Data centres: Energy considerations Part I - Powering

Data centre developers are responsible for building and designing data centres.

As more data centres are built, the need to show that the energy demands of each new data centre can be met will become increasingly important.

Key areas of focus:

• Efficiency
• Location
• Additional generation

  Efficiency

The increased government scrutiny on data centre power usage and the renewed focus on decarbonisation efforts by data centre users necessitates the implementation of efficiency measures in the design and construction of data centres. For example, in some overseas jurisdictions (such as Ireland and Singapore) moratoriums have been put on the development of new data centres given the significant impact they have on the electricity network.

In Australia, all data centres must obtain a five-star National Australia Built Environment System (NABERS) rating for their facilities. This requires data centre builders to provide indications of the environmental impacts and energy efficiency standards of its data centre infrastructure.

Data centre developers may seek to increase efficiency by creating flexible power systems that incorporate built in ‘blocks’ such as standby power units, transformers and switchboards. These designs enable power usage to be tailored based on the demands of the data centre user, allowing data centre centres to operate at varying power densities providing additional opportunities to reduce energy usage.

 Location

Constructing data centres close to end users in strong parts of the electricity network is vital for developers.

Given the expansion of data centre development in Australia, optimal locations that meet both considerations are becoming more scarce, and locations which allow connections to strong parts of the network are sold at a premium.

Data centre developers should be conscious of the potential impact that their load may have on the network in which they are connecting to and be cognisant of how network operators will perceive their connection applications.  Early feasibility studies and early engagement with network operators are necessary for the purposes of scoping the grid access standards for the data centre plant (which includes its connection assets). Data Centre operators are required to propose ‘access standards’ to which the plant will perform when drawing load from the grid, which must either meet the ‘automatic access standard,  or (provided they meet the “minimum access standard”) be negotiated with AEMO (and the TNSP). Once accepted by the parties the agreed standard become the performance standards to which the plant and connection assets must be built to and operate at.   The connection process and access standards for large industrial loads are currently the subject of regulatory review and change is expected. See more information about AEMC’s proposed changes here.

Data centre developers should consider the impact the project will have on the network and have power solutions to satisfy the network operators that they won’t negatively impact on the network.  Some examples of these solutions might be on-site generation, relationships facilitating the build out of additional generation capacity, or facilities to mitigate system strength in weaker areas of the network.  For example, a network operator may not guarantee the availability of the network at all times for a portion of the capacity needed but this is offset by on-site generation. Examples of connection models that we are seeing in the market will be covered in further detail in an upcoming article in this series.

Similarly, where latency is less of a concern, data centre developers could consider:

• whether the location of the data centre needs to be close to end users, or
• could instead be located in strong parts of the network, or
• co-located with a generation source (such as a windfarm, solar farm or Battery Energy Storage System (BESS)).

 Additional generation

Data centre developers can consider bespoke energy solutions, such as on-site renewable generation and battery storage or partnering with energy developers for the build out of additional generation. For example, they may collaborate with generators by entering into joint venture partnerships to develop renewable energy projects or enter into power purchase agreements (PPAs) to secure long-term supply and investment in clean energy projects.

By integrating these on-site electricity generation and storage systems, data centre developers can mitigate demand pressures on the electricity grid while managing their own energy and backup generation needs. Also, any excess capacity generated by these projects could be on-sold into the market (providing developers and with potential additional revenue streams) or used as backup generation.

Further detail on on-site generation models will covered in an upcoming article as part of this series.

Data centre operators manage, maintain, and operate facilities, often providing the IT systems and equipment for data processing, storage, and management.

With the energy transition, future prices of electricity are volatile and uncertain.  This is exacerbated as more data centres are built and adds to the demand for electricity increases.  This increases the imperative for data centre operators to source consistent and reliable electricity supply or otherwise mitigate their exposure to electricity prices.

Key areas of focus:

• Partnering with generators and batteries
• Retrofitting for efficiency

 Partnering with generators and batteries

There has recently been an increasing trend of data centre operators partnering with generators (particularly renewable generators and batteries) to secure access to energy at lower costs.

For example, data centre operators are entering into PPAs with renewable energy developers, allowing operators secure supply of green energy at a fixed price and shielding them from the volatility of the electricity market. In fact, data centres are some of the largest proponents of PPAs for renewable energy projects, with operators accounting for around 45% of renewable PPA’s globally.

Alternatively, traditional tolling agreements may also offer data centre operators with a structured way to secure stable power supply. Under such an arrangement, the data centre operator ‘leases’ the necessary power infrastructure from the power plant owner or battery in exchange for a fixed tolling charge.

This allows the operator to control the dispatch of the facility. Tolling agreements therefore provide data centre operators with the direct ability to adjust power usage based on demand fluctuations, minimising the risks of power disruptions. This product is becoming particularly popular with battery assets, as it allows the operator to charge and discharge in order to reduce its exposure to price volatility and, if on-site, as a backup reliability measure.

 Retrofitting for efficiency

Operators may choose to retrofit end-of-life data centre facilities to improve efficiency at relatively lower costs.

This could involve building power infrastructure projects such as on-site batteries or additional generators into existing data centre facilities to ensure grid resilience during peak demand.

