PANEL - DIGITALINFRAMONTREAL 2019

David spoke with leading data center industry experts in Montreal discussing how large hyperscale data center users are approaching renewable energy. We also talked about challenges the space is seeing moving forward. Hear from this knowledgeable group of industry experts, which included: Vantage Data Centers’ Maxime Guévin, CBRE’s David Cervantes, CloudHQ’s Dave Holub, EdgeCore’s Tom Traugott, Aligned Energy’s Phill Lawson-Shanks, and Stream Data Centers’ Anthony Bolner.

This is a recorded panel at an event attended by datacenterHawk founder David Liggitt. If you enjoy the conversation and don’t want to miss other event discussions, just hit subscribe on iTunes, stream it on Spotify, or follow us on YouTube. Search the Montreal data center market here.

AUDIO TRANSCRIPT

David Liggitt: We're really excited to be here today and to talk about something that our industry has been challenged with in the past, is challenged with today, and will be challenged with in the future relating to data center energy use and how that impacts market growth. And so we're excited to get to share with you the thoughts that this team has onstage. And it's a great group and I was just walking through and I'm actually going to introduce each individual here, but there's a lot of industry expertise on this stage. So gentlemen, thank you for joining today. Very excited that you're here. And we're going to talk about how our industry will be impacted by clean energy usage moving forward and some of the challenges that are there. So I'm going to introduce each panelist and then we'll jump in.

To my left, this is Max Guévin. Max is Vice President and General Manager with Vantage Data Centers here in Canada. He oversees all operation efforts and previous to that he was leading the efforts with 4Degrees and has been in the industry a long time. Max, thank you for being here.

To his left is David Cervantes. David is Senior Vice President with CBRE's Data Center Solutions Group. So he sits actually with end users that are making infrastructure decisions and really helps guide them through that IT infrastructure decision making process, which if you've walked that path, you know how challenging it can be. So having guidance from individuals like David is very helpful. So David, thanks for joining us. David's been in the industry for over 15 years and focused here in Canada.

David Holub is to his left and he focuses on leading the sales and leasing efforts for CloudHQ. So if you've driven down Loudoun County Parkway in Northern Virginia in Ashburn, you will see what CloudHQ is doing. And it's impressive, not just there in Northern Virginia, but internationally as well. So David, thank you for being here this morning.

To his left is Tom Traugott. Tom is with EdgeCore and he's Vice President of their revenue and client growth and he is focused on growing their portfolio through customer acquisition. Previous to his time at EdgeCore, he was with Amazon Web Services and led their efforts in growing their platform, not just here in the US but also in Europe and Asia as well. So Tom, thanks for being here.

Phill Lawson-Shanks is the Chief Development Officer for Aligned Energy and prior to his time at Aligned, he was the Chief Innovation Officer with EdgeConneX, and during that time period, EdgeConneX had a considerable amount of growth and so, excited to get your expertise. He's been in the industry for over 25 years. So Phill, thanks for being here.

And sitting on the very end, waiting for his name to be called, is Senior Vice President and partner with Stream Data Centers, Anthony Bolner. Anthony is a fellow Texan and has been with Stream for about 15 years, has been in the data center industry for over 25 and owns probably the best burger restaurant in Dallas. Anthony does. So if you're ever in Dallas, you come with me, we'll go get burgers for free. Anthony told me so. There you go. Anyway, thank you for being here.

Let's give our panelists a hand just for being here and thank you gentlemen. This is great. I already have them clapping for you and y'all haven't even said anything. This is awesome.

“Data center energy use and how that impacts market growth [is] something that our industry has been challenged with in the past, is challenged with today, and will be challenged with in the future.”
- DATACENTERHAWK FOUNDER, DAVID LIGGITT

WHY MONTREAL IS ATTRACTIVE TO DATA CENTER OPERATORS

David Liggitt: So one of the things I'd like to just start with is, the fact that we've really seen some incredible things happen in Montreal from a data center perspective in the last 24 to 36 months. And so Max, let's start with you. Why do you think users today are finding this area to be so attractive from a data center growth perspective?

