Mark Bramfitt - Utilities & IT

Latest Greenpeace Report on DC Industry Gets Big Time Traction

Gary Cook and his colleagues at Greenpeace have reported for several years running on the environmental credentials of major data center industry players, focusing mainly on internet-based companies that many consumers would recognize.

The point of the reports is to grade these companies on a slate of metrics from how much "green" power they use (nuclear doesn't count!) to how forthcoming they are about their practices.

The latest report has gotten more attention than ever, perhaps because it seems some players have taken the grading to heart and moved way up in the rankings. Apple, Google, and Facebook are the new winners, while Amazon (and AWS) and collocation operators are now solidly in the criticism cross hairs.

What does attention look like?  Reports in mainstream press outlets like Salon and Wired, coverage in environmental media like Climateprogress, and of course industry press like Datacenter Dynamics.  There's even reporting of Grennpeace's awareness campaign featuring a blimp flying over Silicon Valley Tech campuses spreading the word.

I don't think you can overstate the impact that the report is now having, notwithstanding Amazon's stiff-arming. Some of the new leaders on the grade chart used to have pretty bad marks indeed.

And even if the laggards do nothing to improve their status, there is a clear preference now in the data center industry to source renewable power. Google has done it, Facebook is doing it, and Apple is almost wholly sourcing it.

Apple even used it's buying power to convince regulators and Duke Energy to debut a new program so that they could purchase new renewables (an addition to whatever Duke was already sourcing) for their data center in Maiden, NC.

So if you are a utility seeking to attract development from these big players, I think having some kind of renewable purchasing scheme or direct access provision is now crucial, in addition to your current and future rates and ability to serve very large loads responsively.

Wholesale DC Market in Oversupply?

Of particular interest to utilities seeking to attract data center development in their service areas...

I've noted announcements from several of the largest utility-scale data center operators (like Microsoft and Apple) indicating that their build-out strategy is increasingly aimed at expanding existing sites rather than seeking new locations. That's not great news for utilities looking to attract these facilities as part of their economic development activities.

Now Data Center Dynamics reports that the outlook for the wholesale colocation market is decidedly mixed for the short term, with some apparent overcapacity. In something of an ironic twist, the report notes that some of that capacity is due to large operators moving out of colo into their own facilities.

The textbook example in my mind is Facebook, which began their life in retail colo space, migrated to wholesale, and now of course operate their own centers. This has left a hole in the Fortune Data center in San Jose, though Facebook appears to be on the hook under a long term lease.

Some big leases were signed last year, and some big increases in available space are expected in 2014, but I'd guess that the big wholesale players (Digital Realty, Dupont Fabros, etc) will be treading very carefully in considering new development.

I'm also intrigued that Microsoft signed a few leases last year, but for comparatively small blocks of capacity (all under 10 MW). I'd posit two possible explanations.

The first is that Microsoft may lease small blocks to align their growth against their own capacity, filling in near term shortfalls with the leased space. The second is that the small increments may be the best way to address service latency requirements in locations that aren't near company facilities.

I'm told Microsoft is looking to have some capacity in every city with a professional sports team, simply to meet the latency requirments for it's Xbox system!

I still think that a utility that can put together a package of low rates, capacity availability, short time to service, and a clean generation mix (or access to it) will attract attention from both owner-operators and the wholesale colo market. However the trends of expanding existing sites by the owner-operators, and short term overcapacity in the wholesale market are headwinds that have to be overcome.

More Evidence of "Expanding Existing Sites" Trend

A bit of leftover news from last month, but this report in Data Center Dynamics reinforces the observation that some utility-scale data center developers are expanding existing sites rather than seeking new locations.

In this case it is Microsoft announcing an expansion to their facility in Quincy WA, following an announced expansion in West Des Moines IA.

The Quincy expansion is notable to me for two reasons. First, I had the impression that the available cheap power in Quincy (just over three cents per kWh) had been spoken for, because there hasn't been any data center development announcements for the town in some time.

If Microsoft is getting more clean hydro power in the three cent price range, that is really a coup in terms of keeping their power purchase portfolio clean and cheap.

Second, why  a 200-acre site? I have surmised that larger sites are the new paradigm so that utility scale DC operators can explore self generation (solar PV) and expand in the future. I can't see Microsoft pursuing solar with three cent hydropower as the alternative, so 200 acres might suggest a long term plan of expansion. 

Then again, $11 million for land is nothing in the scheme of things when you are developing data centers (the West Des Moines expansion project has a minimum price tag of $667 million)!

Utilities: How To Quote Rates for Utility-Scale Data Centers

In my work with utilities who are trying to attract utility-scale data center development to their service area, I make it clear that power price is the ultimate differentiator, with availability/time to serve and options for clean power secondary criteria.

The economic development representatives I've met with seem to grasp the concept pretty well, but when you test them for their power price "story", the tale is usually pretty hazy!

Let's start with the answer to this question: "What is your power price for a multi-MW data center?".

