$1b+ needed to expand from 22MW to 118MW

Spark first revealed its plans to raise capital for data centre expansion on August 23, 2024, at its FY24 results briefing.

Chairwoman Justine Smyth said Spark had a plan to expand to 118 megawatts of data centre capacity (data centres are described by the peak power consumption) from its current 22MW from three facilities (easily the largest of which is its recently expanded Takanini data centre).

The expansion “will require $1b-plus of capex over the next five to seven years”, Smyth said. Spark was exploring equity funding options, “including capital partnerships”.

At the delivery of its first-half result on February 21, Smyth said: “We have also commenced a process to invite expressions of interest from prospective capital partners to co-invest and accelerate our data centre growth strategy.

Surf’s up: Spark’s upgrade plan

A new data centre at Dairy Flat, north of Auckland, would provide up to 40MW of capacity. Stage one of the development, which would run to 10MW, was accommodated under current capex.

Resource consent was granted in June last year.

The master-planned 43ha Dairy Flat Surf Park, funded by US firm Aventuur, will centre on an artificial surf lagoon, which will be warmed by heat generated by the Spark data centre.

Construction of the broader development is under way, but not yet the data centre.

“We haven’t completed settlement of the land yet, which will happen at the start of FY26 with planning and development to occur after that,” a Spark spokeswoman said this morning. (The telco’s 2026 financial year begins on July 1, 2025.)

Spark earlier indicated that stage 1 would take around 18 months to construct.

Big Tech players already have big builds

If Spark achieves its plans for the $1b-plus data centre expansion, it will go toe-to-toe with CDC (which has already completed and expanded hyperscale data centres at Hobsonville and Silverdale), Microsoft, which recently opened a giant $1.06b facility at Westgate and Amazon – which bought land the size of four rugby fields across the road for its own hyperscale campus, now under construction. DCI and other players have also built major facilities.

Amazon says it will spend more than $7.5b on Auckland data centre development over a 10-year period. The firm said that figure was based on construction costs, wages, utilities, running costs and computer gear.

Spark saw $1b wiped from its market cap in a day on February 21 after its fall in first-half profit and full-year warning spooked investors.

Data centres were one of the few bright spots in the result, albeit off a small base.

Data centre revenue increased 13.6% to $25m, with gross margin increasing by 9.5% to $23m. “Increased demand for data centre capacity continues to be driven by ongoing cloud adoption and acceleration of AI,” the firm said. It was targeting an internal rate of return of 10-15% long term as it expanded toward 118MW capacity.

Analysts said while the data centre growth was positive, more clarity was needed on how it would be funded and the potential impact on the dividend.

Spark shares closed Wednesday at $2.08. The stock is down 56% over the past 12 months.

Chris Keall is an Auckland-based member of the Herald’s business team. He joined the Herald in 2018 and is the technology editor and a senior business writer.