Last week a 2-month-old startup called Baryonyx emerged to declare that it had won bids for three massive land leases in Texas (for over 45,000 acres combined), and would be building the largest offshore wind farms in the U.S. in order to power data centers in the South of Texas. Given that offshore and onshore wind farms have struggled with high costs (T. Boone ditched his plan to build the world’s largest wind farm in Texas), very few data centers are currently powered by renewables, and that this is coming from a virtually unknown infant company, the plan comes across as borderline ridiculous.
But since I knew very little about the company’s business model and background, I’ve been eager to learn more, and the folks at Baryonyx agreed to answer a bunch of questions I sent over last week. While the answers don’t necessarily paint a picture of a company with a strong action plan, or enough money in the bank to finance such a project, the company does provide some more insight into their intentions:
Q). What is the company’s business model?
A). Baryonyx seek to provide truly green data solutions through the co-location of data centers with renewable energy projects. The principle revenue streams will be derived from green data solutions and selling surplus renewable energy to the grid.
The initial phase of wind farm development with the data-center provides a ready market for the energy and permits the initiation of the wind farm development in spite of any restrictions on grid access may exist. The initial development will give the commercial confidence necessary to upgrade the power grid where necessary to take subsequent phases of wind farm development. Putting the two business models together in this way helps to take out risk for the equity investor and increases the probability of project delivery for the consumer.
Q). What will be the role, if any, of state clean power incentives in the business model?
A). The incentives available to renewable energy companies under the federal incentive programs and the ARRA [American Recovery and Reinvestment Act, aka the stimulus package] allow for the expansion of the renewable industry in the US. Baryonyx supports the work of the Federal Government in these initiatives, however, we recognize that there is further work to be done in this area such as the implementation of a strong Cap and Trade regime and a nationwide Renewable Energy Standard. We will be assessing the options available to us under the incentive programs in place.
Q). Does the company plan to work with third party project developers for both the data center building and the offshore wind turbine building? If so has the company established partners in these areas?
A). Our intention is to develop the projects ourselves using our in-house expertise combined with that of key contractors with whom we have established relationships. Our ‘base-case’ is to prepare the projects to meet the technical and commercial requirements needed for project financing. We will be open to partnering proposals where the partner adds technical or commercial strength to the developments.
Q). Baryonyx won the bidding to lease the offshore tracts of land. What was the leasing price?
A). The concessions were awarded following a competitive auction process. The initial annual rent is a fixed nominal sum during the consenting process. The bid price was $2.08 per acre per annum for the offshore leases and $2.00 per acre, per annum for the onshore lease. During the operational period of the wind farm the payment profile switches to revenue royalty based remuneration to the Texas School Board. Over the period of the leases, the potential benefit to the School Board is circa $330 million.
Q). What will the total cost of the projects be?
Total project cost analysis is still being analyzed in current conceptual studies. For example, we will conduct our environmental assessment so that permits can accommodate offshore wind turbines of up to 10MW capacity which are in the initial design and development stages compared to our base-case 6MW turbines whose costs are better known. In any event, the expected expenditure will run into several billion dollars.
Q). Has the company raised money from outside investors, if so from whom and how much?
A). The company has been funded through the capital provided by the founders to date. We anticipate and are in the process of preparing a prospectus for potential investors, and it is our intention to perform an initial offering in Q4 2009. The funds generated from this will allow us to work towards achieving the necessary consents for the current assets, as well as funding future business development.
Q). Since the data centers will be powered by wind, and wind is variable, what are the additional sources of power that will run the data centers? Will the data centers be using any kind of energy storage?
A). We have filed a patent application on the combination of wind with other renewable energy technologies to overcome wind variability including solar heat. Energy storage technologies included in our patent application include battery storage and hydrogen gas derived from water by means of electrolysis.
Q). Some green data center companies are building business models off of charging web companies per energy-consumption and then offering significant energy savings. Will Baryonyx’s data centers offer energy efficiency aspects?
A). We aim to have some of the most energy-efficient data centers coupled to, on or near-site zero carbon energy generation resources. Our proposal is to offer data-center services inclusive of energy provision. Our renewable energy generation capacity will ultimately far exceed the energy requirement of the data-center and this energy will be sold via power purchase agreements.
Q). What role, if any, do renewable energy credits play in the company’s business model?
A). We refer to point 2. We are investigating what support mechanisms might apply to the business model in detail. We believe that renewable energy credits will be essential for commercial realization of the projects in order to overcome the disadvantage under discount economic assessment that renewable projects inevitably suffer when compared to fossil fuel based projects.