Generator Shortage: A Barrier to Entry?

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“Web 2.0 has joined Silicon Valley and the Rust Belt at the hip.” So notes Nicholas Carr in his post today about the continuing supply-demand imbalance in the booming market for large diesel generators. In Caterpillar: Web 2.0 Giant, Carr observes that demand from data center builders for generators helped boost Cat’s sales of electric power applications by 44 percent. That trend has also been a driver in the sensational rise in shares of Cummins (CMI), which have gained 137 percent this year.

Carr also passes along a report that will be of interest to data center builders:

I hear that supplies remain short today, delaying construction projects nine months or more. Rumor has it, in fact, that Microsoft and Google have locked up a significant portion of Caterpillar’s production for the foreseeable future.

The availability of generators is a major reason why we won’t see any oversupply of data centers anytime soon. Lengthy backlogs for 2 megawatt generators persist, and in an environment of scarcity, Caterpillar (CAT) and other major generator manufacturers will look after their largest existing customers.


This phenomenon doesn’t only extend to Microsoft (MSFT) and Google (GOOG). Existing data center builders like Equinix (EQIX), Digital Realty Trust (DLR), Terremark (TMRK), 365 Main, DuPont Fabros and i/o Data Centers all have longstanding relationships with their generator manufacturers. These companies have become savvy in ordering ahead to ensure that they’ll have the generators needed for their new facilities. “Getting generators today is the No. 1 thing that will drive your construction schedules,” Margie Backhaus, chief business officer at Equinix, told the New York Times last year.

A number of real estate developers have announced plans to build data centers, and in some areas brokers are seeking to reposition underperforming properties as potential data centers. Given this assumed influx of new supply, investors and Wall Street analysts have expressed concerns about whether the publicly-held data center providers will maintain their market leadership.

The generator shortage is among the factors that will moderate the arrival of inventory from players who are new to the data center market. Some may opt for smaller generators, which tend to be more available than the 2 megawatt models. That’s a practical solution, but may become an issue if a client is choosing among multiple providers and facilities. Even if the smaller generator can support the facility, the customer focus on power reliability may tip the playing field in favor of the 2-meg genset down the street.

About the Author

Rich Miller is the founder and editor at large of Data Center Knowledge, and has been reporting on the data center sector since 2000. He has tracked the growing impact of high-density computing on the power and cooling of data centers, and the resulting push for improved energy efficiency in these facilities.