Frigid, Industrial Siberia: Primed for the Digital Era


Dow Jones Institutional News, By James Marson

IRKUTSK, Russia — As President Vladimir Putin drives this country to leap into the digital age, the cold temperatures and powerful rivers of Siberia have become an asset for one well-placed company. Here in southern Siberia, energy-and-aluminum giant En+ Group has entered the data-storage market, feeding on industrial-scale power plants for equipment that runs hot and needs to be kept cool. "It's the ideal location," said Chief Executive Maxim Sokov. "Power is cheap, and the cooling is free."

Siberia's rivers have for decades generated electricity for Russia's aluminum industry, the second-largest after China's. With electricity output exceeding demand, En+ is harnessing the excess, establishing a center here in May that it envisions as the first in a network of modules under the brand "Clouds of Siberia."

Mr. Putin has called for the Russian economy to go digital, and demand fr om state bodies that handle the data of Russia's gigantic bureaucracy is increasing. En+ isn't the only company hoping to capitalize on Soviet-era infrastructure in the digital era. Rosenergoatom, the state nuclear-power generator, said it is planning to open a data center at its Kalinin Nuclear Power Station, northwest of Moscow, in 2018.

En+, which is considering an initial public offering, according to people familiar with the matter, is also looking at export potential. The company is in talks with Chinese, South Korean and Japanese companies to store their data, according to Aleksandr Sgrebny, who heads the company's date-center drive.

A link to China, just a few hundred miles from Irkutsk, would fit Russia's broader economic strategy of providing goods and services to its neighbor's growing economy amid tensions with the West. Mr. Sgrebny said the company is also talking to financial institutions, research institutes and bitcoin miners, who use power-hungry computers to generate the digital currency.

Addressing the international reputation of Russian hackers, the company said the Irkutsk data-storage facility has the second-highest rating on an international scale for physical and network security and reliability. Data centers tend to be built near the sources of demand, but improved network speeds and computing infrastructure mean companies can look further afield. The equipment is best kept in rooms around 70 degrees — often requiring expensive, energy-intensive cooling systems. Iceland, too, is touting its cheap energy and cool climate as natural advantages for its own data centers.

In Irkutsk, the average annual temperature is just above freezing. Even in the mild summers, the world's largest freshwater lake, Baikal, acts like a cooling system, Mr. Sgrebny said.

En+ says all the necessary infrastructure is in place for Clouds of Siberia, and that it will charge 25% to 40% less than its rivals in Moscow, wh ere land and electricity are more expensive.

The company, controlled by billionaire tycoon Oleg Deripaska, generates around 8% of Russia's electricity. Its power assets include four huge, Soviet-era hydroelectric plants along the Angara River, which passes through Irkutsk, and the Yenisei River, which cuts through central Russia and empties into the Arctic Ocean.

But the power plants can produce about twice as much as is used, leaving plenty of cheap electricity available that the company wants to monetize.

The plants were built, starting in the 1950s, as part of efforts to transform Siberia into an economic powerhouse. Aluminum titan Rusal, which En+controls, uses the electricity to power its smelters.

After the collapse of the Soviet Union, demand for electricity fell as Russia's economy shrank. At the Krasnoyarsk Hydroelectric Plant, with a 400 ft.-high dam on the Yenisei that opened 45 years ago, only five of 12 generators were running on a recent day.

"There aren't so many buyers, and it's so cheap," said Mikhail Kamenev, deputy head of production at the plant. He said electricity costs around 15 kopecks per kilowatt-hour, or around a quarter of a cent. The data center in Irkutsk, at En+'s Thermal Power Station, is housed in a structure around the size of two shipping containers. Inside, eight racks of servers produced by Huawei Technologies Co. are powered by two electricity lines from the plant.

Local needs are helping drive demand for data storage, Mr. Sgrebny said. New counterterrorism laws scheduled to come into force next year will oblige telecom companies to store internet traffic and phone conversations for six months — a potential source of business, the company said.

Big local businesses are already clients, said Mr. Sgrebny.

Mr. Sokov, the CEO, said his data centers could be more profitable than the aluminum business. While power generation accounts for 30% of the cost of making aluminum, for data centers the share is 50%, and close to 70% for blockchain, a digital ledger to efficiently share and track information related to contracts and transactions, he said.

"We're creating our own demand" for power, said Mr. Sokov. "We are taking advantage of Soviet synergies."