3.6 Site Selection Financial Analysis, Incentives, and the Feasibility Report

3.6 Site Selection Financial Analysis, Incentives, and the Feasibility Report

Two blueprint tasks close the concept planning phase: determine the financial implications of site selection (for example, cost and tax incentives) and develop a feasibility report based on the client's requirements and the site search findings. Section 4.2 teaches the general tools (CapEx, OpEx, TCO, NPV, IRR). This section applies them to the question every site search must answer: which location costs least over the facility's life while meeting the client's requirements?

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The BICSI 002 Site Cost Categories

ANSI/BICSI 002-2024 lists the cost factors that differ by site. Using its structure keeps a comparison complete:

Recurring costs usually dominate. A site with cheaper land but more expensive power is rarely the cheaper site over 15 or 20 years.

Public Incentives and Their Strings

Jurisdictions compete for data centers because they bring large capital investment and tax base. Common incentive types include:

• Sales-and-use tax exemptions on qualifying data center equipment, often the most valuable incentive because servers, storage, and network gear are replaced every few years.
• Property tax abatements or payment-in-lieu-of-taxes (PILOT) agreements that reduce real and personal property taxes for a set term.
• Income or franchise tax credits tied to investment or job creation.
• Utility economic development rates and contributions toward substations, water, or road improvements.
• Zone-based programs (enterprise zones and similar) and workforce training grants.

Incentives come with conditions: a minimum capital investment within a deadline, a number of new jobs, wage thresholds, and continued operation. Most agreements include clawback provisions that require repayment if commitments are missed. The consultant should model the incentive only for the years and amounts the client can realistically earn, and flag the clawback exposure as a risk.

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Comparing Sites in Present Value

Costs and benefits arrive at different times, so compare them in present value (PV):

$PV = \sum_{t=0}^{n} \frac{CF_t}{(1+r)^t}$

For a level annual amount $A$ over $n$ years, $PV = A \times \frac{1-(1+r)^{-n}}{r}$.

Worked Example: Power Price Versus a Sales Tax Exemption

A client plans a 10 MW (IT) facility with an expected annual PUE of 1.3, so the average facility load is 13 MW. Two finalist sites differ mainly in electricity price and incentives. Use a 15-year horizon and an 8% discount rate.

Step 1: Annual energy

$13{,}000\text{ kW} \times 8{,}760\text{ h} = 113{,}880{,}000\text{ kWh/year}$

Step 2: Power cost difference. Site A offers 0.065 USD/kWh; Site B charges 0.085 USD/kWh.

$0.02 \times 113{,}880{,}000 = 2{,}277{,}600\text{ USD/year (Site B costs more)}$

$PV = 2{,}277{,}600 \times \frac{1-1.08^{-15}}{0.08} = 2{,}277{,}600 \times 8.5595 \approx 19.5\text{ million USD}$

Step 3: Sales tax exemption at Site B. The client expects to buy about 200 million USD of IT equipment at opening and to refresh it at years 4 and 8. Site B's state exempts it from a 6% sales tax, saving 12 million USD per purchase:

$PV = 12 + \frac{12}{1.08^{4}} + \frac{12}{1.08^{8}} = 12 + 8.82 + 6.48 \approx 27.3\text{ million USD}$

Step 4: Compare. Site B's exemption (about 27.3 million USD) outweighs its power penalty (about 19.5 million USD) by roughly 7.8 million USD in present value, before land, construction, and other differences. The answer changes if the refresh cycle lengthens, the client misses the incentive's job commitments, or power prices diverge further, so the report should show these sensitivities rather than a single number.

Notice what a nominal comparison would have done: three exemptions of 12 million USD look like 36 million USD, and 15 years of power penalty look like 34 million USD. Present value changes both figures and the size of the gap.

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The Feasibility Report

The feasibility report is the decision document for the client's leadership. It should let a reader who skipped the meetings understand what was required, what was found, and why one site (or none) is recommended. A typical structure:

1. Executive summary and recommendation, including conditions that must hold for the recommendation to stand.
2. Client requirements: capacity and growth, availability class, schedule, budget, and operational needs from the needs assessment.
3. Methodology: criteria, knockout rules, weights, scoring rubrics, data sources, and site visit dates.
4. Site descriptions and survey findings with maps and photographs.
5. Risk analysis: natural, human-caused, and technological hazards measured against the BICSI 002 site criteria, with mitigation and residual risk.
6. Utilities and telecommunications: capacity, redundancy, delivery dates, and connection costs, supported by will-serve letters where available.
7. Financial analysis: one-time and recurring costs, incentives with their conditions, and present-value or TCO comparison.
8. Schedule and entitlement path: zoning, permits, utility lead times, and long-lead procurement.
9. Comparison matrix and sensitivity analysis.
10. Assumptions, limitations, and next steps, such as securing an option on the land and commissioning detailed due diligence studies.

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Common Exam Traps & DCDC Pitfalls

• Comparing nominal totals: Always discount future costs and savings to present value before comparing sites.
• Treating incentives as guaranteed: Missed job or investment commitments can trigger clawbacks.
• Ignoring recurring costs: Power, water, telecom, labor, and taxes usually outweigh land price over the facility life.
• A recommendation without conditions: State the assumptions (refresh cycle, power price, incentive approval) that the recommendation depends on.
• Mixing the feasibility report with the design: The report supports a go/no-go and site decision; detailed design follows in the next project phase.