Opinion: Amazon gives up building its own Auckland data centre, as power prices soar

Opinion: The aborted construction of Amazon's west Auckland data centre shows just how much has changed in its much-vaunted expansion plans in four years.

When plans to build a "cloud region" were announced in September 2021, Amazon was the fourth-largest company in the world by market capitalisation. Big data was the only game in town; artificial intelligence was still the domain of software engineers.

Amazon Web Services boss Adam Selipsky wrote to Jacinda Ardern, the prime minister of the day, to congratulate her on her "strong leadership" through Covid and advise that the company intended to invest $7.5 billion in building new cloud computing infrastructure in New Zealand, using the country's abundant renewable power.

"When we factor in the carbon intensity of consumed electricity and renewable energy purchases, which reduce associated carbon emissions," he wrote, "AWS performs the same task with an 88 percent lower carbon footprint."

That was when the spot price of electricity was less than $100/MWh. Since then it's peaked at nearly $900/MWh, before hovering around the $200/MWh mark this winter. Energy-starved manufacturers, such as pulp and paper mills, have shut their doors and laid off hundreds of staff, citing the high prices for gas and electricity.

For households, too, power prices have soared, in part because of increased lines charges. This week, new data from the credit agency Centrix shows the proportion of households behind on their winter energy bills rose to 4.2 percent in July. More people were asking to borrow money to pay their power bills than to buy cars, houses or get credit cards.

A deep dive into the big tech company's finances reveals it's been charging New Zealand firms and government agencies hundreds of millions for 'local' storage that it hasn't built. And last year it paid just $4.9 million tax on $435m New Zealand revenues - while sending nearly $307m offshore in "cloud fees" to its sister company.

Newsroom had revealed last year that Amazon had quietly put on hold its plans to spend $7.5 billion building power-hungry data centres around Auckland. (Though not before draining a small wetland in west Auckland, and removing a dabchick nesting site, council consenting documents revealed.)

We have now learned that six months ago, after a year of drilling and digging, the construction of the west Auckland data centre finally ground to a halt. The company is rumoured to have blown $40 million; it's not known if that is on top of the $33m spent buying the land.

The earthworks have been flattened, leaving an empty, featureless site for the next developer. The wetland has not been reinstated.

Yet this week on Tuesday morning, with great fanfare, Amazon again announced the launch of "the country's largest, publicly announced, global technology investment".

How Amazon Web Services buries its NZ profits

The re-announcement of $7.5b investment and 1000 jobs got the public backing of a second Prime Minister, Christopher Luxon ("this is an incredible story, right!" he gushed) but all the public got was spin and evasion.

The photos and video footage the company supplied to media are actually of big overseas data centres, we've confirmed. And, asked about the company's failure to construct a single data centre, country manager Manuel Bohnet and public relations consultant Suzanne McNamara obfuscate.

"The AWS Asia Pacific (New Zealand) Region is live and consists of three availability zones at launch," says McNamara. "AWS don't reveal the locations of their data centres for many reasons, a major one being for security purposes."

Bohnet, asked about consenting problems for the west Auckland data centre, says: "We know how to build a region and how to operate, right, and how to establish a region. Also, in a country like New Zealand, we always take a long-term view, which means we look at different options, and then we decide which options are the options that we choose to establish the region. And we found a way to establish the region."

The reality is, the company found a way to establish the region - but that didn't entail building three data centres as initially signalled to Ardern and the public. They haven't built a single one.

What about the west Auckland data centre? "I understand the question," Bohnet replies. "The answer is, the centres are up and running, so they're live today, and we looked at a different option, and we made our choices to bring them online today."

Does that mean Amazon has addressed its consenting problems and opened its data centre at Fred Taylor Drive in west Auckland? "I'm very confident about the data centres that we chose to operate. The availability zones that establish the region are up and running already. So the site that you are talking about is probably something considered at some point."

This is one of the clumsiest and most embarrassing attempts to evade answering a question I've seen from any business leader, for a long time.

So, what of the $7.5b promised investment? The 1000 full-time equivalent jobs in the data region and supporting services? Today, Amazon insists this will still happen, but at NZ-owned competitor Catalyst IT, managing director Don Christie is sceptical. He reckons there will be a few dozen jobs at most.

That's because Christie says Amazon has simply installed its technology at data centres built by other firms - including Infratil-owned hyperscaler CDC. "How hard do you think it is to drop a few racks in a data centre and run what Amazon used to call an 'outpost product'?" he asks. "They can do that for a few hundred thousand dollars."

In his view, the failure to build separate secure availability zones jeopardises the resilience of the Amazon cloud. "Their availability zone in New Zealand is less robust than it probably should be given the geological situation," Christie says. "They've drained a lake, they've destroyed all that environment, and now they're walking away."

The company will still proceed with its power purchase agreement with Mercury Energy, to buy electricity from the gentailer's Turitea South wind farm - this will likely power Amazon's racks at other data centres. It's not clear whether Amazon will still get the power at the cheap prices available when the deal was done in early 2023.

"They value our green energy very highly," Christie says. "It's in short supply globally, and so the risk to us is that they are just exporting our cheaper green electrons. Shane Jones has spoken about the need to provide cheap power to New Zealand manufacturers and businesses, but this will have the opposite effect."

This article was first published by Newsroom.