Seyed Madaeni is the cofounder and CEO of Verse.
Data centers are increasingly moving toward clean energy sources.
According to research published in 2023 by S&P Global Intelligence, in the U.S., the data center industry “continues to pace the corporate renewables market,” with Amazon, Google, Meta, Microsoft and Apple Inc. having a “combined renewable portfolio totaling over 45 GW around the globe,” which is more than “half of the global corporate renewables market.” Moreover, the research found that four big data center providers “have bumped up their renewable investments to a combined 1,500 MW,” and Google, Microsoft and Iron Mountain are “taking extra steps in order to be powered by clean energy around the clock.”
Yet, procuring clean power is a complex process. Data center leaders exploring clean power options must navigate a barrage of factors during the procurement stage. By thinking strategically about how to buy clean power, providers and operators can find solutions that best fit their business needs, reduce their carbon footprint and electricity costs, and hedge against energy volatility.
The Importance Of Pursuing Clean Power Now
There are four main reasons why data center leaders should pursue clean power now rather than later.
Being Environmentally Responsible
The first reason is environmental responsibility. By pursuing clean power now, providers and operators can benefit the planet. The sooner data centers move away from traditional energy sources, the sooner they can reduce their carbon footprint and make an impact.
Getting Ahead Of Regulations
Ethical reasons aside, pursuing clean power now also enables providers and operators to future-proof their data centers. On the climate policy front, new regulations are on the horizon, and more could be on the way. For instance, in September 2023, California passed Senate Bill 253, which will “require companies with greater than $1 billion in annual revenues to file annual reports publicly disclosing their Scope 1, 2 and 3 greenhouse gas (GHG) emissions.” Additionally, a Thomson Reuters analysis notes the SEC has proposed rules that would require companies to make “climate-related disclosures,” and these rules are “likely to commence in either late-2023 or 2024.” Proactive action is more strategic than reactive action. If providers and operators take a reactive approach instead of a proactive one, they might be left with a short amount of time to adapt and evolve in light of future regulations.
Hedging Against Energy Volatility
However, data center leaders should not make the shift to clean energy solely out of concerns over potential future regulations. They also need to factor in the premiums they currently pay for energy costs. Energy costs can rise due to inflation, geopolitical conflicts, economic volatility and natural disasters. By switching to clean power, data center providers and operators can mitigate those risks, setting the foundation for better financial health.
Meeting Customer Preferences
Additionally, from my observations, customers increasingly value sustainability and want to work with data centers that leverage clean power. A shift to clean power enables data centers to meet customers’ needs and stand out from competitors who have yet to make the move.
Identifying Goals Is Key For Clean Energy Procurement
Ultimately, green electrons are the same. But not all clean power is the same. The technologies that produce them and the way those technologies are procured vary.
There are multiple ways to pursue clean power, but three strategies are emerging as front-runners.
• 100% renewable energy: With this approach, data centers try to ensure that their annual electricity consumption matches an equal amount of clean energy generated by managed assets. If not done properly, this approach may have a smaller emissions reduction impact than anticipated.
• Carbon matching: This is an annual matching approach that supports new clean energy projects in cost-effective grids (but doesn’t address the infrastructures of local grids where the energy is consumed).
• 24/7 carbon-free energy (CFE): Under this approach, every hour of the day, a data center’s electricity consumption would have to match its generation of clean and renewable energy generation in the same grid or energy market. 24/7 CFE is the most expensive and complex of the three strategies.
Successful clean energy procurement starts with data center providers and operators identifying their goals. Stakeholders should examine their sustainability and financial goals; carbon mitigation and financial health are not always aligned. For instance, from a sustainability standpoint, hosting a data center in a particular area might make sense. However, the incremental clean energy costs associated with it could render that location a financially sub-optimal option in the long run.
Once providers and operators have identified their sustainability and financial goals, they can use artificial intelligence and data analysis tools to forecast these approaches’ carbon and financial benefits and evaluate prospective power purchase agreements (PPAs).
Data center providers and operators also need to plan for the long term. The shift to clean power should provide financial stability for the next five to 10 years at minimum (barring fluctuating market conditions and other volatilities). Ideally, they should decide their desired outcomes from clean power in the next 10 to 30 years and ensure any PPAs they sign align with those goals.
Maintaining Reliability And Operations Is Paramount As Data Centers Shift To Clean Energy
Shifting to clean power is a complicated process that requires understanding electricity markets, power system operations, financial transactions and regulations, among other factors.
To navigate these complexities, data center leaders should seek external expertise or build teams internally that are specifically focused on these issues.
In either case, data center leaders must keep reliability and operations top of mind. They still need stable and reliable electricity; switching to clean power is a gradual process, not an immediate one. A complete shift to clean power may be unrealistic for many data centers. But by taking incremental, strategic steps during the clean energy procurement phase, data center leaders can meet their decarbonization goals, reduce their electricity costs, future-proof their operations, and, ultimately, do their part in protecting our planet.
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