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Digital Power – Data Centres and Crypto Mining – How to be green?

This article is part of our Digital Power Series focusing on the deep connection between power and the digital economy. Throughout the series, we explore the opportunities that data centres and crypto miners bring to the National Electricity Market (NEM), green financing available for crypto miners, important digital security considerations for energy asset holders, the ‘tokenisation’ of energy related projects and relevant ESG considerations when acquiring a digital assets business

 

We previously explored the opportunities for Data Centres and Crypto Miners to access green financing options. Now we turn our attention to examples of green projects which may assist crypto mining and data centre industry participants take advantage of green financing arrangements.

‘Green’ Financing Refresher

Green financing can be structured for the debt capital or loan markets. Most commonly it structured as:

  • green bonds or loans – where the proceeds must be used for green projects; or
  • sustainability linked bonds or loans – where borrowers are incentivised to meet agreed sustainability performance targets through pricing adjustments.

To illustrate how operators in the data storage industry can implement financing arrangements to their benefit, we provide examples we have seen in the market.

Green Projects

Examples of data centre operators having used green financing to fund their projects include:

  • improvements to energy efficiency of their operations,
  • investments in renewable energy,
  • construction of energy efficient facilities, and
  • better management of water use and waste.

Renewable Energy

Equinix’s recent €1.1 billion green bond issue is an example of this approach. Equinix will use the proceeds of these bonds to fund green energy projects to support their data centre footprint. The interest cost of these bonds was 2.215% lower than Equinix’s existing Euro-denominated notes, and Equinix were able to realise €11.1 million in savings by refinancing its existing credit line.

Construction of Energy Efficient Facilities

Data centre and crypto mining operators can consider using green finance to construct new ‘sustainable’ buildings which meet one or more verified third-party standards. Green financing could also be available for retrofitting existing facilities to meet such standards. There are many standards in the market to consider, including LEED, BREEAM and NABERS. Certification under the relevant standards assists substantially to meet the requirements of green financing arrangements.

Energy Efficient Operations

If the refurbishment or construction of an entire facility is too much, then operators can look to invest in systems that improve the energy and resource efficiency of buildings, subsystems and land. For example, green financing could be available for the installation of onsite renewable energy systems (such as solar panels or hydrogen power), energy storage systems or more energy efficient cooling systems.

Thinking outside the box

Making these energy intensive industries more sustainable will require data centre and crypto mining operators to take new approaches. Examples of innovative thinking in the market include:

  • Microsoft’s Project Natick is exploring the benefits (and difficulties) of housing data centres underwater to increase energy efficiency;
  • BNP Paribas relocated its data centres to Iceland where low stable temperature makes cooling more efficient (as no need for external air conditioning systems). In addition, Iceland’s energy is sourced from almost 100% renewable sources;
  • Mawson is hosting other crypto miners within their facilities to increase the energy efficiency and decrease the cost of electricity; and
  • Aligned uses a cooling system that captures and removes heat (rather than pushing in cold air) which has the benefit of reducing water flow requirements (and associated costs).

In addition to the more usual ‘green’ power sources, there have been recent examples of crypto miners thinking differently when it comes to sourcing their energy, including Mawson’s bio waste Power Purchase Agreement in Byron, NSW. These projects would lend themselves to green financing options in a similar vein to those made by the data centre industry.

Green KPIs

Another avenue of ‘green’ financing is sustainability linked loans – where pricing benefits are linked to a company meeting certain specific KPIs.

Examples of KPIs in the data centre industry include:

  • increasing consumption of energy from green sources;
  • maintaining of NABERS 5-star building ratings;
  • reducing carbon emissions (scope 1 and scope 2);
  • aligning a company’s ESG reporting efforts with global standards; and
  • reducing water usage.

There have also been examples of KPIs linked to the energy efficiency of data centres referred to as  ‘power usage effectiveness’ (PUE). PUE is the ratio of energy used by the data centre divided by the energy used for computing.

It is important to note that green finance KPIs can also fall outside the traditional ‘green’ space. For example, KPI’s such as diversity and inclusion and other social goals have also been used by data centre operators to access green financing operations.

The lack of standardisation of sustainability metrics makes it difficult to compare progress between operators. There is a push to standardise these metrics across multiple industries to assist with their adoption and progress sustainability. For example, Schneider Electric have recently proposed 23 key environmental sustainability metrics in 5 categories with respect to data centres.

Conclusion

There is a significant opportunity for crypto mining and data centre operators to:

  1. take advantage of green and sustainable debt;
  2. gain access to debt with potentially cheaper pricing; and
  3. further their green credentials.

With socially responsible investors and financiers growing in number and traditional investors increasingly looking to the sustainability of their investments, crypto mining and data centre should be exploring ways to be green.

At Hamilton Locke, we advise across the data centre and crypto mining project life cycle as well as the energy project life cycle. Our team assists in project development, grid connection, green financing, renewable energy purchases and the construction of projects, including the selling and operating of projects.


For more information, please contact Adam Jeffrey or Matt Baumgurtel.