Powering data centers

Powering data centers

October 09, 2020 | By Marissa Alcala in Washington, DC and Rachel Rosenfeld in Washington, DC

Technology companies with significant data center operations are responsible for more than 16,600 megawatts of the approximately 26,000 megawatts of total renewable capacity contracted for under corporate power purchase agreements in the United States to date.

Data centers are physical facilities where equipment is centralized for the purpose of storing and allowing access to large amounts of data.

In 2018, the world’s data centers consumed about 1% of all electricity consumed that year worldwide. The percentage has remained more or less constant despite the increase in number of data centers, and the increase in volumes processed at existing data centers, as data centers are becoming more efficient energy users.

Many data-center companies feature prominently in carbon neutrality and other similar initiatives.

The RE 100 initiative is a global initiative by companies committed to taking 100% of their energy from renewable sources. As of this year, the initiative has 260 members, including key data-center owners and users like Apple, Amazon, eBay, Equinix, Facebook, Google, Iron Mountain and SalesForce.

The top-10 EPA Green Power Partner list is a voluntary program that supports corporate procurement of green power and has a number of additional prominent data-center owners as participants, including Cisco, Digital Realty, Intel, Microsoft, Switch, and T-Mobile.

Siting Considerations  

Availability of renewable energy from the grid where a data center is planned can be a key factor in data-center siting.

Climate and geographic stability are more critical for a data center than for other buildings. Any interruption in service, no matter how brief, is a major issue for both the data center and its clients who rely on immediate access to stored data.

Data centers need to avoid flooding, tornados and hurricanes, excessive heat and seismic activity. The same conditions can contribute to potential instability of the power grid.

Road access to a data center site is also particularly important in the event emergency access is needed. Data-center owners look for sites with multiple points of access on top-quality paved and maintained roads. This is usually not an issue in major metropolitan areas, but can present challenges in rural areas.

In addition to traditional utility access, data centers provide better service if they are close to strong internet exchanges and fiber networks. The strength of the connection to fundamental data infrastructure is a more important factor in data center reliability and speed of service when compared to the distance from the data end user.

The “edge” remains a factor in data-center siting. The word “edge” refers to the location of end users of data stored in or passing through data centers. The edge is a moving target. The volume of data usage for social and consumer purposes continues to grow. Commercial data usage fluctuates between traditional downtown or corporate office park locations and work-from-home or other remote locations. This affects the ideal location for a data center, as proximity of a data center to end users of its data can lead to increased efficiency in demand-response time.

Security concerns also loom larger for data centers than for other commercial undertakings given the sensitivity of the data stored as well as the crucial need for uninterrupted delivery of services. Data-center developers closely examine the overall security of a proposed data-center site.

Some data-center owners have considered co-siting with a power plant whose electricity output would be dedicated, in whole or in part, to the data center. There is a debate about whether the potential increased security concerns from having the power plant and data center so closely linked outweigh the benefits of a dedicated nearby power source.

Data-center users look for scalability, meaning the ability to increase the square footage leased in a particular data center while the data-center owners look for the opportunity to build additional data centers near the same footprint.


Electricity is one of the largest operating expenses for a data center.

Only the smallest leases, generally using less than 50 kilowatts of electrical capacity, would normally include power as part of the lease payment. In larger leases, the data-center tenant must usually pay separately for the electricity it consumes.

Many data centers enter into corporate power purchase agreements directly with renewable energy suppliers. These are often “virtual” PPAs, meaning financial instruments to manage electricity costs rather than direct purchases of the physical electricity. A virtual PPA is essentially a form of price hedge,
where a price is agreed and payments are made between the parties to the PPA depending on whether the contracted price for power is above or below the market price. Other data centers contract with “sleeved” PPAs, where the utility company acts as an intermediary on behalf of the data center, as power purchaser, handling the transfer of electricity from a renewable energy project to the data center (and the payment from the data center to the renewably energy project).

As of 2019, Google and Facebook were the largest corporate buyers of renewable energy in the world. Both are taking steps to eliminate all carbon emissions from their footprints by 2030, both for direct emissions and their entire supply and value chains. Amazon aims to use 100% renewable energy by 2025 and reach net-carbon-zero operations by 2040.

Some tech giants also engage in innovative practices to increase their actual (and not simply virtual) use of renewable energy. Google uses a carbon-intelligent computing platform to schedule large computing jobs at times when the power consumption can be fully covered by renewable energy (for example, from solar during daytime hours).

Long-term demand by the largest technology companies is also supporting bespoke arrangements.

Enel signed a PPA with Facebook and Adobe for its 320-megawatt Rattlesnake Creek wind farm in Nebraska in 2018. Under the agreement, Adobe purchases 10 megawatts of capacity from the plant between 2019 and 2028, and then the purchase obligation is transferred to Facebook to supply an expansion of its data center in Nebraska.

