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Data Center Fires: Should Investors Be Concerned?

Apr 18, 2021 by Matthew DiLallo
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Data centers are essential to our increasingly digital economy. Their primary purpose is to make sure client data is always accessible by keeping it secure and ensuring servers, networking equipment, and storage systems have the reliable power and regulated temperatures needed to maintain 100% uptime.

If a data center falls short of that goal, clients could move their business to a rival. That's why investors need to keep an eye out for any potential issue that could impact their data center investments.

One that's made headlines this year is fires at two facilities. Here's a look at whether this risk should have data center investors rethinking their investment.

A fiery problem

In early March, a fire at a facility operated by French cloud service company OVHcloud destroyed one of its four data centers in eastern France and damaged another. The fire disrupted millions of websites in the country, knocking government agency portals, banks, shops, news websites, and a cryptocurrency exchange's blog offline. While that downtime impacted website availability, OVHcloud's clients didn't experience any significant data losses.

A month later, an emergency generator caught fire at a data center in Utah operated by dedicated server hosting company WebNX. The fire caused a complete shutdown of the data center, resulting in extended outages for customers. While the fire suppression system at the facility put the blaze out before it caused any fire damage to the customer's servers, some systems incurred water damage. This means some client servers won't come back online for several weeks.

Overall, there have been 25 data center fires in recent years. Many different factors caused these fires. For example, a backup generator at the Utah data center experienced a catastrophic failure following a power disruption from the grid, causing a fire. Meanwhile, the failure of two uninterruptible power supplies sparked the blaze in France.

A stormy time for data center operators

Data-center operators go to great lengths to ensure they can operate at near 100% uptime, since their facilities are crucial to supporting the free flow of data. Two of the most important services they provide clients are reliable power and regulated temperatures so the servers and networking equipment don't overheat. As a result, there's a lot of redundancy and backups to prevent total failures, like backup power generation, fire suppression systems, and backup storage.

This redundancy enabled the data center industry to weather the devastating winter storms that hit Texas early this year. Most data centers quickly switched over to their backup power generators to maintain 100% uptime following the storm. Further, they didn't have problems securing the diesel needed to keep those generators running until the grid came back online.

However, with the switch to backup power causing the Utah fire, these generators pose a risk to data centers, given the grid's increasingly unreliability. For example, just this week, Texas' grid operator warned that it could experience more blackouts after it misjudged the weather.

With climate change potentially causing even more weather issues in the future, data center operators could be in for a bumpy ride. If they continue relying on the grid for primary power and backup generators in case of an interruption, they could experience more fires in the future during power disruptions.

One potential solution is for data center operators to shift their primary power to a distributed generation system, which is electricity produced closer to the source, like rooftop solar or an adjacent wind farm. In conjunction, they'd also need to shift their backup power from fossil fuel-based generators to battery storage systems.

While these green power systems would cost more money than current power solutions, they'd likely be more reliable and reduce the risk of fires. On top of that, they're better for the environment. Several leading data center REITs (real estate investment trusts), including Digital Realty Trust (NYSE: DLR) and Equinix (NASDAQ: EQIX), target getting 100% of their power from renewable energy in the future.

No reason for alarm

Investors shouldn't be overly concerned about the recent fires at two data centers. While these facilities are at higher risk for a fire due to the amount of power they consume and the heat they generate, data centers have lots of built-in redundancy to prevent a catastrophic failure. Because of that, these catastrophes should remain rare, especially as more data center operators invest in renewable energy systems backed up by batteries, since that should further reduce the risk of fires sparked by the switch to generators in a power disruption.

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Matthew DiLallo owns shares of Digital Realty Trust and Equinix. The Motley Fool owns shares of and recommends Digital Realty Trust and Equinix. The Motley Fool has a disclosure policy.