By Ernest Granson
The news that O’Leary Ventures has made bold plans to build a massive data centre in Alberta’s Municipal District of Greenview has focused attention on the factors required for regions to attract global scale projects. In the context of these huge facilities centres obtaining energy supplies, there could be considerable complexity because most of the existing and proposed projects would use multiple primary and backup electricity sources. This kind of situation could also result in unfamiliar legal circumstances as Brady Chapman, a corporate and commercial attorney with MLT Aikins LLP in Calgary, explains.
“These data cenrers are not just large infrastructure projects in terms of the actual building but they're also going to involve large power projects,” says Chapman, who focuses on energy, natural resources and transactional matters. “As the developer, you have to ask, do we need a natural gas facility with carbon capture and storage? Do we also need renewables? And will the entire energy supply be behind-the-fence (electricity that is generated and consumed on-site by a facility)? That would involve a real nexus of permitting and development which needs to be packaged together. As a significant project, it derogates from what we would typically see in the current market, which would just be an industrial load that contracts to obtain energy with individual producers.”
A major difference, Chapman goes on to say is that if that party, say a renewable energy supplier, is not able to provide energy or if the natural gas plant needs maintenance or goes offline suddenly because it's very cold, suddenly that data centre might need to secure backup power from the grid. “The reality is,” he says, “it's not as easy as just flicking on a light switch and getting half a gigawatt of energy because your natural gas facility is down. So, even if you're behind the grid, you still may need to be connected to it for contingency purposes. How will that look in terms of the contracts and the approvals you need to get, and how will that be regulated by the utility? Those are all situations that must be considered.”
Chapman points out that another key legal consideration is intellectual property involved in the development of data centres. “If you're contracting a major project, intellectual property is very important point in terms of the engineering and the building group that's actually going to be constructing the facility,” he says. “When we start to look at these large projects where you have behind-the-fence power components, and the actual data center facility connection, there are a lot of parties at the table with a lot of interaction of intellectual property. And, on the contracting side, there are also the various contracting models that need to be factored in.”
Foreign acquisition and ownership can be a point of contention when it comes to major projects throughout the world. For instance, those issues are tightly regulated in Sweden and Norway (home of the 6.6 million sq. ft., eventual 1gigawatt Kolos Data Centre). Foreign ownership in Sweden is enforced under the Foreign Direct Investment (FDI) Act. In Norway, it’s controlled under the newly enacted Electronic Communications Act (Ecom Act). In both of these cases, the regulations focus mainly on national security and public safety.
In Canada, each of the ten provinces have their own requirements. In Alberta, the issue is covered by the Agricultural and Recreational Land Ownership Act (ARLOA) and the Foreign Ownership of Land Regulations (FOLR). The national security factor is governed federally under the Investment Canada Act (ICA). On the provincial side, Chapman says the ARLOA specifies a prescribed amount of foreign land ownership which is allowed in various situations along with potential exemptions.
“Data centres will have to review that regime and think about how much land they need, whether there are exemptions, along with the process to gain formal approval to be able to acquire the land,” Chapman says. “But this isn't a novel situation. For instance, if you’re planning to build out an agricultural facility, you also have to navigate these foreign ownership requirements.”
Developing a data centre, like any other business venture, is done for the eventual financial gain and, so, tax incentives become important factors. For those developers, says Chapman, there are several elements to analyze. “First of all,” he says, “if there is an acquisition, will it be a Canadian controlled corporation? Any group or individuals from Europe or the U.S. planning to be involved in ownership need to explore what access it may have to any tax programs. Is there any way to structure their ownership, possibly with a Canadian partner, to gain access to any tax benefits? A lot of work must be done upfront on the structuring side.”
And again, energy generation becomes such a crucial component for these facilities, in this case for tax incentives. “I am not a tax lawyer, so I can’t speak in specifics, but investment tax credits (ITC) are now available for generation purposes,” Chapman says, “so, if you’re building a geothermal facility, you might qualify for the tax credits. If you have a Carbon Capture, Utilization, and Storage (CCUS) facility on your natural gas generation, then there might be certain ITCs available.”
Of all potential contentious legal issues facing data centre developers, Chapman says there is no question that the number one issue is energy. “Think about the fact that there are data centres applying for permits who say they require as much energy as entire cities,” he says. “It’s the most important issue these groups are going to have to navigate, both in terms of working with the system operator on interconnections and also figuring out solutions for themselves for behind-the-fence solutions that may involve packaging certain energy types together. If they are able to resolve that component, all the other issues can likely be settled.”