Max Guévin: That's a good question. I'll say mainly 4 reasons why Montreal is a hot market right now and Mr. Martel from a Hydro Québec mentioned two of them already. The first one is the cost of power. Everybody knows that data center operators consume a lot of power. So being able to get access to very competitive rates, one of the cheapest rates in North America, as Mr. Martel mentioned earlier, it makes a difference in our cost of operations.

The second one, 99.5% of Hydro Québec’s energy is green. So you can see on September 27 in Montreal, there's 500,000 people down here telling the government, “Hey, wake up, you need to do something to our planet, the planet's dying”. So green energy, it's one of the major hyperscaler requirements. We see that more and more.

The third one is the climate. As you can see today, it's quite cold. So cooling down our data module, it's a lot easier for us using specialized equipment like free cooling system. That allows us not to consume power to cool down our room. That makes a difference at the end.

And the last one in my mind, it's the network. There's multiple fiber paths, fully diverse from the East coast, big NAP like Ashburn or New York coming down directly to Montreal and with low latency that makes a difference. So if you add on top of that, the good economical environment, a lot of enterprise, good labor, it makes a difference to be a hot market right now.

David Liggitt: And David, what would you add to that? Max is seeing that from a data center operator side, Vantage Data Centers. David, sitting with data center users, how are you seeing them look at the market and what would you add to that?

David Cervantes: Yeah, so I'll go in reverse order and just grab that last point about network. Proximity to eyeballs. People need to be here. This is a declared and growing secondary tier two market and people need to have presence in those places. And when we have end users identify that they want to have a presence in Montreal, they're pinging all of their partners and colleagues in all the other markets and our phones start blowing off the hook.

“People need to be here. This is a declared and growing secondary tier two market and people need to have presence in those places.”
- CBRE SVP DATA CENTER SOLUTIONS, DAVID CERVANTES

So there's a bit of an echo chamber. As soon as an end user says, “I've got to service my customers in Eastern Canada”, you pretty much have a Toronto versus Montreal proposition and they’ve got to quickly get up to speed on what's going on in both markets. So, from an end user perspective, it's really chasing the eyeballs, chasing the customer base. And that's really the first step to people triggering on this market.

LEVERAGING DATA CENTER DESIGN TO TACKLE CHALLENGES AND MEET USER NEEDS

David Liggitt: So, Phill and David Holub, when you all have interacted with users that have that desire for renewable energy, sustainable solutions, that is in your mind to deliver that product, but you also have a business to run and there's costs behind that. So talk about some of the challenges as data center operator with the solutions that you offer, and how to do that best.

Phill Lawson: I think it starts with the design elements as well. So obviously energy is paramount getting a low cost energy. A lot of our customers demand that. It used to be that the environmental decision making was nice to have now it's mandatory for, particularly for the hyperscalers and for a lot of the more sophisticated enterprise consumers and buyers. But it's all about the design. It's how you create that platform.

A lot of data centers that we see today are still designed as they were 50, 60 years ago. They were designed for people to live in them alongside the teletype machines and the model 39's or whatever IBM's. We don't need that anymore. If you think about, if you've seen any images of how the Googles and Amazons built their data centers, it's a data factory. It's a slab floor, no ceiling panels. They really run the systems as hot as they possibly can. We used to have ASHRAE standards are important, but that's for when people are living in those places. Now you can drive capacities much, much higher than you ever could before, 50 plus kilowatts a cabinet.

“It used to be that the environmental decision making was nice to have now it's mandatory.”
- ALIGNED ENERGY CHIEF DEVELOPMENT OFFICER, PHILL LAWSON-SHANKS

So once you take all of those elements into place and you look at the cooling, and particularly here where you can leverage the more extensive cooling technologies. That, coupled with power, how you build them, and how you operate them; that's really what customers are looking for. They're looking to maximize. They know exactly how many cents or pennies every watt costs them to run their business and they want that whole supply chain to follow their economics.

