Data Centres: Powering Innovation by Migrating North
By: Daniel Foster
The Ivey Business Review is a student publication conceived, designed and managed by Honors Business Administration students at the Ivey Business School.
Digital Giants Eating Up Power
Every second, our global online actions fuel the relentless energy appetite of data centres. As data centres cement their importance to modern infrastructure, solutions to address their environmental impact are more urgent and necessary than ever. Growth in the demand for cloud computing services, crypto mining, big data storage, and the emergence of generative AI technologies has introduced unprecedented demand for data centres. This surge in demand has presented new challenges for both governments and corporations. Data centres consume large amounts of energy for their cooling and computing operations, which strains local power grids and water supply. If the combined power consumption of all data centres were to be compared as a country, this data centre nation would rank as the 5th largest energy consumer worldwide. As the world races to meet surging digital infrastructure needs, stakeholders must address the environmental and logistical concerns associated with this growth.
Data Centres Need a New Home
Data centers require substantial power and advanced cooling technologies to maintain efficiency and reliability. Cooling can consume up to 40 percent of a facility’s energy, with air cooling being the most common method. Water cooling is a popular alternative due to its superior thermal conductivity but is still resource intensive as substantial amounts of water are needed at a constant and reliable rate. The global average Power Usage Effectiveness (PUE) rating of data centres is 1.8, well above an optimal score of 1.2.5 PUE is defined as the total amount of energy used by a data centre divided by the amount used by its computing equipment. The efficiency of cooling systems is the key determinant of data centre efficiency. Many existing centers rely on these conventional cooling systems, and as demand grows, the environmental impacts will become more catastrophic. In addition to cooling and energy needs, with land in short supply and power grids stretched to their limits, companies have no choice but to seek alternative locations for expansion.
Where will Data Centres Plug in Next?
Providers consider several factors when choosing a data centre location, with connectivity to significant computing markets being a top priority. Since higher latency affects outsourced IT services, minimizing it becomes a key competitive advantage. Land availability is another key factor, especially as providers seek expansion opportunities in regions already at maximum capacity. Consider Ashburn, Virginia, the data centre capital of the world, which houses over 130 data centres. Despite Ashburn’s low energy costs and proximity to key network infrastructure, the area faces power availability issues and a lack of real estate for new development, pushing providers to search for new locations for their data centres. In addition to enabling the appeasement of growing demand, geographies with vast, cheap land would reduce the fixed costs associated with land, offering new opportunities to deploy the capital. Providers could use cost savings to gain a competitive advantage, reinvest in the business, or distribute funds to lenders and shareholders.
Energy isn’t just a cost factor—it’s a competitive advantage. Power's price, source, and reliability dictate where data centres go next. Location plays a role in the demand for cooling needs of each facility based on the natural temperature of the environment. Cooling is critical because systems slow down when computing equipment gets too hot and may even shut down if the heat is not managed correctly. Reducing the amount of cooling is not an option, but providers must reduce the power usage of their cooling systems to reduce the financial and environmental costs.
Cybersecurity is another major factor beyond infrastructure. Providers prefer jurisdictions with strong regulations and protections against cyber threats, as security risks can undermine operational stability and customer trust. In a digital economy, data centre location isn’t just about power and land—it’s about resilience, security, and potential for long-term growth.
To The North!
Canada is an ideal location for new data centers, as it provides connectivity to key computing markets, has ample land for potential expansion, strong cybersecurity regulations, and stable weather—all factors required for a suitable data centre location.
Canada’s political stability, strategic location, and abundant land offer data centre providers a rare combination: scalability without supply chain risks. Canada’s population centres of Toronto, Montreal, and Vancouver provide excellent proximity to key U.S. and European markets - effectively serving as a valuable connectivity node. Canada offers competitive electricity rates, especially in provinces like Quebec and British Columbia, where abundant renewable hydropower is available. This low-cost, clean energy reduces operational expenses and carbon footprints. Canada's cooler climate is ideal for free cooling, which utilizes outside air to cool data centres and can be used for much of the year. Free cooling can significantly lower cooling costs, water usage, and energy consumption compared to warmer locations.
