Energy procurement in the data centre industry

Because the world relies on technology and society’s use and appetite for digital applications is rising, demand for data centre space is also increasing. According to JLL’s Global Data Centre Outlook, the hyperscale market alone (facilities that manage very large data processing and storage needs), is expected to grow 20 per cent from 2021 to 2026. ChatGPT is a topical example of an application using artificial intelligence (AI) that will increase the need for data centre storage and processing. However, as data centres continue to grow in importance, so too does their need for energy. Consequently, how data centres procure energy has a critical role to play in decarbonising the UK’s energy supply sector and supporting the delivery of the national net zero target. 

And when it comes to energy procurement, data centres have a lot in common with energy suppliers; both are in the business of supplying power to their customers, and both must balance the need for sustainability with the need for profitability; energy suppliers are under pressure to reduce their carbon footprint and invest in renewable energy sources, similarly data centres are under pressure to reduce their energy consumption and choose sustainable energy sources.

A key difference between the two industries is that data centres have a closer relationship with their energy provider. It is common for data centres to have long-term contracts with one or more energy providers and / or brokers, and they often work closely with them to ensure a reliable and cost-effective supply of power. In contrast, with regards to non-data centre customers, energy suppliers typically have a more distant relationship and may not have the same level of control over their energy supply.

Making the relationship count

To make this close relationship count, data centres work hard to procure energy responsibly so they can operate efficiently and sustainably. This means having an energy procurement strategy that involves buying the required volumes of energy from the various resources available such as renewables, natural gas, coal and nuclear.

Although the goal is clear - to find the most sustainable energy source to power data centres to benefit their customers, operators and plant, whilst being environmentally responsible - it is a complex process, involving careful consideration of multiple factors such as energy efficiency, carbon emissions, reliability and cost-effectiveness.

It is also important for commercial reasons; as data centres grow, they consume more energy. This, as well as rising energy prices, has led to facilities’ increasing energy expenditure, which can have a significant impact on the provider’s bottom line, and the cost to the customer. By choosing reliable, sustainable energy sources, data centres can reduce their energy costs and increase their competitiveness in the marketplace.

Not all renewables are equally sustainable

However, energy sources can differ in how sustainable they are, so it’s important to look beyond carbon emissions. For example, biomass and nuclear energy might be considered as sustainable energy sources because they don’t produce carbon emissions directly, but they can have negative impacts on the environment in other ways; biomass requires large amounts of crops or trees used for fuel, which can lead to deforestation and habitat destruction; nuclear energy is very expensive to produce and also has long-term waste disposal issues; and both produce other by-products.

In comparison, hydro, solar and tidal energy have a minimal impact on the environmental as they harness the power of natural resources; they don't require land or resources beyond the initial construction and maintenance of the infrastructure. However, because of their dependence on weather conditions, they aren’t 100% reliable. This is a key factor for data centres to consider when choosing energy providers because it is critical for them to avoid difficulties such as power outages. Data centres that use 100% renewable energy mitigate this risk by having a balanced ‘basket’ of sustainable energy resources within their portfolio to ensure availability at all times.

It is also important to be able to prove that sustainable energy purchased is what is says it is. Renewable Energy Guarantee of Origin (REGO) certification verifies that the energy being used is truly renewable and sustainable. This certification can be easily checked by looking at the energy company's annual fuel mix report, which is available online for public viewing. This information can be useful for data centres as they make decisions about their own energy procurement and strive to do their part in achieving the UK's net zero goals, as well as for customers who need to include energy usage information in ESG reports.

Cost matters

However, regardless of how sustainable the energy is, how much it costs remains a deciding factor. If the cost doesn’t make commercial sense to both the data centre and its customers, it won’t be viable. The good news is that cost of renewable energy is actually decreasing as technology improves and economies of scale are reached. Fortunately, as more and more companies and individuals prioritise sustainability, it makes sense for energy companies to

invest in and produce renewable energy. This is making it increasingly competitive with traditional fossil fuel sources, and a more viable option for data centre providers providing the opportunity to access more sustainable energy options at competitive prices. If the energy prices are cost effective, then the data centre should ensure that any benefits are passed directly onto its customers in the form of competitive prices and improved services.

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Properly managing energy procurement can help data centre providers to reduce their operating costs, improve the reliability and quality of their energy supply, and reduce their environmental impact. It is also becoming increasingly important as customers aim to meet their own sustainability goals and comply with regulatory requirements. And with the rise of renewable energy, energy procurement is an opportunity for data centre providers to support the growth of sustainable energy generation.

Energy procurement is a multi-faceted process that requires careful consideration of both commercial and environmental factors. Sustainability is a key business driver for many organisations, so being able to provide evidence of sustainable energy and practices can assist customers with their own sustainability goals. By adopting responsible energy sourcing strategies, data centres can maximise efficiency and minimise their environmental impact whilst reducing costs and enhancing their corporate reputation.