FINANCIAL CHALLENGES IN THE US VS. MONTREAL’S SMOOTHER PROCESSES

Dave Holub: Well, thank you for having me and inviting CloudHQ. And I have to admit I'm new to the Canada market in general in many respects and specifically Montreal. I do have some exposure working with renewables in the US, and CloudHQ is actually has a wind farm business to support data centers in the US as well. I would use Phill's segue into the cost aspect of it.

CloudHQ is a real estate developer. We develop very large hyperscale data centers. That's our focus. We're looking for markets to enter that our customers are anticipating going into and we're trying to develop properties in a very expeditious way and cost effective way so that we're literally competing with Amazon's internal model or Google's internal model for developing data centers.

So when I'm learning about Montreal, obviously the cost of power is very attractive. And, from what I'm learning too, the financial structures for renewables are much more sort of friendly, if you will. In the US we have a lot of distortions that we have to deal with from tax incentives and so forth and tax equity and what subordination you can get in debt and so forth. And I think what I'm hearing in Canada is those things don't exist here. But what we do need is the demand. Frankly, I need those big hyperscalers to say, “That's a market we want to be in”, or at least hear it in the meetings and we'll run there and do it as fast as we can for them.

“In the US we have a lot of distortions that we have to deal with from tax incentives...tax equity and what subordination you can get in debt and so forth. And I think what I'm hearing in Canada is, those things don't exist here.”
- DAVID HOLUB, CLOUDHQ SALES AND LEASING

But our model, just to be clear about how we develop is to really drive down operational costs. So we build very large sites. I think of it the way our chairman describes it as, essentially we want that really big denominator in your operational costs. So if I build a 70 or 90 megawatt data center, I'm dividing all that operational cost by a very large denominator. So, are we open to markets like this? Yes. Is it interesting? Yes. We're looking for that demand or those signals of demand to start to move into them.

WHAT HAPPENS TO A MARKET AS LARGE COMPANIES BEGIN TO TAKE INTEREST AND SPACE?

David Liggitt: And Tom, maybe you can comment on this and also Max, I'd love your thoughts. When a large user finds a market attractive, and it actually takes a large position there. What does that do for the overall view of that market? So I think we've certainly seen some of that here in Montreal over the last 12 to 24 months. And how does that change the way that end users and other large providers might look at locating in that location?

Tom Traugott: Well thanks for having me participate. Our business, EdgeCore is very similar to to Dave and CloudHQ's. And we're primarily in the United States right now and sort of large primary and secondary markets with large scale campuses, 30, 50 acres. And our positioning there is to meet similar scale-out demand. And one of the things that my sort of past experience that jumped out with Montreal, and I think Dave Cervantes touched upon this. Montreal, for its own localized, endemic demand is sort of, it's a second tier secondary market compared with some of your larger population centers. But what is intriguing is its proximity and look at Northern Virginia, right?

So I grew up in the New York Metro area and back when, 20 years ago, the largest data center market was New York, New Jersey. That has radically shifted on the East coast. And if I were to compare, not to, maybe I'm looking for some cheap cheers here, but Toronto to Montreal. The evolution of the dynamic between Northern New Jersey financial services, very enterprise-centric, to Northern Virginia, which had more network density proximity, still relatively low latency for most applications, and scale out potential, to me that resonates for Montreal having a solid local base of demand, but the potential to compete on a global scale, right?

So, low cost power, low cost lands, relative speed in terms of permits, entitlements. There are some areas where the market could probably mature. Some of the perspective in terms of what generators contribute, right? I mean, emergency generators are not power plants, and that's been an issue. But I think the fundamental perspective that any of the large hyperscale users are taking is “I can start in this market. What does it look like at, 10, 20, 30 X?”, right? Certain markets take a footprint, you'll deal with that localized demand, but you won't really scale out. I think that's one of the opportunities. And one of the reasons why, looking at Montreal is that it does have scale out potential. But until you see more large anchoring sort of users that make it more of a global destination. It's not quite at that tipping point in terms of scaling.

