Cheap, Green Energy to Power Data Center Growth Says Report

Computing companies that can access cheap green power in bulk will be the only ones able to afford to run data centers in the coming years, posits a new report entitled Microsoft and Google: Cloud Computing Dominance Through Renewable Energy, published today in Virtual Strategy Magazine. The report predicts a positive future for the burgeoning relationship between the biggest names in IT and renewable energy, but paints a grim picture for small-time data center operators that can’t afford to either make large power purchase agreements or produce their own energy.

The problem, argues author Steve Denegri, a IT consultant and financial analyst, is that data centers face two unstoppable forces – the need to increase computing power, which requires upping the energy per square foot, and the increasing price of electricity. Together, these two forces are sending data center operation costs through the roof. With carbon regulations likely coming into effect with the next administration, the only power sources with predictable and declining costs will be clean, renewable generation, and those who control those sources will have a competitive advantage when it comes to running power-hungry data centers.

These trends have led to a new business model, combining data center services and energy into “utility computing” where only huge data center operators, like Google ad Microsoft, can operate data centers at scales large enough to be profitable. This sort of vertically integrated data center operator was something I hypothesized last year when Google first announced its clean energy endeavor.

Denegri sees Google and Microsoft each taking different strategies to remove the risky variable of fluctuating fossil power prices and secure long-term, large sources of renewable energy. Google’s strategy looks to be “own and operate.” The search giant has been buying huge tracts of rural land for new mega-data centers, hundreds of acres larger than needed. Denegri says this excess land could be used for power generation from installations from any of Google’s investments in solar, geothermal or wind energy.

Microsoft has mostly been citing its data centers on small plots in urban areas. Denegri thinks that the company is hoping continued deregulation will give them access to use existing power lines to make huge power-purchase agreements from the growing number of clean energy providers currently building plants. Denegri profiles Microsoft’s mega-data center in San Antonio, Texas, a center running local utility CPS Energy’s grid. CPS, not coincidentally, has more than 500 megawatts of power-purchase agreements for wind power, locking in steady energy costs with long-term contracts.

The result, Denegri says, is that whoever can produce or buy the cheapest green power will be the only one who can operate a data center. Data center efficiency is just treating a symptom of high operation costs. The root of the problem lies in the cost of electrons, and Microsoft and Google seem to think that over the long term, the cheapest electrons will come from renewable sources.