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

Largest Data Center Operators Pressure Virginia Utility on Renewables

AWS, Microsoft, Equinix among operators demanding Dominion give renewable energy bigger role

Dominion Energy, Virginia’s dominant electric utility, is under growing pressure from its most valuable customers, the world’s largest data center operators, to clean up its generation fuel mix and do it quickly.

Amazon Web Services, Apple, Microsoft, LinkedIn, Salesforce, Equinix, Akamai, Iron Mountain, and QTS signed a joint letter submitted to Dominion Wednesday opposing its plan to build more gas-fueled power plants to meet growing energy demand – growth these companies and their peers have been largely responsible for. Instead, they want the utility to meet the demand with the combination of renewable energy generation and energy storage.

“As data center providers, customers, and colocation service providers with operations in Virginia, we prefer electricity that is generated by clean, renewable energy,” the letter read. “Given the significance of our growing and energy-intensive industry in relation to total energy demand in Virginia, companies’ data center energy interests should be taken into account in decisions regarding the future of the region’s energy infrastructure.”

One region in the state, Northern Virginia, is home to the world’s largest data center market. And it continues growing at an unprecedented rate, as companies and individuals increasingly rely on hyperscale cloud platforms.

According to the commercial real estate services firm CBRE, Northern Virginia earlier this year became the first market in the world to reach 1 Gigawatt of data center capacity that’s leased or available for lease on a wholesale basis (the type of data center lease hyperscale platforms usually sign). That doesn’t include non-commercial data center space, retail colocation space not leased from one of the wholesale providers, and most of the data center footprint used by Amazon Web Services, which leases empty building shells and turns them into data centers on its own.

Speaking with Data Center Knowledge Wednesday, Gary Cook, a Greenpeace campaigner who’s spent many years advocating for an internet powered by renewable energy, summarized the data center operators’ position as, “Dominion is using our demand to justify a supply of energy we do not want. We should not be investing billions of dollars in more natural-gas generation and pipeline capacity and slow-walking renewables.”

Deciding the Future

The reason behind this week’s letter, which according to Greenpeace was submitted on behalf of the signees by the sustainability non-profit Ceres, was a regulatory hearing Wednesday on the second draft of Dominion’s proposed plan for meeting forecasted energy demand for the next 15 years. Regulators rejected the previous version of the report, called the 2018 Integrated Resource Plan, in December – an unprecedented event for both Dominion and the regulator, the State Corporation Commission, according to the Virginia Mercury. Among other reasons, the commission said it rejected the plan because Dominion had allegedly overstated load forecasts and omitted detailed plans for implementing certain regulatory mandates.

In the second version of the report, submitted recently, Dominion says its load has been growing primarily because of a rebound in new home construction in its service area that started in 2012 and growth in the data center sector. It wants to meet the higher anticipated energy demand by building about 3,670MW of natural gas-fueled combustion turbine capacity and 4,720MW of solar generation by 2033.

The utility also hopes to build a new pipeline to transport the natural gas. But the proposed Atlantic Coast Pipeline has run into opposition from environmental protection groups, and the project is currently bogged down in courts with an uncertain future.

The data center operators that signed this week’s letter say there’s too much natural gas and too little renewable generation in the new plan. Some of them had similar criticism for the previous version of the plan and wrote to the regulators to complain. That letter’s signees were Adobe, Akamai, ebay, Equinix, and Salesforce. While ebay is missing from the latest letter, there are now more signees, including the world’s largest cloud platform operators Amazon and Microsoft. Notably, Google and Facebook, who both have substantial data center footprints in Virginia, didn’t sign either letter. The two companies have, however, been among the most active advocates for powering data centers with renewable energy.

Solar With Energy Storage Versus Gas

The letter makes the case that Dominion’s pursuit of natural gas-powered generation is not only a more carbon-intensive option than renewables but is also financially short-sighted. That’s because energy storage is getting progressively cheaper. The only strong argument against relying on wind or solar generation is their intermittency, which can be mitigated using energy storage. In other words, you can generate and store energy when the sun is shining or wind is blowing and use it when they aren’t.

Batteries have gone down in price, and solar-project developers are increasingly installing energy storage systems. These setups have already proven cheaper to build in some parts of the country than gas-fired power plants.

“’Solar plus storage’ projects are beating out the price of new gas plants, and data centers are already proving the effectiveness of storage in our 24/7 operations,” the letter’s authors wrote.

The data center operators also expect to continue seeing increasingly energy efficient computing equipment and data center infrastructure. If true, that would flatten the projected energy demand growth curve.

Assuming data center energy efficiency will continue improving while the cost of energy storage continues to drop, the data center operators argue, Dominion, and most importantly its customers, may end up being stuck with gas-fired infrastructure producing surplus energy that costs more than solar while harming the environment.

“Any such investments should be closely assessed for their lifetime cost to ratepayers (for both the infrastructure and associated fuel costs), the likelihood of becoming an early stranded asset, and actual customer demand for fossil fuel-powered electricity,” the letter read.

In a statement emailed to Data Center Knowledge, Dominion’s director of communications Le-Ha Anderson acknowledged that solar generation has become “cost-competitive with other, more traditional forms of generation.” But, the utility is responsible for ensuring a steady energy supply for its base load, she added.

Dominion is working on its first battery storage pilot, but the technology remains too expensive, according to Anderson. “Cost continues to be an obstacle, but we are working with new technology to try to make it a cost-competitive reality for our customers,” she said.

Data Centers Want a Competitive Renewables Market in Virginia

Both the first and second versions of Dominion’s plan also “limit the amount of competitively-procured solar energy,” the data center operators wrote.

Utility-scale renewable generation is not readily available everywhere, and even if a customer is willing to pay for a project, state regulations and utility monopolies don’t always allow such arrangements between customers and producers.

That’s been the case with Dominion, which has a monopoly on the retail energy market in Virginia and has made it extremely difficult for customers to buy energy from other suppliers while not offering renewables at competitive rates itself, Greenpeace’s Cook said. The utility did recently start offering “market-based rates” to some large customers, he added, but the deals are still too restrictive in terms of the customers’ ability to select their energy producers.

“Dominion Energy has worked to create innovative partnerships with customers statewide to help them meet their energy requirements and sustainability goals, including public-private solar partnerships and several special-rate tariffs for large non-residential customers,” Anderson said.

Visions of a ‘Low-Carbon Future’ Diverge

The gravitational pull of Northern Virginia’s network infrastructure density and the enormous data center market it’s attracted is unlikely to lose to the data center operators’ desire to power their facilities by renewable energy and cause them to go elsewhere – at least not in the foreseeable future. But difficulty procuring renewables is an additional con on the list of pros and cons in the site selection process, and it’s only going to weigh more going forward.

Data centers are any utility’s dream customers. They buy a lot of energy and their load doesn’t fluctuate, which means they aren’t costly to manage. They are also, as Dominion has acknowledged, a primary source of revenue growth for the energy company.

Getting the largest data center operators to leverage their value as customers to pressure utilities to clean up their generation portfolios has been Greenpeace and Cook’s pursuit for close to a decade. And the operators increasingly are applying the pressure, both publicly, by writing letters to regulators, for example, and in private negotiations about things like special green tariffs.

It’s unlikely that Dominion doesn’t take the data center operators seriously. The company claims that it “shares the goals of our customers for a low-carbon future.” But, its current plan to source energy for the next 15 years falls short of their expectations, showing that the utility and some of its biggest and most important customers still aren’t on the same page about what that low-carbon future looks like.

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