Energy Storage, Gas, Renewables

A Big Data Future: Embracing Market Trends

Issue 6 and Volume 122.

A Big Data Future: Embracing Market Trends

Editor’s Note: This article is based on a paper presented at POWER-GEN International 2017 in Las Vegas, Nevada.

In 2016, Netflix and YouTube were responsible for more than half of the world’s downstream Internet traffic.1 By 2020, analysts expect bandwidth demands from online streaming services to have grown even larger. In the face of this rising demand, utilities must accept the changes to provide reduced costs and risks to ratepayers.

While significant improvements in data center energy efficiency have been made in recent years, data centers still consume approximately 2 percent of the world’s electricity — and demand for data center services continues to grow.2 These trends, coupled with a shift to the cloud and growth in the “internet of things,” have created a high level of pressure to develop more powerful and efficient data centers — and more of them. This, in turn, is putting greater demands on our nation’s electrical grid. As evidence, the hyperscale data centers being designed today will ultimately require several hundred megawatts of critical power. In the face of these changes, there are certainly challenges to overcome, but utilities that embrace these market trends will succeed in the end.

BUILDING A FOUNDATION FOR SPEED TO MARKET

The two primary concerns of those investing in new data centers today are the cost of power and speed to market. Solutions that get mission-critical facilities online faster with a reliable, low-cost source of power (renewable generation being the highest in demand) create a competitive edge and provide the proper foundation for companies that are in the business of big data.

A utility must first develop an intentional and comprehensive strategy focused on the unique aspects of the mission-critical industry. Ideally, a dedicated team with knowledge of the challenges and requirements associated with successful data center projects will be assembled to develop the strategy, assist with site selection and field inbound inquiries from potential data center customers. Often this team will be organized within the economic development department of a utility. The team should work closely with internal stakeholders to educate them on the industry and identify cost and/or schedule advantages that might be available to potential data center customers. Next, those advantages should be highlighted in marketing collateral and across the utility’s online presence.

To help a prospective data center customer achieve faster speeds to market and/or lower rates, the following questions should be considered:

1. Can incentives or custom tariffs be offered? Can lower rates be justified through other benefits the utility might realize by adding a large load with a high-power factor into its system?

2. Are there opportunities to share infrastructure and/or the costs of developing new infrastructure? Can the utility own the backup generators typically installed at a data center and leverage them when not needed by the data center?

3. Are there areas within the existing transmission system where an added load can provide additional/ ancillary benefits (defer costly upgrades, load balancing, etc.)?

4. What does a typical (or ideal) data center customer look like and/or want? A collaborative approach is recommended to see that their needs are incorporated into the planning process.

The following sections will discuss further the details of each of these questions and other important factors to consider.

UNDERSTAND REGIONAL ADVANTAGES

Do you understand the regional characteristics of your service territory and how you stack up against other regions of the country with respect to the data center market? Are you in a warm or cold climate? Are your large industrial rates relatively high? Do you have a relatively high risk for natural disasters or extreme weather events? If so, it is important to get in front of these potential issues early on by developing mitigation strategies for each of these potential fatal flaws.

For example, a utility client in Kansas that was working on attracting data center loads was immediately assumed by a potential customer to be in tornado alley. However, after review of historical weather data, it was clear that the risk for tornadoes in the utility’s service area was much lower than in other regions of the state and the Midwest in general. The utility decided to get in front of this early on and turn what could have been a red flag into a competitive advantage.

LEVERAGE EXISTING INFRASTRUCTURE

A robust evaluation of area water, sewer, fiber and electric utility infrastructure can prevent data center owners from having to perform costly upgrades and can also expedite the process of obtaining permits and easements. Utilities should analyze their local transmission system to identify which substations have spare capacity that could serve a large load or where geographically diverse feeds to the data center could be economically designed and installed. Similarly, areas with excess generation capacity, such as areas with high wind penetration, that are being curtailed by transmission system constraints should be identified. Adding a data center upstream of the constraints might serve to increase the capacity factor of underutilized generation assets.

Just as important, fiber access routes that are readily available with geographically diverse carrier paths should be identified. Ideally, access to a variety of carrier networks will be available through a direct backbone connection. Low latency into major markets/population centers is another key consideration, especially if targeting a niche segment such as financial services which would prefer to be as close to Chicago or New York as possible.