HOW QUICKLY WILL MONTREAL GROW?

David Liggitt: Yeah. So I was going to ask David Cervantes and Max, your perspective on just how quickly do you think this market can grow because of some of the things that the energy, the good energy story that's there, the low cost of power. There's a lot of comparison to some other very large markets and so is there maybe, are there unrealistic expectations regarding that? I mean, are we thinking way too big? Are we thinking too small? What are y'alls thoughts on that?

Max Guévin: I could go. The demand is there, the demand is there. We see it. We have a quite large funnel that we're working on right now. So, it’s not a dream. It's there. So there's some needs. That it’s going to be a hot market like Ashburn with 1000 megawatt active? Don’t think so. It might be smaller than that, but let's say we're going to get 25% of that. 250 megawatts. Our provider, Hydro Quebec might be very happy with that type of power.

And a part of your question was, “what is the impact of these big players coming down?” You asked that a bit earlier. It increased the ecosystem. This is what’s happening. So when big guys coming down in Montreal and putting all in their infrastructures think trees and the ecosystem, everything's related to that, everything's turning around that. And now you can have example like Facebook putting their lab in Montreal or the AI market or ecosystem, which is very, very deep here in Montreal. I do have some friends in the AI business and everything turns around AI these days. You can add, on top of that, the VFX market or gaming. So that drives the demand in Montreal in my mind.

David Liggitt: That makes a lot of sense.

“Everything turns around AI these days. You can add, on top of that, the VFX market or gaming. So that drives the demand in Montreal.”
- VANTAGE DATA CENTERS VP AND GM, MAX GUÉVIN

David Cervantes: Well, just one of the interesting things we can pick up from what Phill said. And may be news to anyone who's not familiar with the Montreal market is, we really didn't have a large retail data center market at all. So Toronto was the center of enterprise demand and Toronto was the center of the retail market seven plus years ago. And so, subsequently, the Toronto market is full of legacy facilities and Montreal's market really exploded with the advent of wholesale and hyperscale.

So a lot of our relevant inventory is new. A lot of our specification of data centers is a lot of the same specs that the cloud users would prescribe. And so what that does, is basically puts us into a jumpstart to really be prepared for that scaling. It's always great for us to hear about our providers being pinged by end user demand. And when you compare the Montreal and Toronto markets, which presumably many of those end users are considering in tandem, Montreal's in this, again, in this great position to take advantage of where we are.

And just to bring it back to the green story a little bit. On a side by side basis, it's just another line item of if I can say “Superior opportunity to work in a market that costs you less to operate in, in terms of power, which costs you less to acquire land and build in, which allows you to be closer to Metro than any position you could likely take up in Toronto”. And then you have this green story, which is hopefully becoming a tick box on the site selection. Not the first thing, but definitely a very strong line item in how these groups are making decisions. So the question is; can we outperform our other markets? Can we pull traction and deals from those markets into Montreal? I'd say that we're in position to do so as long as that demand holds up.

“Superior opportunity to work in a market that costs you less to operate in, in terms of power, which costs you less to acquire land and build in, which allows you to be closer to Metro than any position you could likely take up in Toronto.”
- CBRE SVP DATA CENTER SOLUTIONS, DAVID CERVANTES

Anthony Bolner: So I'm with Stream Data Centers and we are a developer and operator of wholesale colocation space in several US markets. And we came up here to Montreal a year and a half ago to assist a good client, GI Partners with a very large second generation asset that they bought here in this market that was built in 2016. And it has really opened my eyes to the Montreal market and specifically Hydro Quebec and the offering that they have of green energy and low cost energy and the stability in that pricing.

I don't think we all stress that story enough, but I think the comment that was made down here about Montreal being a key wholesale market, a key hyperscale market, that's the type of demand that we're seeing here in the Montreal market. I don't disagree 100% that Toronto has been, call it the, retail co-location the certainly the largest market in Canada historically and for retail. But I think it's really important the number of hyperscale users that are looking here in the Montreal market currently and really just over the last 18 to 24 months.

