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Hydro to power Russian data centres

MOSCOW — Oleg Deripaska, who became a billionaire selling Russia’s natural resources, plans to use Siberia’s abundant hydropower to create a string of data centers that could transform the region into a technology powerhouse.

With energy accounting for almost a third of operating costs for these centers, Deripaska aims to leverage low power rates at a time when a new law pushed by Russian President Vladimir Putin will require companies to store electronic data on Russian users within the country, starting in September.
The first center is set to be completed this year in Irkutsk, a city that sits by Lake Baikal where Deripaska’s En+ Group holding company operates three dams. It’s closer to China and Mongolia than to Moscow, and the company has said it will seek customers both within Russia and in Asia, a strategy that fits with Putin’s efforts to improve ties with Asia as relations chill with Europe and the U.S.

“Data storage in East Siberia is one of the cheapest options due to the availability of power and land,” said Mikhail Popov, a Moscow-based senior corporate systems analysts at IDC, a technology and research consulting company. IDC estimated the storage market would expand 7.5 percent last year, and more than 14 percent from 2014 through 2018.

En+ Group’s energy unit EuroSibEnergo produces about 9 percent of Russia’s total electricity, according to the Moscow- based company’s website. It has 19.5 gigawatts of capacity, three-fourths generated by hydropower. Data centers will be a good way to utilize about 1 gigawatt of excess capacity, according to Maxim Sokov, En+ Group’s chief executive officer.
“Historically, power prices in East Siberia have been cheaper than in the European part of Russia,” in part because there are so many hydropower plants, as well as the availability of coal, Elchin Mammadov, a Bloomberg Intelligence utilities analyst said.

Putin signed the data-storage law on Dec. 31. The country is seeking to boost its self-sufficiency in industries ranging from food production to software, in response to trade sanctions. Russia is tightening regulations on foreign companies amid the worst standoff with the U.S. and Europe since the Cold War over Crimea.

Western companies, including Facebook and Twitter, will need to rent as many as 1,500 additional server racks to comply with the laws, IDC’s Popov has said. With each rack costing roughly $2,500 a month, they may have to spend as much as $45 million a year, according to Popov.

In 2013, the Russian market for commercial data centers reached $456 million, and may grow as much as 20 percent this year, according to IDC.

For Deripaska, the move offers a new chapter in a career that has made him Russia’s 13th richest man, with a net worth of more than $8 billion, according to Bloomberg Billionaires Index. He made his wealth in aluminum in the 1990s, and his largest asset is a 48 percent stake in United Co. Rusal, the world’s largest producer of the metal.

Deripaska’s other assets include 80 percent of GAZ Group, a Russian supplier of light commercial vehicles, as well as interests in coal, energy and banking.

En+ Group is in talks with other potential partners to develop data centers in Krasnoyarsk, about 1,000 kilometers (620 miles) northwest of Irkutsk, Sokov said in an interview. Each center may cost about $60 million to $80 million, he said.

The plan is not without its risks. Recently, power prices in the region have risen as low precipitation has reduced water levels at dams. Additionally, the distance between Siberia and major business areas is Russia and elsewhere may be a an issue, according to IDC’s Popov.

It’s more than 5,000 kilometers from Moscow to Irkutsk, so a user in the capital might have to wait an unacceptable amount of time to retrieve data from a server in Siberia, he said. Speed is critical for banks and other businesses that want their web pages to work fast, and Siberian data centers may be better suited for backup services, he said.

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