Lastly, utilities often own and operate their own communication paths and networks. If a segment of a utility’s communication network could aid a data center’s connectivity to a backbone network without sacrificing grid reliability, this could present a large cost savings to the data center owner and/or bring additional sites to the forefront that would not have otherwise been viable. Utilities planning future network upgrade projects might want to evaluate and consider partnering with a data center customer or fiber carrier to identify cost-sharing opportunities and make sure the projects can meet the future infrastructure needs of both parties.

UTILIZE A ROBUST SIT SELECTION APPROACH

The two main drivers for power generation site selection are also the drivers for selecting data center sites: access to the transmission system and ample water supply. This means that the same methods used to evaluate a power generation site can be leveraged to pursue candidate sites for data centers. By evaluating a transmission system’s ability to handle power flows from a generation

source, planning engineers can also determine its ability to handle a load for a data center. For water availability, end use has little impact on the evaluation; therefore, current methodologies can be also applied.

“Those unafraid to explore new ideas and deviate from traditional thinking will succeed in attracting mission-critical loads and the benefits that come with them.”

It is increasingly important to evaluate the variability of power prices between sites. This involves looking not only at the published tariff rates for each utility, but also evaluating potential applicable rate riders, such economic development riders. Additionally, for projects desiring renewable power supplies, the availability of power purchase agreements (PPAs) from renewable power facilities should be investigated and compared to the locational marginal prices (LMPs) in the area to determine if economically attractive PPAs are available.

Locating a data center near a power generation facility — existing or planned — may mean lower development and operational costs. Bringing a data center closer to the synchronous machine will also typically mean an improvement in power quality.

Additional site selection advantages can be found if a utility can identify and guide data center owners to ideal locations for adding loads to the grid. Working together is advantageous to both parties, providing data center operators with the location they desire while protecting the grid from unnecessary and potentially costly load issues.

INVEST IN CERTIFIED SITES

Do you know where an ideal location for a data center within your utility’s footprint would be today? If you don’t have a certified sites program in place, this is an easy way to show data center developers that you understand their needs and will be a good partner in the years to come. Furthermore, it gives a utility an easy way to show how and why their region is ideal for a data center while potentially influencing a data center’s final location to maximize the net benefit to the utility, like locating in an area that reduces transmission constraints or increases a generator’s capacity factor. Data center owners will certainly perform their own due diligence, but a utility with information and answers to a potential customer’s questions at their fingertips will increase the odds that a site will be shortlisted by a site selector versus eliminated from consideration due to unknowns.

BUILD ONE PLANT INSTEAD OF TWO: MICROSOFT AND BLACK HILLS ENERGY CASE STUDY

Does your current integrated resource plan call for new generation capacity in the coming years? By partnering with a large data center customer, you might be able to defer or eliminate the need to build a new plant which will reduce costs and risks to your ratepayers.

An excellent example of this is the collaboration that occurred in late 2016 by Microsoft and Wyoming utility Black Hills Energy. A new tariff was designed that gives Black Hills access to Microsoft’s backup generators to meet its peak demands which will defer, and possibly eliminate, the need for Black Hills to build additional generating resources.

Discussions between Microsoft and Black Hills subsequently led to another innovation, whereby natural gas-fired backup generators were deployed in the data center as opposed to less efficient and more costly diesel generators.

OPPORTUNITY KNOCKS

With electricity sales trending downward (five out of the last eight years) primarily due to increases in energy efficiency, utilities have an unprecedented opportunity to capture market share in the critical power industry based on the growth that is certain to occur in the years to come. Those unafraid to explore new ideas and deviate from traditional utility thinking will succeed in attracting mission-critical loads and the benefits that come along with them:

• Additional revenues and/or plant utilization

• Jobs and economic development in the region

• More predictable load profiles

• Deferred investments in new plants

• Lower risks and costs to ratepayers

With consumer demand for cat videos and online streaming expected to do nothing but skyrocket, it’s clear the time to act is now. A focused strategy that creates a win-win for the utility as well as the data center will prevail in the end.


Parker Hills is a senior consultant and project manager in Burns & McDonnell’s Business and Technology Consulting Group. He is responsible for providing project development assistance, strategic siting assistance, due diligence assessments, economic analyses and strategic consulting services for a wide range of power, mission critical and renewable energy projects.

REFERENCES

1. Global Internet Phenomena: Latin America & North America. Sandvine. 21 June 2016.

2. US Department of Energy, Lawrence Berkeley National Laboratory. United States Data Center Energy Usage Report. 2016.