Other arrangements used by data centers include aggregated PPAs (where various entities join together and sign one PPA), anchor and joint-tenancy arrangements, where one anchor tenant signs a PPA for a significant amount of the electricity produced by a project and smaller purchasers buy the remaining power generated, and dividing up and reselling an existing PPA.

In scenarios where Facebook and Microsoft have served as an anchor tenant (signing their own PPAs for a large portion of electricity generated by a particular project), the smaller buyers of the remaining electricity must still demonstrate creditworthiness. Due to the comparatively small percentage of the offtake, it may be easier for a smaller buyer to contract with lower credit or for a shorter contract length.

When the offtaker is a data center leasing to tenants, and not itself the sole or majority user of a data center, then the credit risk that must be analyzed is that of the tenants.

Other Arrangements

Another mechanism for crediting use of renewable energy to data centers is the use of renewable energy certificates or RECs.

Various US states have “renewable portfolio standards” that require utilities to supply a certain percentage of their electricity from renewable sources. The utility or other company generating the electricity receives RECs. Utilities must turn in RECs at year end representing the amount of renewable energy they are required to supply. They get RECs either by generating the electricity themselves or by buying them from independent generators. Data-center owners may voluntarily purchase RECs in order to meet their own sustainability goals and internal requirements.

A company that generates renewable energy, but does not own the associated RECs, could announce that it generates renewable electricity that it sells to another party, that it helps to green the grid, or that its sale of RECs helps a utility or other company fulfill renewable energy targets, but only the REC purchaser receives credit for use of the renewable energy. The purchase of RECs might offset the non-renewable resources providing actual power to a facility.

Major data-center players have worked with local utilities to create new green tariffs before deciding to build a data center in a particular service territory.

Utility green tariffs are sleeved PPAs in regulated markets, meaning optional programs offered by utilities that allow larger customers to buy bundled renewable electricity from a specific project through a special utility tariff. These tariffs are gaining popularity in US regulated energy markets where vertically-integrated utilities make it difficult for corporations to procure power from renewables projects directly. (Customers are limited to whatever renewable power is offered by the local utility.)

As of November 2019, 31 green tariffs have been approved or are pending approval in 18 states: Colorado, Georgia, Kansas, Kentucky, Michigan, Minnesota, Missouri, Nebraska, Nevada, New Mexico, North Carolina, Oregon, South Carolina, Utah, Virginia, Washington, Wisconsin, and Wyoming. Some of these states have more than one green tariff program.

Facebook built a 970,000 square-foot data center in Utah powered by a new green tariff it developed with Rocky Mountain Power in 2018. In Alabama in 2018, Facebook worked with the Tennessee Valley Authority to create a renewable energy tariff that will allow Facebook and other customers to purchase clean and renewable energy.

Sometimes there are existing utility programs through which companies can buy green energy. For example, Facebook worked with Pacific Power to use a “schedule 272 tariff” to support the Prineville data center with 100% new solar energy in 2018.

Who Gets Credit?

An enterprise data center is a data center owned and operated by the sole user and is often built on or near the company’s corporate campus.

Large companies such as Apple, AWS, Google, and Microsoft regularly build and operate their own data centers. For enterprise data center owner-operators, the same company that purchases power is the ultimate end-user of that power, and has a clear claim to any credit for using renewable energy at the data center.

In a co-location data center, a data center owner leases full-service space within a single data center to multiple customers.

Managed data centers have the data center owner leasing the entire data center building to a single customer.

In these scenarios, it can be hard to determine who should be able to claim the credit for renewable energy purchased for that data center. There are multiple tracking systems and various states have designed rules to prevent double counting of electrons by more than one entity. The most common approach has been for the facility operator, who is the direct purchaser of the power, to claim any such credit.

In 2019, Iron Mountain, a data center provider, launched a “green power pass” reporting program. Under that program, Iron Mountain will provide an annual certificate to its data center tenants confirming (where applicable) that 100 percent of the power a tenant uses at its data center is from qualifying renewable resources. Participating tenants also receive detailed reports about their power consumption and full documentation of the amount, source and chain-of-custody of the wind, solar or other renewable electricity purchased for the data center.

As an example, the data center operator generally controls the cooling of the facility, while the tenant controls the power used for its IT load. Application of this reporting program would separate power used for cooling from power used for IT load. This approach allows both the data center owner and tenant to get credit for renewable energy use toward their corporate sustainability goals.

Virginia and Texas

Up to 70% of the world’s internet traffic flows through Virginia data centers. Virginia is the largest data-center market in the world with more than 10.8 million operational square feet.

Virginia is a popular data center location due to favorable tax incentives, access to the MAE-East internet exchange point (one of the most important pieces of physical infrastructure for content delivery and exchange of internet traffic), its sizeable population, skilled workforce, and inexpensive land.

Amazon owns or leases a substantial number of data centers in Virginia, as do Facebook, Microsoft and many other tech companies.