Canada experiences relatively consistent and predictable weather patterns. This stability minimizes the risks of weather-induced disruptions, ensuring continuous operation and reliability for data centres. According to the National Cyber Security Index, Canada scores 87.50 out of 100, ranking 5th globally. The ranking is based on the nation's preparedness in preventing and managing cybersecurity threats. The exceptional ranking signals to data center providers that Canada is a safe and dependable location for new data center developments.
Ottawa’s $2 Billion AI Bet—But Is It Enough?
The worldwide data centre construction market is projected to reach $49 billion by 2030. Canada is among the top ten largest data centre markets, with $8 billion in revenue, and it has the potential to move up to the top five. Spending on servers is the fastest-growing segment of the data centre sector in Canada, and it is forecasted to grow by 66 percent by 2029, reaching approximately $4 billion in value.
To capture a portion of this value, the Canadian government announced the Canadian Sovereign AI Compute Strategy, a $2-billion allocation for AI spending. This strategy intends to reposition Canada as a leading nation in AI research and to strengthen the industry for the Canadian economy. The funding is allocated: $700 million for industry, private sector, and academic projects; $1 billion for public computing infrastructure and a small computing facility; and $300 million to help small and medium-sized enterprises access computing resources.
While AI is a key focus, data center growth extends beyond AI, supporting cloud computing, crypto mining, and data storage—sectors expected to expand regardless of AI advancements. Although Generative AI has attracted the largest share of investment, other proven, value-driven technologies should not be overlooked, as they contribute to sustained demand for data centers.
A well-targeted government strategy—complementing existing investments—could attract more industry players and further diversify Canada's data center sector, making it more resilient and economically robust.
Show Them the Money!
Rather than treating data center development as an after-effect of AI investment, policymakers should proactively attract corporations through tax and construction incentives. Policymakers should treat data centres as critical infrastructure, offering targeted tax breaks for facilities that lower their environmental footprint with free cooling, on-site renewable energy, and efficient energy systems that achieve a low PUE ratio. This strategy has proven effective as Finland reduces electricity tax for data centres that efficiently utilize waste heat or are adequately energy efficient. Furthermore, Canada should implement tax breaks based on the size of investment and jobs that a new data centre would create. For example, the state of Alabama has an incentive where data centres that invest over $400 million receive tax abatements. If appropriately executed, the jobs created and new business flowing through Canada could offset the financial strain of the tax credits.
Canada is already betting on AI, but that investment will stall without data centres. Fast-tracking approvals, offering tax incentives, and expanding power grid capacity will determine whether Canada leads the AI era or falls behind. Adopting such measures could attract large tech companies that want to move quickly as they look for new data centre locations. Subsidized construction, tax credits, and expedited construction approval could be the last straw in unlocking Canada’s global data centre hub potential.
Cohere’s Big Bet: A $240M Signal for Canada’s Data Centre Future
Cohere is a Toronto-based generative AI startup that differentiates itself from the large players by tailoring its models to the unique needs of each business customer. They are Canada’s GenAI Star as they are one of the leading Generative AI startups globally, valued at $5.5 billion. They recently secured $240 million in subsidies from the Canadian Federal government to build their next data centre in a bespoke agreement, costing billions of dollars and marking the government’s first investment through its recently unveiled $2-billion Canadian Sovereign AI Compute Strategy. CoreWeave is a specialized American cloud computing firm that will be involved in building this facility.
By subsidizing this project, the Canadian government facilitated domestic investment and international business, which will continue to be crucial for the growth of the Canadian data centre industry. Cohere’s data centre is a prime example of how policy can influence investment. However, to maximize Canada’s potential as a data centre location, policymakers must supplement this strategy by standardizing incentives that attract investment from all providers.
The Land of Cold and Code
Canada’s combination of climate, capacity, and connectivity creates a unique opportunity for data center providers seeking to balance efficiency, cost, and sustainability. With strategic government support and proactive corporate investment, it could become a global data center powerhouse. However, it risks losing out to more aggressive competitors if it waits.
