How renewable energy is changing the data center market

Much of the recent major push for renewable energy in the U.S. from some of the largest data center providers can be attributed to growing interest in the clean energy colocation services market. While good publicity and the promise of future energy cost savings are reason enough for a company like Google to commit tens of millions of dollars to renewable energy purchase agreements for its data centers, companies that provide various multi-tenant data center services work with an entirely different set of considerations . It just has to make business sense for them.

The good news is that renewable energy in data center services makes more business sense today than ever before, and this is for two reasons.

The first reason is that more and more of their customers have their own sustainability goals, and customers who consider data centers an essential part of their business will look more favorably at data center outsourcing that can offer them a renewable option.

A recent survey of consumers of retail colocation and wholesale data center services conducted by Data Center Knowledge found that 70 percent of these users consider sustainability issues when selecting data center providers. About a third of those who did said it was very important for data center providers to power their facilities with renewable energy, and 15 percent said it was critical.

Most respondents said their interest in data centers powered by renewable energy will increase over the next five years. More than 60 percent have an official sustainability policy and 25 percent are considering developing one in the next 18 months.

Charge full results of the Data Center Knowledge study: Renewable energy and Data Center services in 2016

The second reason is costs. At least in wholesale markets, renewable energy has become price competitive with energy from fossil fuels, and data center providers who can buy them on the wholesale market do not necessarily have to pay high fees for them. Moreover, data center operators often enter into long-term power purchase agreements (PPAs) with wind or solar developers at rates set for the duration of the contracts, protecting themselves from energy market fluctuations for many years.

Customers are pressuring Akamai to change gears

Akamai Technologies, operator of the world’s largest content delivery networks, is a good example of a major global customer of data center services that is currently actively trying to find a way to organize energy supply across its network of multi-colocation data centers in nearly 130 countries.

Until recently, Akamai’s sustainability strategy was based primarily on improving energy efficiency. Internally, efficiency is an easy sell, says Nicola Peill-Moelter, who leads Akamai’s sustainability efforts, said, because what company wouldn’t benefit from greater efficiency?

Hedging against price volatility through revolving PPAs was not a major selling point for Akamai. Although its network consists of about 200,000 servers, it is widely distributed, with most sites taking up only minimal space, she explained. By paying most data center providers based on capacity rather than the amount of energy they use, Akamai is not as exposed to fluctuations in energy prices as some of the larger energy users.

Enter customer demand. “We have seen an increasing percentage of our customers, as well as investor interest” in using services powered by renewable energy, Peill-Moelter said. Customers wanted Akamai to help them achieve their own renewable energy goals, so the company decided to get ahead of the curve and make renewable energy a feature of its services and a differentiator, a goal that is much easier for executives to sign off on, she said.

Last May, Akamai announced a change in strategy with its goal powering at least half of its infrastructure with renewable energy in four years.

It’s complicated

Four years may seem like a long time, but considering that renewable energy as a possible product is not available from most utilities, let alone most data center providers, four years is not a long time at all. Google has for years pressured Duke Energy, the largest U.S. utility, to add a clean energy product to its portfolio and created a special tariff for it so that the internet giant could claim it uses renewable energy to power its data centers in North Carolina .

When Switch, a Las Vegas-based supplier that operates one of the largest data center campuses in the world, found a developer to build a large solar farm in Nevada and sell it to power its data centers at sufficiently low energy consumption, state regulators blocked it opportunity to “decouple” from large Nevada-based utility NV Energy, instead forcing an agreement whereby NV Energy would buy clean energy from the developer at a low rate and sell it to Switch at a much higher rate. In July, Switch filed a lawsuit against both the state and the utility, maintaining that the contract was unfair.

Read more: Why a data center supplier switch is suing Nevada and NV Energy

Because no company can simply buy or sell renewable energy on wholesale markets in any state, Google and Apple have incorporated subsidiaries as energy companies to give themselves that flexibility.

Providing enough renewable energy for any significant data center operation seems to almost always involve a lengthy and expensive process of negotiating with utilities and regulators and developing complex workarounds.

“I don’t think it’s going to be easy for (data center providers),” Peill-Moelter said, but they have more incentive to figure it out “because customers are telling them to.” He hopes more providers will see renewables as a way to reduce exposure to fossil energy price volatility, but this strategy will only be effective if data center providers do not pass on energy costs to their customers (many do).

Read more: Cleaning data center power is a dirty job

Not all RECs are created equal

Adding to the complexity is the fact that a data center operator can obtain renewable energy credits in many different ways. Some types are acceptable to customers like Akamai and some are not. For example, Google could buy power from a wind farm, strip it of RECs, and sell it on the wholesale market as “dirty” power, while applying RECs to dirty energy consumed by data centers. The end result is even more renewable energy capacity added to the grid, as large long-term PPAs like the one signed by Google often help developers secure the financing necessary to build renewable plants.

You can also simply buy RECs on the market, which does little to reduce overall dependence on fossil fuels. “If they go away and just buy national RECs, it won’t do us any good,” Peill-Moelter said. She added that other large colocation clients such as eBay and Salesforce are on the same side as Akamai on this issue.

It is involved in activities aimed at standardizing the way colocation providers offer services powered by renewable energy under the name Future of Internet Power – one of the projects of an NGO called Businesses for Social Responsibility. The group hopes to have a draft proposal ready by the end of the summer.

They just want to pay for what they use

In addition to the lack of a regulatory and business framework for large-scale renewable energy purchases by large end-users such as data center operators, there are many internal issues within colocation companies that make it even more difficult for their customers to exercise tight control over the type of energy and the amount of energy consumed in their objects.

As an energy-conscious customer, you need reliable data on how much energy your colocation facility is using, but there are many legacy colocation data centers that are not equipped to provide this data, Peill-Moelter said. It is common practice in the colocation industry to charge customers based on the power used (cost per kW) rather than the amount of energy used (cost per kWh).

This problem isn’t limited to little mom and pop colos. “Almost every large colo provider has data centers that cannot measure energy,” she said. Akamai began pushing for power-metered colo contracts, but many vendors were simply unable to offer this model. “They don’t want to do it, but that’s changing; Colos are getting the message.”

Charge full results of the Data Center Knowledge: Renewable Energy and Data Center Services study in 2016