Most utilities I've worked with answer that question with "X.X cents per kWh", but in fact they are quoting an average industrial cost that ignores several key features of loads of this type.

Where does the utility rep get their price per kWh quote? Likely from the Rates Department (or equivalent), where an analyst takes all of the revenue from a given class of customers and divides it by the total kWh usage of the class.

So, for multi-MW loads, you quote the "average industrial rate" - the total revenue collected from all industrial customers (generally classified as those with peak loads of 1 MW or greater) divided by the energy use by those customers.

There are however pretty wide disparities in the rates charged to those customers, with load factor/shape and service level chief among them.

Customers with "peaky" load profiles, low load factors, and who take service at secondary or primary voltages pay lots more than customers with flat load profiles/high load factors who take service at transmission voltage.

Here's what I would do to derive a more accurate power cost quote for utility-scale data centers: I'd take a 1 MW load, assume a unity load factor, and populate a spreadsheet with 1 MW of demand and 1 MWhr of usage across 8760 hours per year.

Then I'd take my rate schedule, and I'd plot these charges in the spreadsheet:

• Customer Charge (Monthly)
• Meter Charge (Monthly)
• Power Factor Adjustment (Applied Monthly)
• Peak Demand Charge (Monthly)
• Maximum Demand Charge (Monthly, set by highest demand in previous 12 months)
• Summer On-Peak Energy Charge
• Summer Partial-Peak Energy Charge
• Summer Off-Peak Energy Charge
• Winter Partial Peak Energy Charge
• Winter Off-Peak Energy Charge
• (Set all demand and energy charges based on service voltage of secondary/primary/transmission)

If your rate structure mirrors all or many of these features, I bet the average rate you derive from this analysis is lower than your "average industrial class rate".

Now, to complicate matters for some utilities, they now have peak-period pricing reflecting actual market rates, moving down the road to real-time pricing. At the other extreme, you might find some utilities that have very simple industrial rates, though a straight per-kWh rate or even declining block rates are relics of the past for most of us.

I'll cover another aspect of the power price "story" that utilities need to be able to tell when courting utility-scale data center developers, but quoting your rates accurately for the type of load you are attracting is key.

You need the opening of your story to be: "For your multi-megawatt load, assuming you take transmission voltage service and have a unity load factor, your average rate will be X.X cents per kWh (quite a bit lower than the average rate for our customers in the industrial class)."

 

Utility-Scale Data Center Trend: Large Sites to Accomodate Growth

If you watch industry news about new utility-scale data center development as I do, you may have noticed that some deals are for quite large land parcels - certainly parcels that are far larger than what would be needed for the announced data center size.

It's not uncommon to see new developments in the South, midwest, and Pacific Northwest where the parcel sizes are 100 acres or more, even though an initial development of say a 40 MW facility doesn't need anywhere near that much land.

I think there are two things going on, one a minor phenomenon but the other quite telling.

The first trend is exemplified almost exclusively by Apple, because of their preferred environmental mitigation strategy. Apple needs big sites (see Maiden NC, Prineville OR and Reno NV) so that they can install solar photovoltaic arrays at a scale that meaningfully addresses their energy use.

The main trend though is room for expansion. The recent news that Google spent an astounding $2.3 billion in capital on data center projects last quarter included details that of ten or so projects, over three quarters were expansions of existing facilities.

To me that makes a lot of sense as a strategy for many of the big players: they want a geographically diverse portfolio of locations, but don't really need to go beyond a reasonable number if they can comfortably grow each one. And if they can do all of the work to develop one site that could be expanded over time (including securing crucial utility capacity), it would make all the sense in the world to do that.

You can see that strategy at work even in the collocation market, where Digital Realty Trust has developed what are essentially data center campuses, with phased construction in 20 or 40 MW increments to an eventual footprint exceeding 200 MW (in Virginia, on the outskirts of Washington DC).

So for utilities courting data center development, a new question from some of the major players may be "do you have any large sites, where you could serve us tens of megawatts initially, and eventually much more?"

 

New Consulting Area: Attracting DC Development

After a recent appearance at a conference in Philadelphia, I've been doing some consulting for utilities in the mid-west who are interested in attracting large data center development in their service areas.

This is a new area for me, outside of the majority of work I do regarding energy efficiency program development and delivery, but really smack dab in the middle of the data center and utility industry nexus.

What I've helped these utilities grasp is the industry trends that are driving the development of utility-scale data centers, and what the operators of these facilites are looking for from utilities.

I also offer  guidance on strategies for attracting the interest of these developers, including how to accurately portray your rates now and into the future, what to say about power availability and time to serve, positioning the carbon footprint of your generation mix, and how to offer siting guidance.

There is no question that data centers are going wherever there is cheap, and hopefully relatively clean, power, but a handful of utilities (four by my count) are doing an exemplary job of preparing to answer the questions that developers need answers for when seeking sites.

I'll weave in more commentary on the industry trends and recommended strategies in future posts. In the meantime, if you are a utility looking to attract data center load as part of your economic development program, and would like to talk, please let me know!