The “utility-scale” power demands of large data centers have brought home several issues that also confront electric utilities and merchant power plants. These issues present challenges that put the needs of data centers, utilities, and merchant power plants increasingly into alignment over time.

Large data center electric loads have reached levels that place them among the largest utility customers. For example, the Edison Electric Institute (EEI) reports that Microsoft’s Chicago Data Center, with a scalable container design and a projected load of 60 megawatts (MW), will be one of the largest customers of Commonwealth Edison. According to the Federal Energy Management Program (FEMP), data centers can consume up to 100 times more energy than a standard office building, and the EEI reports that energy costs can represent a data center’s largest single expense.

Today, data center loads in excess of 50 MW are not uncommon. The QTS Metro Data Center in Atlanta has a potential demand of 80 MW (served by an on-site Georgia Power substation that delivers 120 megavolt-amperes [MVA] to the facility), and some, like SuperNap in Las Vegas, can accommodate users up to a total demand of 250 MW.

A 2009 FEMP report titled, “Data Center Energy Consumption Trends,” noted that total data center energy consumption doubled from 2000 to 2006 and could double again during 2011 without the widespread adoption of energy-efficiency measures. Despite the increasingly widespread adoption of energy-efficiency measures, demand by individual large data centers has continued to grow.


Microsoft has stated that its 700,000 square-foot (sq ft) Chicago data center significantly expands Microsoft’s ability to meet customer demands for its live, online, and cloud computing services. Serving its 500 million users ranked high among Facebook’s reasons for developing and expanding its dedicated data center, by more than doubling its initial 147,000 sq ft in Oregon, but Facebook also cited the flexibility provided by sole ownership of a standalone data center as an important factor.

Stimulated by similar customer demands, large data center owners such as Google and Verizon are also pursuing large dedicated facilities. Other pressing needs, such as replacing aging data centers, accessing greater efficiencies, and achieving economies of scale will increasingly contribute to this growth. This growth will be accompanied by increasing demands for large-scale electric supplies with cost-effective pricing.

Data centers’ ability to access lower cost power has been made possible by electric industry deregulation and restructuring that has brought access to the wholesale power markets conducted by independent system operators (ISOs) such as PJM, CA-ISO, or NYISO and the ability of data centers to purchase power under bilateral contracts from power generators and sellers beyond the local electric utility. Deregulation has, however, eliminated some of the advantages that customers enjoy when utilities are fully regulated.

The absence of a regulated, vertically integrated utility with a statutory obligation to provide service raises two fundamental questions: who will build new power plants and keep older plants operating when utilities are no longer required to do so? Utilities have been raising this question since the passage of the Public Utility Regulatory Policies Act in 1978 (PURPA), which required utilities to purchase up to 80 MW from qualified independent power producers, through the years of deregulation and restructuring.

In addition to PURPA requirements, the ISOs have sought to answer these two questions by providing financial incentives as a surrogate for statutory obligations (and a regulated rate of return) such as market clearing prices on ISO day-ahead markets and installed capacity payments.

Developers and operators of merchant power plants do not have “captive customers” like utilities. For that reason, prior to building a power plant, they generally require power purchase agreements (PPAs) with credit-worthy purchasers sufficient to financially justify the construction of a utility-scale power plant together with long-term fuel purchase arrangements with fixed or indexed prices. Contributing to the need for such requirements are long lead times for siting, upfront costs, and the costs of financing. Cyclical electricity and fuel costs also drive the importance of securing set or index price fuel purchase arrangements or employing other hedging strategies.

Traditional utilities were protected against changing fuel costs by fuel adjustment charges that placed the burden of variable fuel prices upon customers, but that protection does not exist for merchant power plants. A data center facing insufficient power supplies in an otherwise desirable location must realize that even a large data center not big enough to contract for more than a portion of the output of a plant large enough to finance. Thus, by itself, a data center will not provide a sufficient basis to induce a generation company to build a power plant. For that reason, the questions of who will build new power plants and how capital will be raised are still very much on the table.

Public and governmental environmental concerns have also complicated power issues by making siting requirements for power plants and transmission lines increasingly stringent. Such requirements can cause long lead times and high upfront expenses, which impact data centers seeking large amounts of power that require the construction of new generating or transmission facilities.

State statutory requirements necessitating siting proceedings for new transmission lines typically apply to high voltage lines above, for example, 100 kilovolts that extend for distances greater than one mile or even five miles. In order to avoid the burdens of extended siting proceedings that a remote location night require, a data center may wish to locate near a high-voltage substation with sufficient available capacity or co-locate with a large-scale existing power plant so that the transmission feeder lines connected to the data center’s substation are shorter than the jurisdictional length.

For colocation strategies involving a merchant power plant, to the extent that (1) the private property of the merchant plant and that of the data center abut; and (2) the feeder lines do not cross any public road, it may also be possible (depending on the state) for the data center to construct and operate transmission feeder lines without requiring power to be transported by the local utility.

Even if the power plant is not owned by the local utility, however, consideration should be given to the desirability of having local utility involvement to gain a highly experienced operator who is also operating the area grid. The author cautions that the approaches discussed in this paragraph can be complex to implement in the context of federal, state, and local law and utility tariffs and may not be possible.

High-voltage/high-load interconnections now typically require ISO approval, which is another hurdle that did not exist prior to deregulation for large customers (although the process is often handled by the local utility). The process of obtaining approval takes several steps and can require the applicant to prepare studies such as system impact studies. These processes usually take months and can require that applicants “get in line” to participate in the process by joining queues on specific application dates.

Some data center owners are now facing a situation, which has confronted the electric industry for many years, namely public concerns regarding the type of fuel used for power generation and a desire to promote renewable generation. Given their flat load curves and need for reliable power (which can be as high as 99.999 availability), large data center loads must be served by highly reliable power plants. [Author’s note: I am not addressing strategies such as on-site backup generation or UPS measures in this column]. Reliable renewable power from water is limited, and biofuel-based generation is growing but also limited. Renewable power produced by wind and the sun is intermittent and can only serve to supplement traditional power plants.

The development and siting of any large power plant, particularly a nuclear plant, can take many years, but companies owning data centers that attempt to serve rapid customer growth typically need the power sooner than the distant future. That means reliable power must be procured from existing power plants, if available, or, to the extent not available, self-generated.

Facebook encountered this conundrum in connection with its data center. While that facility ultimately intends to be green, it is purchasing available power from PacifiCorp, which has a generation mix that includes a significant amount of coal-fired power. Opponents of coal oppose Facebook’s plan to use PacifiCorp power and are pushing Facebook to arrange to procure a greater percentage of renewable power.

Moving away from fossil fuels to renewable power is not a transition that can be accomplished swiftly in light of impeding factors that, ironically, can include siting requirements intended to serve environmental purposes and public opposition to renewable power sources such as wind. In response to such concerns, some data centers are locating in Washington’s Columbia River Valley to access hydropower. Such power, however, is limited and can also be opposed by environmental groups that favor free-flowing rivers rather than dams that produce electric power. Developing renewable power on a utility scale is a significant challenge, but over time and with public acceptance and sufficient funding, large-scale renewable power can be achieved using a mix of technologies.

The sensitivity of certain data center owners to environmental concerns in the regulatory context is also illustrated by the 2010 FERC approval of Google’s request to purchase electricity to operate a market-based rate authority at low wholesale prices. As part of its request, Google assured FERC of its commitment to energy efficiency and that Google would use the authority, in part, to purchase renewables.

As the power needs of large data centers grow, their issues will continue to move closer to those of electric utilities and merchant power plants.