So I think the Montreal market is in a growth mode. No question. So it is following what we have seen in... You almost can't compare it to Northern Virginia, but I like comparing it to Phoenix or even Chicago and Dallas, where we're really starting to see significant hyperscale and cloud growth in those US markets.

“The Montreal market is in a growth mode. No question.”
- STREAM SVP AND PARTNER, ANTHONY BOLNER

Max Guévin: That was a good recap. And if I may add, we have all the pieces of the puzzle to bring the big hyperscale in Montreal as we talked about for the last few minutes. But our challenge is going to keep them happy, and to keep them happy is to show them scalability. These guys consume a lot of power and they want power right now. So you need to make sure to build inventory and building inventory is all related to cash. So we need to invest a lot, take some risk to make sure we stay effective to them.

David Liggitt: I think it's interesting, if you look at the way data center markets have grown over the past five years, one of the consistent characteristics that we've seen across markets that are trying to attract this type of demand, is that the planned power that we track has increased over the past two years. Which is data center operators realizing, listening, hearing from the user that bigger demand is coming and starting to position themselves to receive that demand when it's here.

Yesterday we had the opportunity to visit Cologix, the GI Partners site and eStruxture’s data center. And it was really interesting to hear the messaging coming from them, which was, “Hey, there's enterprise demand out there and we certainly can handle that. But these are solutions designed to handle bigger demand”. And, I think, as that market message hits those users, that will certainly have an impact.

WHAT MONTREAL HAS TO OFFER AMIDST INCREASING EMPHASIS ON RENEWABLES

David Liggitt: Phill, from your perspective, if we think about hyperscale growth and then we think about the enterprise group that's still out there. And David, I'd love your thoughts too. How do they think about green energy? How do they think about renewables? Because some companies that are very large, they realize there are corporate citizens and we have to make really good decisions. As you get smaller, is that something that you're seeing maybe grow in importance from their perspective?

Phill Lawson: Oh, absolutely. We have several large-scale enterprises, web-scale we would call them. They operate as a hyperscaler, but they're really an enterprise: rideshare companies, airlines, FinTech. It used to be there was separate groups: the power acquisition group and then the more environmentally friendly group. But now there's a lot of tension between them still as to having consistent power pricing, whether it's a PPA or VPPA, or the different programs that the power providers can provide. That, coupled with the message that the corporate group want to give out about their green stance.

And as we saw the other week with Google, there was almost a walkout of employees where they felt that the messaging wasn't really being followed through in the whole company. And that's going to be more and more prevalent I think through the enterprises. We see a lot of customers where before, it was just nice to happen, now it's mandatory in their RFP. So there's green energy in Phoenix, where we can procure server power for the majority of the time and solar after sunset with the batteries and hydro. It's just become so so important. And with our microgrid technologies that we have there so we can feed back and enable the utilities to power shave their own yields, it makes a big difference to a lot of our enterprise customers to be able to give them that flexibility.

Dave Holub: Well I guess I'm thinking about a little bit more like the new Quincy, but without the sort of limitations on supply and with people. What occurs to me however though is, what we've dealt with, with customers and we're dealing with it in multiple markets now in Europe as well as the US is when they have renewable requirements or renewable preference they'll put a lot of the onus on us to help source the power and manage it. And it gets quite complex.

In the case, for example, we have this project in Texas where we're providing power. It's not one of ours, but we're providing power to a 40 megawatt data center and we've got a hundred megawatts of renewable wind energy. But there, you see the ratio, right? We have a hundred watts of generation to provide 78% of the load to a 40 megawatt data center.

What strikes me about Montreal is there's sort of none of those complications. I don't have to worry about the distribution hub, the ISO, any of the sort of myriad I could just go on and on complications it takes to manage renewables in the context of the customer's interest in them. Right? Cause it's just all green energy here. There's no complication around it, if you will.

