Cloud Computing allows businesses to save on capital expenditures by having someone else own the server infrastructure and by shifting operating expenses to a provider with better cost-economies. One of these major operating expenses is Electricity. In fact, an APC Study concluded that the electricity bill accounts for 20% of a US data center’s Total Cost of Ownership (TCO).
The APC study was based on US data centers where electricity is relatively cheap. The graph below compares US rates with more expensive electricity rates (US cents per KWh) in Asian countries.
Philippine Implications
It’s apparent that the Philippines has the highest electricity rate in Asia and this has three implications:
- Larger Percentage - Electricity is a larger percentage of a Philippine data center’s lifetime TCO costs. Extrapolating the US baseline using regional rates in the table below shows that almost half of a Philippine Data Center’s TCO goes to the electricity bill.
- Competitive Regional Disadvantage - As our electricity rates are higher than our Asian neighbors, Infrastructure-as-a-Service (IaaS) providers in the Philippines are at a competitive disadvantage. Providers from China, Thailand, and Malaysia will enjoy lower power rates that they will be able to pass to their consumers in the region. I fully expect bigger providers like Amazon (AWS), Microsoft (Azure), and Rackspace to start deploying data centers in these countries to serve the emerging Asian market for cloud computing. In fact, these providers already have beach heads in Hong Kong and Singapore.
Unless electricity gets more affordable, Philippine Cloud IaaS providers will be constrained to the local market making it doubly difficult for any to achieve economies of scale.
- Important Consideration – At nearly half the total Philippine data-center cost of ownership, electricity (inclusive of distribution and back-up generator costs) becomes a more important consideration when evaluating cost savings by moving to the cloud. From a purely value-maximizing perspective, it should be pretty obvious that the best cloud infrastructure compute and usage costs will come from countries where electricity is cheaper. In this regard, I advise evaluating usage costs from the largest-scale providers from China, Malaysia, Singapore, and Hong-Kong. Note, however, that additional cross-country bandwidth costs will also need to be considered.
Conclusion
Cloud computing effectively allows for electricity arbitrage where computing moves from countries with expensive power, like the Philippines, to those where the tariffs are lower. Though our expensive power limits our IaaS providers’ regional competitiveness, Philippine businesses can save relatively more in electricity costs by shifting to the global cloud. Note however that electricity is not the only consideration as bandwidth costs need to be factored in as well. Bandwidth costs will be the subject of a future post.