5 Ways the Energy Crisis will Impact IT

The current energy crisis won't just hit domestic fuel bills. It will impact IT too. Here's how 

• Greater Risk of Power Outages
• Chip Shortage Will Soon Be Over - for IT
• Hosting Costs Stop Falling For Now
• Hybrid Working Continues to Be Tolerated By Management
• SaaS/PaaS/IaaS Used as Cashflow-Friendly Alternative to CAPEX

1. Greater Risk of Power Outages

UK energy market regulator Ofgem says the UK faces "a significant risk" of gas shortages in Winter 2022-23. These would be a problem for IT given 30-60% of the UK's electricity comes from gas-fired power stations.

If there's not enough gas for both homes and businesses, large-scale users of gas - such as gas-fired power stations - would be among the first to face supply restrictions. This would increase the risk of power cuts.

Data centre operators are taking note. They are filling their diesel-powered backup generators more than usual to prepare for longer than usual electricity grid outages. Many other firms with backup generators are doing likewise. As a result, standard diesel is now 21 pence per litre more expensive than unleaded petrol.  Back in December 2021, the difference was just 3.5p per litre.

If your servers are hosted in an office that lacks backup generators, now would be a good time to consider moving your business-critical apps to a proper data centre by using cloud hosting or server colocation.

Find out more about the UK's plans to avoid power cuts this winter.

2. Chip Shortage Will Soon Be Over - for IT

Consumers are reigning in discretionary spending on laptops, tablets and phones in response to rising energy bills, inflation and rising mortgage costs. This has largely eliminated the shortage of high-end CPUs.

A shortage in GPUs has been ended by Ethereum's shift from proof-of-work to proof-of-state. This caused demand from cryptominers to fall off a cliff.

There remains a chip shortage, but it mainly affects smaller, cheaper chips, such as those powering niche functions in cars. Some IT equipment remains affected by the chip shortage because firewalls, routers, and filtering devices often use smaller, cheaper custom chips than Servers and Desktops. Cisco has confirmed it has had to delay some shipments. However, the chip shortage's impact on IT seems to be almost over. 

The shortage isn't just about whether  your organisation can buy things, but also at what cost. Fixing the shortages means lower hardware prices, though exchange rate movements may claw back some of that benefit. 

3. Hosting Costs Stop Falling For Now

If you host your own servers, the cost of electricity for power and cooling has already risen. The UK Government is subsidising wholesale prices from October 1st 2022 to 31st March 2022. After that, currently, only vulnerable businesses are due to get help. So self-hosting costs may rise further if the electricity price hasn't fallen back to below the unit price cap by then. External hosting providers face similar electricity cost increases, potentially impacting their prices.  

The consumer spending squeeze could also impact some of the big cloud providers. Declining consumer sentiment could adversely impact retail and advertising businesses. Falling profits and lower tech valuations might create pressure to take a less patient approach to cloud investments, with providers aiming for higher margins and shorter payback periods. Some analysts are even predicting steep price rises. Time will tell. 

4. Hybrid Working Continues to Be Tolerated By Management

With inflation at around 9%, many employees aren't keen to rush back to expensive five-day-a-week commuting. Given skills shortages, most firms can't afford to alienate staff with a hard line on returning to the office.

Some commentators suggest staff may be minded to return to the office to reduce their domestic heating costs. We're sceptical of this, given that jobs that can be done remotely tend to be done by employees who value their time.

Many firms that have an office lease up for renewal may be tempted to downsize to smaller premises in a change made possible by remote working solutions.

Managers hoping to get back to the old normal are having to bide their time.

5. SaaS/PaaS/IaaS Used as Cashflow-Friendly Alternative to CAPEX

The inflation unleashed by the energy price rises has forced central banks to raise interest rates from the ultra-low levels that followed the 2008 Financial Crisis. Rising rates don't just impact residential mortgage payers but corporate borrowers too. 

With lenders raising interest rates and tightening lending criteria, many organisations are having to be more careful over how they manage their cash now that borrowing from external sources is harder and more expensive.

Cloud computing will be a useful tool for IT teams looking to continue digital transformation and IT modernisation in such circumstances. IaaS and PaaS allow IT teams to get the tools they need, without having to pay in advance for spare IT capacity that may not be needed for years. The speed with which new capacity can be added allows organisations to buy just what they need in the short-term, then upgrade later, just in time.

SaaS allows organisations to rent rather than buy software. And with web-based applications, there's often far less work involved in setting up and patching the application.

This Energy Crisis Will Pass

Adjusting to a world less dependent on Russian gas is proving highly disruptive. However, as the UK and much of mainland Europe continue their shift toward renewables and Europe builds new Liquid Natural Gas (LNG) terminals, the disruption to energy prices should go into reverse.

Initially, that will benefit the Government (as it will no longer spend tens of billions subsidising gas prices). However, once wholesale prices fall a few per cent below the price caps, businesses and consumers should start to see price hikes go into reverse.

We're likely to see hosting prices fall again, especially as more efficient server chips come on stream.

Things are likely to be looking up on other fronts too.

New renewable power sources will gradually be added to the grid, helping to keep the lights on. The chip shortage will be largely over. And 'cloud' will have gone from the default choice for new IT infrastructure (in aggregate) to the default choice for organisations of all sizes.