Pros and cons of lifting the data centre moratorium

The resumption of data centre development came with new conditions.

Fitch Solutions said the government’s lifting of its data centre moratorium will prompt leading hyper-scale global firms to invest more in local data centres in Singapore.

Before the liting of the moratorium, the analyst said companies like Equinix and Digital Reality have even expressed plans to build new data centres in Singapore.

Apart from attracting more investments, Fitch Solutions said the moratorium also serves as an upside risk particularly on cloud computing spending, which they forecast to increase from $29.6b (US$22b) in 2022 to $41.8b (US$31b) in 2026.

“Cloud-based digital workflow applications, services and solutions are increasing in popularity among Asian enterprises, with the COVID-19 pandemic pushing companies to adopt digital-first solutions such as remote working and consumers turning to streamed entertainment and e-commerce services,” Fitch said.

However, the lifting of the moratorium also came with new stricter operating rules that could pose a downside risk in the short to medium term, according to Fitch.

“Higher investments will be demanded of data centre operators. Higher costs will arise from specialised cooling systems and premiums for excess power usage, for example,” the analyst explained.

The new rules, which include limiting the new sites to a maximum load of 5MW, may also lead to operations losing interest in investing in data centres in Singapore, according to Fitch Solutions.

“This ceiling imposed may not be sufficient to meet the needs of the bigger players in the industry,” the analyst explained.

“Players may also risk financial penalties should their power utilisation rates exceed the new standards set by the government,” Fitch added.

Despite these challenges, Fitch Solutions said that overall, the decision to resume the development of new data centres in Singapore will allow for a brighter further for its data centre market.

Fitch added the decision was “timely” and “necessary to me meet the growing demand for data” amongst Asian enterprises.

“More importantly, we believe that the moratorium will spur further innovation by the Singapore government and its partners—whether through greener technology or infrastructure—that will lay a clearer path for sustainable growth in the country,” the analyst said.