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Macquarie buys stake in UK data centre operator Virtus, as power problems loom over the sector

"We believe Europe will present sizeable growth opportunities over the next decade."

Macquarie Asset Management has bought a minority stake in UK data centre operator Virtus from its owner ST Telemedia, as data centre power consumption around London comes under scrutiny once again.

The investment will help Virtus grow its UK data centre operations, but also expand into Europe, according to Australia-based Macquarie. Virtus currently operates 11 sites with around 180MW of data centre capacity in and around London (and has a pipeline of 100MW under development) representing a sizeable portion of London’s total data centre capacity of 970MW.

“While London’s data centre market is expected to continue seeing increased absorption levels, driven by strong demand for hyperscalers, we believe Europe – including core markets such as Germany and France – will present sizeable growth opportunities over the next decade,” said Nathan Luckey, a senior managing director for Real Estate at Macquarie Asset Management, in a press release.

The sale marks the first divestment of Virtus since STT acquired 100% of the company in 2017, after taking a 49% stake in 2015. STT, owned by Singaporean state investment vehicle Temasek, also has significant data centre holdings across Asia, operating 140 sites globally.

UK data centre sector face power, politics problems

Although overall demand for data centre capacity will continue to grow, the industry has faced short- and medium-term challenges, first from the Covid-19-induced downturn, and lately from increased power costs. These two factors have already accounted for the bankruptcy of two UK-based businesses, Sungard and cooling firm FEL Group.

And while demand for data centres will continue to grow in the long term, so too will concerns about the resources taken up by the facilities, which are regularly accused of causing capacity issues. Last week the issue of data centre power consumption came back into the spotlight when a Financial Times report claimed the Greater London Authority may halt housing development in west London because of a shortage of power – with data centres getting the blame.

The M4 corridor west of London is highly prized by UK data centre operators, as it offers easy access to the fibreoptic backbone which runs from London towards the Atlantic. A 2020 report on the UK’s data centre sector by IT industry lobbying group techUK shows a cluster of centres around Slough and west London.

See also: Ranked: The Top 10 data centre locations in 2022

But according to the GLA via the FT, this desirability means the area’s electricity grid has run out of capacity, potentially delaying new building projects in the London boroughs of Hillingdon, Hounslow and Ealing until 2035. The GLA said it was exploring options with National Grid and local operator Scottish and Southern Electricity Networks for alternative options.

Some observers have dismissed the GLA’s claims, with a Hillingdon council member describing the story as “scaremongering” according to Construction Management. The website reported councillor Eddie Lavery as saying “We’re not aware of any housing schemes planned for the borough being affected. There is also evidence that power capacity has been reserved for developments that may never take place and this latent capacity should be made available to schemes that will be delivered.”

Colocation dealmaker Tim Anker told Data Centre Dynamics this was old news, comparing it to claims London was running out of power in the run-up to the 2012 Olympic Games. But DCD also quoted a representative of Saqiq Khan, who said the London mayor had tried to raise the issue of power constraints with central government several weeks ago.

Whether or not west London electricity capacity is as constrained as the GLA claims, pressure on the UK’s grid overall will increase over time, mostly as a function of decarbonisation. This will see petrol and natural gas used for cars and heating increasingly replaced by electricity – representing a significant increase in demand.

While building increased generation capacity is one element of dealing with this, transmission capacity is another major factor – and the current UK grid does not have enough intelligence to manage grid congestion intelligently.

Speaking to The Stack for our recent energy digitalisation feature, David Sykes, data scientist at Octopus Energy, said: “In the local networks, we wanted to do really intelligent stuff around like constraint or congestion pricing, to make sure we didn't blow the feeder at the end of your street. For that, you would need to understand every phase that each house is on, you need to understand the capacity of the feeder itself, need to have live monitoring on that feeder, and then you can do really intelligent like real time pricing or congestion management.”

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