Tom Traugott: And can I build on that? I think, simply put, what you're describing, Dave, is the sort of pinwheels that folks go through to basically hide baseload, and every renewable offset strategy, with solar and wind, cause it's not always sunny and it's not always windy and energy storage is not at sort of 30-day, sort of lifespans, right? Where you can truly run off whatever you generate from the renewables. There is a complimentary baseload supporting every data center around the world, except for certain locations.

You have complimentary fossil-fuel-fired base load to run when the sun's not shining and when the wind's not blowing. So a distinction that I think Hydro-Quebec could certainly push more is the renewable aspect is also complemented by baseload. Right? Which simplifies the math. You're describing the complexity of schemes to effectively hide the fact that, yes, there's offsetting renewable plant, but until energy storage becomes more meaningful, a considerable amount of the energy used by the data centers is going to be fossil fueled in most parts of the world.

WAYS MONTREAL CAN CONTINUE ITS MARKET GROWTH

David Liggitt: Yeah. So when you think about Montreal as a growth area if we came back here in two years, I know a lot of the individuals in this room today are heavily tied to this area. What are things that the area can do to differentiate themselves?

Maybe it might be better communication, maybe it might be more options, but what are things that the area can do to ensure that if we came back two years from now, three years from now, we would see that, 10, 25% growth that Max brought up. What do you all think that the area can do to attract that demand?

Anthony Bolner: I do think that the key markets in North America, at least from my perspective that we've seen can be categorized as high supply, high demand markets. So I don't think more supply is a bad thing. And I would just say that things that can be put in place: incentives, ease of doing business, things like that, that can add to the supply. Don't be fooled by that being a bad market. I think supply in our business, because timing is so important, oftentimes brings demand.

Tom Traugott: And if you wanted to just build off the supply point. It's also diversities. So if you go to a Northern Virginia, you have every flavor of data center product that you want. You want raw land, you want raw land powered land, powered shell, cold shell, turnkey, retail, hybrid, it's the full spectrum.

Phill Lawson: I think it's going to be a natural evolution. If you look at how the data center industry grew, it's all around where the networks were, that's where you have the campuses. Montreal has sort of always been the second child to Toronto because of the tour. That was where everybody was growing. Now with the new networks that are here and the power, I think this is naturally gonna happen. Amazon is just a natural magnet for new network and it's just going to grow. I think the island is saturated, so there's going to be more growth on the periphery, but it's just going to happen.

Max Guévin: And as a data center operator, we need help. We need help because buying lands, good lands, it's quite sometimes tough. You need to deal with this city for the permits. I don't want to share how many months it took us to get our permits, but that was a pain in the neck. So, if we want to grow that business, we need help. We need to concentrate ourselves on the business, building our data centers, bringing customers in rather than fighting with the local authorities.

And I would also like Hydro Quebec to put more proactivity on their network. We were looking at land in some places that there's no power for the next three or four years, so we cannot wait three years before we get this power. So I think it's a society effort. 1000 megawatt might be big, but maybe 250 is achievable in my mind.

David Liggitt: Well, I think he brings up a great point, which is if you look at the other markets that have grown the way that they have in the last three to five years, it is not just data center operators leading the way. It is communities that recognize the value of having these assets there. And, when that pathway is cleared, watch out because the growth can be really large.

“If you look at the other markets that have grown the way that they have in the last three to five years, it is not just data center operators leading the way. It is communities that recognize the value of having these assets there. And, when that pathway is cleared, watch out because the growth can be really large.”
- DATACENTERHAWK FOUNDER, DAVID LIGGITT

So we have reached our time, so I want to say thank you to you all for listening. Thank you. Let's give our panelists a big round of applause one more time. And I would just encourage you, I know they'll be around most of the day, so take some time to ask questions. I know we didn't get to questions here, but if you had questions, I'm sure they'd be happy to answer them. Thank you very much. Have a great rest of the day. We appreciate it.

This is a recorded panel at an event attended by datacenterHawk founder David Liggitt. If you enjoy the conversation and don’t want to miss other event discussions, just hit subscribe on iTunes, stream it on Spotify, or follow us on YouTube. Search the Montreal data center market here.