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Take Advantage of Low Energy Prices Now

 
Data Center Journal
March 8, 2017

BY TIM COMERFORD AND JOE SANTO

Energy consumption is one of the largest operating expenses for a data center, costing over half of total operating expenses. Given the tremendous volatility in energy prices over the last decade, data center owners can vastly reduce costs by establishing smart energy-procurement strategies.

Last year’s natural-gas prices fell to the lowest point in more than 17 years at $2.108 per dekatherm (dth), and the U.S. Energy Information Administration (EIA) is forecasting this winter will end with an average price of $3.55 per dth. Next winter, the price is expected to rise to an average of $3.73/dth.

Now is a good time for industrial and commercial end users—including data centers—to take advantage of the still relatively low rates and lock in their pricing. The EIA has forecasted an 11% increase in natural-gas heating cost this winter, and a 5% increase in electric heating cost.

Power and Data Centers

Several key operations consume power in a data center. Here is a breakdown:

  • IT and networking equipment (50%)
  • Cooling—chiller fans and pumps (35%)
  • Power conditioning—uninterruptible power supplies (UPSs) and transformers (11%)
  • Lighting and ancillary office equipment (4%)

The densities of data centers often range from 100 to 300 watts per square foot or more, with an equal amount of capacity required to cool and condition it. Data centers typically operate around the clock, with load factors ranging from 80–95%.

An important measure of data center efficiency is power usage effectiveness (PUE). PUE is a measure of total electric usage to IT power usage. Older data centers often operate in a range of 1.6 to 2.0, with newer data centers achieving 1.1 to 1.3. The chart below is a sample of the PUE from 24 data centers.

powerSource: Sugarloaf Associates

Energy-Cost Dynamics

A number of factors will affect future energy prices, including the following:

1. Natural-gas storage: The storage surplus that existed for most of last year has essentially been eliminated. As of February 3, 2017, 2,559 billion cubic feet (bcf) of gas was in storage. That’s 325 bcf less than last year at this time and 45 bcf above the five-year average.

energySource: http://ir.eia.gov/ngs/ngs.html

2. Weather: Weather will have the largest impact on energy prices this year. At the moment, most of the country has experienced moderate or average temperatures, but meteorologists are expecting the rest of the winter to be slightly colder than normal—a significant change from last winter. If so, the storage level will likely drop below the five-year average, supporting higher natural-gas and electricity prices.

3. Natural-gas demand: It is expected that the demand for natural gas will continue to increase in the years to come. One main reason is that natural gas has become the fuel of choice for electricity generation, especially as new EPA standards affect 1,400 coal and oil units (see the chart below). It’s anticipated that many of the scheduled coal-plant retirements between 2013 and 2020 will be offset by new natural-gas generation facilities.

energySource: https://www.greentechmedia.com/articles/read/Natural-Gas-Not-Renewables-Will-Replace-Coal-As-King

Exporting liquefied natural gas (LNG) will also drive up demand for natural gas in the years to come. Last year marked the first exports of LNG from the completed Sabine, LA, liquefied-natural-gas terminal—the first of several facilities being sited and built in the United States.

These facilities provide large energy companies with the ability to export natural gas to other markets such as Europe and Asia, where market prices are much higher than in the U.S. Currently, four additional LNG export terminals are under construction in the U.S. Six other projects have applications pending, and seven others are in the prefiling stage of development. More details are available on the Federal Energy Regulatory Commission (FERC) website (www.ferc.gov).

Sustainable-Energy Trends

The data center industry is embracing renewable energy, and many enterprise facilities have adopted the technology owing to high customer demand. Colocation providers are also beginning to install renewables and purchase credits to reduce their carbon footprint.

Facebook’s recent site search is a good example of this trend. The social-media company was evaluating sites in Utah and New Mexico for a new enterprise data center, with both states providing tax incentives. Each state also engaged local utility providers to develop renewable-energy solutions. Ultimately, Facebook chose New Mexico, with New Mexico Public Service providing solar and water rights for the site.

A 2016 survey of 226 data center operators by Data Center Knowledge quantified the sustainability trend, finding that

  • 70% of customers consider sustainability when selecting a data center provider
  • 81% believe it’s important that the facility be powered by renewable sources
  • 63% have a corporate sustainability policy, with an additional 25% considering development of a policy within 18 months
  • 68% are willing to pay a premium for renewables
  • 70% believe interest in renewables will increase over the next five years

If renewable- and sustainable-energy options are important to your organization, both commodity market and utility solutions are available in many regions of the country.

Don’t Get Complacent

Although natural-gas and electricity prices have risen from the lows we saw last year, they are still at attractive levels. But prices can change quickly. Cold weather for the remainder of the winter or a supply disruption would put upward pressure on prices. The expected longer-term demand will also have an impact.

Taking advantage of the current market conditions and locking in all or a portion of a data center’s future energy requirements is a sound strategy that will limit the impact of higher prices down the road.

About the Authors

Tim Comerford is SVP of Biggins Lacy Shapiro’s energy-services group and principal of Sugarloaf Associates. Tim focuses on assisting companies, developers, municipalities and real-estate advisors with issues that pertain to energy procurement, renewable installation, infrastructure assessments and utility relocation, with a special focus on mission-critical facilities.

Joe Santo is a principal and director of business development at Premier Energy Group, LLC, an energy consulting firm specializing in energy procurement for commercial and industrial customers. Joe has over 25 years of experience in the energy industry, with over two decades in the deregulated retail market.

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