The secret to success in tier 2 data centre markets

The secret to success in tier 2 data centre markets

Darren Webb Evolution Data Centres

Capacity speaks with Evolution Data Centres’ Darren Webb to understand why investing in tier 2 data centre markets is such a good opportunity.

All across the world, there is a diaspora from typical data centre hubs. Power-hungry AI models and greater adoption of the cloud are fuelling demand, and markets at the epicentre of data centre deployment cannot keep up with the requirements for land or power.

Meanwhile, as digital transformation takes shape across their societies, governments are less comfortable with data stored in far-off lands. At the same time, as these digital services evolve, latency becomes more important and data centres need to be closer to the end users of the applications they are hosting.

Darren Webb, the co-founder and CEO of Evolution Data Centres, spotted this trend in APAC more than three years ago. Since the company launched in 2021, it has focused on the Philippines, Vietnam, and Thailand as its core markets. “When we started Evolution three years ago, we often heard ‘why are you focusing on tier two markets, those markets are too early’,” Webb says.

Well, here’s why.

Providing Clean Energy

With mainstream attention on the carbon footprint of data centres and a necessity to support tenants’ emission goals, sustainability has become impossible to ignore.

“Each market we’ve invested in has organic renewable energy, generated within the country itself,” Webb explains. “Even three years ago (arguably pre-AI) it was clear that data centres were getting bigger in terms of megawatts of capacity, and that inevitably all customers, regardless of sector, would need to show real progress in decarbonising.”

Rather than relying on carbon credits to offset fossil fuel-powered facilities, Webb wants to create a data centre business that can provide reliable clean power at scale. In March 2024, for example, a partnership was struck between Evolution and APAC-focused smart energy solution provider Banpu Next to harness its solar and wind generation.

Banpu’s significant generation capabilities will eventually provide Evolution with sufficient green energy to fully support its initial project in Bangkok, and its proposed plans for Vietnam. However, the power will not be transmitted via a direct connection, as the distance from generation to the data centre is too far. This is often the case.

“9/10 times renewable generation is remote, like a solar farm, an offshore wind farm or a geothermal plant. You don’t always want to put a data centre too close to them due to geographical challenges, and how far they are from existing connectivity,” Webb explains, although this is changing as AI data centres dedicated to training models are less geographically sensitive.

The MoU with Banpu assumes that the regulatory environment is changed in Thailand to allow for a direct connection, as is the case in other markets like the Philippines.

Currently, renewable energy would have to be transmitted through the grid, at which point it blends with the grid’s coal/brown power. “So it’s debatable at that point how ‘green’ it is,” Webb says.

“That is why Evolution, assuming a model that has to use the main grid for transmission, would only claim it acquired 100% green power but would not claim 100% green power at the site. This is about being truthful and transparent on your scope emissions, a point most operators are scared to do, as it will clearly show the ones using carbon credits as their main ‘green’ credentials.”

The question then becomes how to decarbonise the grid. Webb is aware that as a single operator, he is unlikely to have the influence alone to stimulate real results.

“If a large cloud provider is asking for this it’s much more likely to happen. Or in the absence of a willing hyperscaler, collective action from data centre operators.” The Thailand Data Centre Council, on which Webb sits, has been established to achieve exactly this. Power grids in emerging markets are often owned by the government.

“Cloud service providers can transform an economy, adding billions to an emerging market's GDP through the digital opportunities they unlock. With this incentive, we are hoping that the grid can transform to provide energy that we want to buy – green energy that can meet hyperscaler capacity demands,” he says. Webb thinks grid providers will inevitably come under pressure to invest in renewables as they realise off-takers only need their transmission and not their source power.

A New Business Model for a New Market

Tier two markets can offer data centre operators an attractive opportunity due to the lack of competition. “You’re really only competing against the incumbent telcos,” Webb explains. Building data centres where Evolution does is not easy. Local politics, an uncertain and confusing regulatory environment, and a lack of digital readiness stopped large data centre providers from investing in these markets at scale while more attractive short-term opportunities persisted in more developed, traditional markets. But now, as cloud adoption is on the rise and the benefits of looking further afield have become more well known, there’s a changing tide.

Webb has set up Evolution to capitalise on the fact that cloud providers and other data centre operators now want to build in the markets he broke into three years ago. “We have a head start,” he says. “Whereas it would take a new entrant to one of our markets about four years on average to get a data centre up and running, we can reduce this to less than eighteen months.” Evolution has already secured the necessary permits, local partnerships with investors, and rights to operate in its markets.

To capitalise on its first-mover advantage, Evolution offers a flexible model where it can sell co-location directly to cloud providers and AI companies. It can also offer them build-to-suit (BTS) solutions, and extend this BTS offering to other data centre operators looking to establish or expand their presence in Evolution's markets, turning a convoluted market entry process into a far simpler construction project.

What’s Next for Evolution?

While the decentralisation of data centres has led to significant interest in Thailand, Vietnam, and The Philippines, there are still markets likely to develop to match the profile of these countries in the coming years, such as Myanmar, Bangladesh, or Pakistan. “There are still markets out there that have little to no pure-play data centre providers,” Webb says. “Even though on-premises storage is still the primary means of housing data, history has proven that a move to a hybrid or cloud-based environment is almost unavoidable.”

While Webb says he has one eye on these markets, there are no plans to expand immediately. “There’s such a significant growth opportunity in our current markets that it makes sense for us to double down, open new facilities, and continue to support the digital journeys these countries are on,” he says. Demand is so strong, in fact, that Webb says Evolution has plans for a 100MW campus in its future that may be directly connected to clean energy. If these plans come to fruition, it will be even harder for Evolution’s naysayers to criticize the bet on tier two markets that Webb placed just three years ago.

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