Alternatively, data centre operators may also seek to implement energy saving technologies to existing facilities to maximise energy usage and reduce energy consumption. For example, Microsoft has invested in technologies that recycle excess heat to restore grid capacity. Additionally, EMC, a cloud computing and storage firm, undertook a retrofit project to implement free cooling technology to its data centre facility in Ireland, achieving large annual electricity savings while reducing emissions.

Data centre customers require data centres for hosting their applications and managing data through co-location or managed services from data centre providers.

The heightened scrutiny on sources of power and decarbonisation commitments compels data centre users to source energy from renewable resources. However, as data centres need to be operational 24/7, customers must balance this demand for dependable energy supply with the fluctuating output inherent in renewable energy generation.

Key areas of focus:

• Sourcing PPAs
• Focus on green power

 Sourcing PPAs

Customers prioritise both value and reliability when it comes to power supply for data centres. For example, hyperscale-customers can invest in advanced power usage solutions to ensure dependable energy supply and sustainable operations.

These efforts include securing renewable PPAs, developing off-site generation capabilities, and implementing battery storage systems to hedge their consumption across a broad portfolio. For example, in 2021, Microsoft signed a PPA with FRV Australia for the supply of renewable energy from the Walla Walla Solar Farm to its data centres.

 Focus on green power

On the other hand, smaller enterprises are likely to face challenges in developing their own solutions due to resource constraints and may therefore seek to leverage the investments made by energy industry participants.

This could include seeking large scale generation certificates (LGCs) or exploring other ways to offset emissions by engaging in the voluntary carbon market.

Carbon markets provide participants with a platform for the trading of carbon emissions through emission units, enabling entities with mandated or voluntary emission targets to buy these units to reduce emissions efficiently.

Specifically, LGCs are tradeable certificates created for large-scale renewable energy power stations which can be sold to private buyers on the secondary market. The relevance of LGCs is two-fold:

• firstly, LGCs are essential for entities with liabilities under the Renewable Energy Target (RET) scheme to meet their renewable energy obligations set under that scheme
• alternatively, entities not liable under the RET scheme such as data centre customers may also seek to leverage LGCs to meet voluntary sustainability ambitions. As LGC’s regime transitions to the Renewable Electricity Guarantee of Origin (REGO) tradable certificates, data centre customers should consider the relevance of the REGO scheme in meeting their sustainable energy usage initiatives.

Energy retailers sell electricity to residential, commercial and industrial customers. Retailers purchase energy from the wholesale market or directly from energy producers and then resell it to retail customers.

The increase in the power needs of data centres presents various opportunities for energy retailers to offer bespoke arrangements focused on the needs of data centres and their customers.  This can include providing access to renewable generation while managing the increased supply volatility brought about by intermittent renewable generation.

Key areas of focus:

• Data centre centric product offerings
• PPA sleeving

 Data centre centric product offerings

As data centre operators shift towards renewable energy, we expect energy retailers to offer bespoke products such as hedge contracts to meet these demands. These contracts enable the data centre operator or customer to more effectively hedge the price of electricity in a market that is seeing a rapid adoption of renewable generation technologies.

As the demand for data centres increase, we are expecting that the products for data centres will be tailored to provide a consistent price for electricity to match the load over time.  We also expect that offering green products or the ability to match the load to a generation source (eg a wind farm and a battery) will become increasingly common products that can be provided.

We will provide further detail of the types of electricity products that we are seeing in the market in an upcoming article as part of this series.

 PPA sleeving

Alternatively, retailers may adapt by facilitating PPA sleeving.

A sleeved PPA allows customers to negotiate their own PPAs directly with a project and then bring that PPA to their retailer.  The retailer can then ‘sleeve’ this into a retail product to suit the customer’s usage. These bespoke products provide customers with flexibility and control over their electricity usage and choice of counterparty.

We expect that customers with a larger load or who have significant buying power are likely to use these products as it allows them to negotiate the PPA themselves.

Renewable energy developers are involved in construction, development and operation of projects that generate electricity from various renewable sources, including solar and wind.

Renewable energy developers are presented with significant opportunities to provide clean, reliable power solutions to data centres while securing long-term revenue streams.

Key areas of focus:

• Additional source of capital and customers
• Co-development opportunities

 Additional source of capital and customers

Data centre developers and operators are increasing investment in renewable energy deployment to ensure reliable and uninterrupted power supply, unlocking additional access to capital for energy developers - either through direct investment or an offtake agreement.

 Co-development opportunities

As data centres require a large amount of electricity, data centre developers are engaging with renewable energy developers to explore on-site solutions to support power usage for their facilities. For example, Iron Mountain, a leading data centre operator, has engaged renewable energy developers to build the largest rooftop solar installation to generate on-site power for its data centres.

Additionally, growing power demand for data centres has also increased opportunities for investment in energy storage systems. These technologies are connected to the power grid for the purposes of storing energy during periods of low demand and then releasing back to the grid when required.

The role of batteries as an energy storage solution for data centres is also expanding significantly. For example, developers are constructing Queensland’s biggest BESS, which is planned to include a data storage facility on site.

Therefore, amid the rapidly expanding energy consumption requirements of data centres, renewable energy developers are presented with various opportunities to equip data centres with the appropriate infrastructure to ensure reliable and constant supply of electricity.

Further detail on on-site generation models will the covered in an upcoming article as part of this series.