In May 2021, Alphabet Inc. subsidiary Google LLC announced a partnership with The AES Corp. to supply 24/7 carbon-free energy to Google's data centers in Virginia and in doing so provided a glimpse into its strategy of being carbon-free on an hourly basis globally by 2030. This represents a potential learning opportunity for the wholesale segment of the data center industry that targets the hyperscalers as customers but also points to a much bigger opportunity for the industry as a whole. In 2020, KPMG reported that 80% of the top 250 companies on the 2019 Fortune 500 list are now reporting on sustainability, while at the same time, the United Nations reported that only 40% of the enterprises it surveyed felt confident that their targets were ambitious enough to meet the U.N.'s Sustainable Development goals by 2030. The net of this is that while corporate visibility into sustainability has increased, the hope of success has not, and therein lies the opportunity.
The 451 take
Google and the other hyperscalers continue to set a high bar for decarbonization, and with the level of visibility they are providing to the market, token marketing campaigns will not cut it. These providers want to see real change and have made it clear they intend to expose the carbon footprint of workloads to their customers so they can make informed decisions about placement. Beyond the hyperscalers, a day of reckoning is coming, first among large enterprises and then inevitably among smaller ones, for workloads that are still sitting in corporate data centers that contribute in a substantial way to companies' carbon footprints. While it is true that multi-tenant or colocation facilities are generally more efficient than the average enterprise facility, efficiency alone will not win against the push toward the cloud and decarbonization. The demand now is evolving toward more meaningful and tangible steps toward decarbonization and the ability to illustrate to clients and prospects the change that moving to a colocation facility can make on any given company's carbon footprint. Similar to how some companies need help getting to the cloud or to colocation, there exists an opportunity to also assist companies on their road to decarbonization, and the data center industry seems uniquely positioned to do just that.
Since 2017, Google claims that it has matched 100% of its global energy consumption with renewable energy purchases. The AES announcement, however, represents the next evolution in the company's sustainability efforts as it works toward its 2030 goal of being carbon-free on a 24/7 basis. The main difference between the 2017 milestone and the 2030 goal is load-matching; essentially, it is a matter of timing. In the U.S. and abroad, Google has invested heavily in both solar and wind energy generation. Neither of those, however, generate electricity every hour of any given day.
To compensate, many companies will pay for more energy generation — using solar as an example — during daylight hours than they actually use, such that on an annualized basis, the amount of energy produced is equal to or greater than the amount of energy used. Google's ambitions, however, are hour-by-hour, so more energy produced in one hour has no bearing on the next. During times of low or no energy production as compared to the company's actual usage, Google inherits the grid's carbon density, which in Virginia is not ideal as the local grid in Virginia is still heavily coal-fired.
To chip away at this problem in Virginia, Google has tapped AES to assemble 500 MW of renewable energy generation, which will be complemented by battery storage. Google has less than 200 MW of IT load in Virginia today, according to estimates from 451 Research. During periods of nongeneration, the idea is that the stored energy from the renewable sources can be pushed out on the grid, thereby continuing to offset Google's demand on an hourly basis. Despite the $600 million expected investment, the deal is anticipated to only cover 90% of Google's demand on an hourly basis, underscoring the challenge — and expense — of decarbonizing loads that reside in grids heavily powered heavily by fossil fuels.
Google also recently announced a collaboration with geothermal power upstart Fervo Energy Co. to further support its 24/7 carbon-free energy push for the company's West Coast operations. The two companies are working to build a next-generation geothermal power project that is aiming for a 2022 completion date. This comes on the heels of Google's deal with utility and Berkshire Hathaway Inc. subsidiary NV Energy Inc. to purchase 350 MW of solar and 280 MW of battery storage to help fuel its Nevada data centers. In addition to Google, IT company Iron Mountain Inc. announced it will begin tracking the company's hourly renewable energy load across its numerous facilities in New Jersey and Pennsylvania. Microsoft Corp. is matching its three new data centers in Sweden with renewable energy using Vattenfall AB's "24/7 Matching" solution.
The data center opportunity
The hyperscale segment has been a major source of demand for the leased data center industry, and these hyperscalers are setting lofty goals for decarbonization and aim to do so in short order; many are following the U.N.'s 2030 targets. To the extent the data center providers can be leaders in finding and establishing paths to decarbonization, the better the opportunity will be in landing hyperscalers. Otherwise these companies will have to work all the more to offset what it leases. Beyond the hyperscalers, however, a whole host of enterprises are looking to better their carbon impact, and for those tech heavy companies, their data center portfolio is a major contributor to their carbon emissions. What if the data center industry used its leverage with the power companies to drive greener power options? What if, like Google, the data center providers insisted on decarbonizing, whether the local power companies are onboard or not? What if the data center industry began to roll out managed-type services to assist companies in identifying their carbon impact and also providing a way forward to reduce that impact?
The Google deal perhaps gives us a framework for what this could look like. This deal reflects an aspiration to report out the company's real-time electricity consumption, exposing the carbon density with the goal of matching it with CO2-free generation in near real-time. This represents a new level of accountability in reducing CO2 footprints than the industry has seen previously. It is logical then to assume that in the future, data centers may face pressure to account for their energy usage and CO2 footprint with this same level of transparency. Data centers will increasingly want to understand the aggregate load they manage within each interconnected grid, and the good news here is that much work has been done already to do this. Between building management systems and more advanced data center information management systems, providers generally know this already, often times on a real-time basis. The next step, however, will be to understand the generation profile of their current energy usage, investments in renewable generation, including wholesale power purchase agreements, on-site solar and storage, along with other carbon-free generation, for the purpose of understanding where mismatches between renewable and nonrenewable portfolios exist. At first, it is understandable that this will be for internal use only; however, it is possible that the data center industry will eventually feel pressure to disclose this to their customers. Where substantial mismatches exist, data centers should look to market providers to offer real-time carbon-free solutions, including additional green energy investments, grid services and reservation of storage. Google opted to contract with AES on a turnkey basis for its Virginia datacenters, but this segment is likely to develop beyond a single provider approach.
Additionally, there is something to be said for gains in efficiency. At the end of the day, less energy consumed is less carbon emitted. As an industry, the drive to push down power usage effectiveness numbers for facilities has seemingly stalled as of late. Increasingly though, there is a growing interest in bringing new products to market that could usher in the next wave of efficiency gains.
This article is the product of a collaborative effort between S&P Global Market Intelligence's Energy Research team and 451 Research, Datacenter Knowledge Base.
451 Research is part of S&P Global Market Intelligence.
2021 Corporate Renewables Outlook