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QTS's three-story QMOD Ashburn, Virginia, data center under construction, seen in March 2018 QTS Realty Trust
QTS's three-story QMOD Ashburn, Virginia, data center under construction, seen in March 2018

Dominion Pitches ‘Green’ Tariff in Virginia, and Data Center Operators Hate It

Equinix, QTS, Microsoft, and others rally against the utility's proposed new energy product.

Some of the world’s largest data center users and operators are among a group of companies trying to block the utility that serves about two-thirds of Virginia’s electricity buyers from rolling out a new renewable energy tariff.

The proposed tariff, they said, would do nothing to add new renewable generation to the grid, charge an unjustified price premium, stifle competition in the energy market, and offer electricity that’s not entirely renewable.

The group includes Equinix, the world’s largest data center provider; Microsoft, which operates one of the world’s largest hyperscale cloud platform; Salesforce and Adobe, both major data center users; and QTS Realty, one of the five largest US-based data center operators. It also includes H&M, Marriott, Target, and Unilever, among others.

They were all listed as signees on a Thursday letter to the Virginia State Corporation Commission arguing that the regulatory agency should not approve the tariff proposal by Dominion Energy Virginia, because it doesn’t meet the basic criteria for renewable energy programs they want to participate in.

On the surface it may seem that Dominion is merely trying to provide renewable energy options for customers, Travis Wright, VP of energy and sustainability at QTS, told DCK. “In reality they’re trying to close off competition and increase profits on [generation] assets that they’re already using.”

A Dominion spokesman said the company could not provide comment explaining “our side” of the story in time for publication Thursday, referring to the letter's signees -- which include some of Dominion's biggest customers -- as "the other side."

The spokesman, Rayhan Daudani, followed up with an emailed statement Friday:

“Dominion Energy is committed to offering customers options to meet their renewable energy needs. If approved, our TRG offering will immediately allow customers to procure generation from 100% renewable energy resources reducing their carbon footprint. As demand for the offering grows it could lead to even more renewable resources as part of our fuel mix.  Importantly, and contrary certain critics suggestions, our TRG offering is completely consistent with the State Corporation Commission’s order regarding what is required for utilities to offer a 100% renewable energy tariff to our customers.”

The State Corporation Commission is scheduled to hold a hearing on the “Rider TRG” proposal on November 21.

Customers Say There Would Be Fewer Options

The allegation that Dominion’s proposal is anticompetitive stems from a 2007 state rule that allows electricity customers whose load doesn’t exceed 5MW to buy renewable energy from any licensed supplier – unless their incumbent supplier offers a 100 percent renewable option.

Dominion describes Rider TRG (Total Renewable Generation) as a 100 percent renewable energy product (although the opponents argue that it isn’t). Therefore, if approved, the tariff would disqualify other providers from selling renewable energy to sub-5MW customers in Dominion’s territory.

That territory includes much of Loudoun County in Northern Virginia, the world’s largest data center market, which this year became the first market ever to reach 1 Gigawatt of total data center power load, according to the commercial real estate services firm CBRE.

Northern Virginia is home to big nodes of all the top hyperscale cloud platforms, the likes of AWS, Microsoft Azure, Google Cloud, and Facebook; massive (and still growing) data center provider campuses operated by the likes of Equinix, Digital Realty, QTS, and CyrusOne; and “enterprise” data centers housing technical infrastructure of many large corporations.

The thirteen companies that signed the letter opposing Dominion’s proposal are all members of the Renewable Energy Buyers Alliance, or REBA, which represents a couple hundred large corporations with ambitious environmental-responsibility initiatives, using their collective bargaining power to create a friendlier renewable-energy market.

Locking competitors out of sub-5MW deals in Dominion’s territory, which Rider TRG would effectively do, would be the opposite of creating a friendlier market.

‘Hybrid Energy’

The tariff’s critics also cast doubt on whether the energy sold under it could be truly called 100 percent renewable.

According to the proposal, it would be generated by eight solar plants, two hydroelectric stations, and four former coal plants that, according to Virginia Mercury, were in 2013 converted to burn biomass instead of coal.

Virginia’s law recognizes biomass as a renewable energy source and so does the US Energy Information Administration. Wood and wood-processing waste, crops and agricultural waste, food and yard waste, manure and human sewage are some examples of biomass, according to EIA. These materials can be burned to produce heat or generate electricity.

One of the four former coal plants listed in Dominion’s proposal, however, is not entirely a former coal plant. Up to 20 percent of the fuel used by the Virginia City Hybrid Energy Center is biomass, according to a Dominion web site – the rest is coal.

“So they get a little bit of heat value out of burning wood” at the plant, QTS’s Wright said. “I don’t think that would fit [the definition of renewable energy] by anybody’s standard,” when most of the plant’s output comes from coal.

No Net-New Generation

Putting the TRG fuel mix aside, the fact that the entire generation portfolio behind the proposed tariff consists of existing operating assets puts it at odds with one of the six Corporate Renewable Energy Buyers’ Principles, the formal set of criteria REBA members look for in procuring renewables.

That principle is making “efforts to result in new renewable power generation.” Since all the TRG generation assets already exist, no energy deal a customer signs with Dominion under the tariff would lead to construction of new renewable generation facilities in the region.

Not a ‘Viable Value Proposition’

Another REBA principle is to push for “more access to cost competitive options.” The letter’s signees argue that energy sold under Rider TRG wouldn’t be “priced based on value.”

Dominion is proposing that participants in the tariff pay the standard electricity rate plus a premium calculated based on market value of the Renewable Energy Credits, or “RECs.” Averaging out the value of RECs the Rider TRG generation portfolio produced last year, the utility is proposing that the premium be $4.21 per megawatt-hour, or 3.6 percent higher than the standard rate its customers pay.

The businesses said in the letter that they can negotiate lower renewable-energy rates with other producers and buy lower-cost RECs. “Given all of these factors, Rider TRG does not offer a viable value proposition,” they wrote.

Renewable energy is becoming increasingly cost competitive with fossil fuels. In many cases, wind and solar energy is now cheaper than coal energy.

According to Wright, it’s now possible in some cases to buy renewable energy that stays below market rate even with the addition of the REC value. “There should not be a premium for buying renewable energy anymore,” he said.

A Tough Nut to Crack

QTS last year put out the first report on its environmental sustainability, social accountability, and corporate governance initiatives. Wright, who took charge of energy and sustainability at the company last year, was the driving force behind the report.

The data center provider has committed to powering 100 percent of its operations with renewable energy by 2025. It’s reached 32 percent of that goal so far, Wright told us.

In Dominion’s territory in Virginia, QTS’s total live load is about 28MW across four sites, he said. None of that footprint today is powered by renewable energy. “Dominion territory is one of the most difficult in the nation for us,” he said.

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