. The association could also facilitate communication and collaboration among data centers. There's a saying that one data center is not a data center because all clients require at least duplication for maximum reliability. Thus, every data center needs another data center.

With the help of the association, marketing the entire region and attracting new investors would be easier. For instance, Iceland presented itself as a digital infrastructure hotspot even before it had many data centers. This initiated the current boom.

With more data centers and quality interconnections between them, the region becomes digitally more independent and less vulnerable if external connections should fail. Thus, smart collaboration is wise.

What factors will have the most significant impact on the data center sector in Europe in the near future?

These are electricity availability and sustainability. Every aspect of our lives demands more electricity, and electricity is the most crucial input in the digital economy. Hence, demand is continuously growing.

Environmental requirements, in turn, demand that we consume more green energy, build with the smallest possible ecological footprint, recycle as much as possible, etc.

Apparently, several regulations related to climate goals have been enacted or are about to be enacted at the EU level. Are organisations operating data centers or large server rooms ready to measure their footprint and report the results?

By nature, data centers are very suitable for monitoring all kinds of activities happening within their walls. Every modern data center has a DCIM system that helps monitor and manage the data center’s physical and IT infrastructure. These provide real-time overviews of equipment, energy consumption, environmental conditions, and support high efficiency.

This doesn’t mean that the necessary data can be obtained with a single button press, but essentially, this information is available. Many other organisations lack this capability. For instance, a hospital may also have a lot of IT equipment, but they lack an overview of the associated energy consumption.

Reporting obligations are an opportunity for data centers to demonstrate and prove their energy efficiency.

Will reporting obligations eventually apply to all IT-intensive organisations?

Absolutely. In the end, we are all equally responsible for achieving climate goals.

Lastly, how do you see the current general trend? Will the shift to the cloud continue, or will we see a reverse movement?

The footprint of cloud service providers will surely grow as the workloads moving to the cloud are increasing. However, some organisations are already moving in the opposite direction because they have grown so large that owning IT equipment is financially justified.

For example, Philips moved all its IT operations to the cloud at one point because the organisation lacked a complete overview of its IT footprint. Moving to one platform cleared everything up. From there, Philips has again moved some volumes back to data centers to optimise costs.

A data center is certainly cheaper for sufficiently large volumes than keeping everything in the cloud. Of course, this also depends on the IT architecture and objectives. Therefore, the most common model today is the hybrid model, where different platforms are used in parallel.

In conclusion, Estonia and the broader Baltic region are in a good position for the next developmental leap. It's crucial to focus on developing the enabling infrastructure and collaboration alongside the digital society and economy.