Northern Virginia has more data centers than the sixth through the 15th largest markets combined (New York Tri-State, Atlanta, Austin-San Antonio, Houston, Southern California, Seattle, Denver, Boston, Charlotte-Raleigh and Minneapolis) and almost as much as the second through fifth largest markets combined (Dallas-Fort Worth, Silicon Valley, Chicago and Phoenix).

Most renewable capacity in Virginia (approximately 1,700 megawatts) is contracted in corporate PPAs.

Facebook is the largest buyer with 562 megawatts of contracted capacity. Other notable buyers are Amazon with 452 megawatts, Microsoft with 335 megawatts, T-Mobile with 178 megawatts and Apple with 134 megawatts. While wind power, particularly offshore wind, is expected to gain traction in Virginia, all of the corporate contracted capacity in Virginia to date is from solar projects.

Virginia is a growing renewable energy market. The state enacted a “Virginia Clean Economy Act” in April 2020 that requires utilities to supply 30% of their electricity from renewable sources by 2030, increasing to 100% by 2050.

The state has set a target of 5,200 megawatts of offshore wind.

The Virginia Clean Economy Act has a schedule for Dominion Energy and American Electric Power to build new renewable power plants or sign contracts to buy power to replace carbon-emitting plants that will shut down. Dominion Energy committed to 3,000 megawatts of renewable energy by 2022 and has plans to add approximately 5,100 megawatts of offshore wind and 16,000 megawatts of solar through the end of 2035.

Renewable power may become a common part of the “turnkey” offering for data-center operators leasing data-center space.

Digital Realty, a data-center operator, procured 80 megawatts of solar power on behalf of Facebook in 2019 for its data centers in northern Virginia in a back-to-back utility-scale transaction where the data center enters into a virtual power purchase agreement to supply renewable energy to a particular tenant in its data center. The deal helps Facebook reach its goal of global operations with 100% renewable energy by the end of 2020. In 2019, 86% of Facebook’s operations were run using renewable energy.

Texas is another large US market for data centers.

The Dallas-Fort Worth metro area is the second largest metropolitan market in the US, with approximately 4.3 million square feet of net operational space in 2020. Austin and San Antonio also host significant volumes.

In 2020, Texas leads the country in overall renewable energy capacity as well as in cumulative signed corporate PPAs. High wind resources, easy permitting procedures and federal tax credits have made Texas a lucrative market for wind developers, and its affordable land and sizeable population make it an attractive location for data center development.

Texas exempts various items necessary for data-center operation (such as electrical systems, cooling systems, emergency generators, data storage devices, etc.) from sales and use taxes.

As of 2020, data-center players Amazon, Apple, Digital Realty, Equinix, Facebook, Google, Microsoft and QTS have signed corporate PPAs with renewable energy projects in Texas for a combined capacity of more than 2,000 megawatts. Both wind and solar are well represented in these projects.

Latin America

The data center market in Latin America is expected through 2023 to grow at a compound annual rate of 11.49% and reach revenues of more than $1 billion.

In addition to the standard siting concerns, data-center owners building in emerging markets focus on the overall business climate, growth potential and stability of a country.

Brazil leads Latin America in number of data centers. Chile has also been a popular site for data centers, especially in view of the new submarine fiber-optic cables connecting in Chile.

Some Latin American data centers buy electricity directly from renewable energy suppliers. By 2025, as much as 27% of data-center power in Latin America will come from solar and wind power and 29% from hydroelectric power.

Some companies are already powering their data centers entirely with renewable energy. For example, since 2017, Google Chile has procured 100% of its electricity from renewable energy, by way of a direct purchase of power from the El Romero solar plant in the Atacama desert, built and operated by Acciona.

Corporate PPAs are growing in popularity. In 2019, companies across Latin America purchased 2,000 megawatts of clean energy using such PPAs, tripling the amount they purchased the previous year.

Energy Efficiency

Advances in energy efficiency make it hard to predict how a data center’s power needs will change over the life of the facility.

Overall data center design has also been changing. While many data centers are single-story buildings, reduction in heat generated by racks and other equipment, increased efficiency in cooling technologies as well as increased efficiency in energy consumption, has made multi-story buildings more viable.

Data centers use power monitoring tools to identify power consumption trends inside the data center. Monitoring may lead to reconfiguration of racks within a data center to even out power consumption across the space, reduction in areas of higher heat, or shifts in certain non-critical energy-intensive activities to off-peak periods. As monitoring technology improves, energy efficiency efforts should bear even more fruit.

Data centers employ back-up power and storage for an uninterruptible power supply. Failures of older valve-regulated lead-acid batteries currently used for uninterruptible power supply have been the most significant cause of unscheduled outages. Data centers have been transitioning to lithium-ion batteries. Lithium-ion batteries can function reliably at higher temperatures, recharge faster and fit in smaller physical spaces, and they last longer and are more reliable.