What eBay’s bet on fuel cells means for the modern data center

When the VP responsible for provisioning and consolidating eBay’s data centers, Dean Nelson, went to Utah to evaluate the locale as a site for eBay’s next mega data center project, he was mostly happy. It offered tax incentives, low latency for serving eBay’s customers, and the right work force. But there was one problem.

“There was a challenge around getting clean power,” says Nelson. Utah has less than 3 percent renewable energy and generates 82 percent of its power from coal, according to data from 2009 from the U.S. Energy Information Administration.

The question of how eBay would find clean power for its Utah data center — which is part of eBay’s global consolidation of its data centers into just three mega data centers in Utah, Arizona and Nevada — opened up another possibility: would it make more sense for the online marketplace to power its Utah data center by generating its own power and use the grid as backup?

The fuel cell finds a home

For the much larger Topaz data center, which is modular and built to scale to 30 megawatts, eBay has issued a 10 megawatt public RFI in the past couple months, seeking proposals to generate renewable energy for the data center. But for the adjacent smaller add on Quicksilver data center, eBay decided to have 6 megawatts of Bloom Energy’s solid oxide fuel cells installed on site, making the installation the country’s largest non-utility fuel cell installation. Bloom’s fuel cells generate power by combining natural gas and oxygen to produce carbon dioxide and water. EBay is operating a microgrid on site that will allow it to divert excess power from the fuel cells not used by the Quicksilver data center directly to the larger Topaz data center.

Nelson liked the design of fuel cells themselves because there are thousands of redundancy points built in. Each fuel cell produces 25 watts, is combined into a stack producing 40 kilowatts, and is part of a brick producing 200 kilowatts. If one or a group of fuel cells fails, the entire fuel cell brick doesn’t go down.

“Fuel cells are primary power for the computers and then the grid is used as backup. We have a higher available data center with this design than we would have with a traditional generator and UPS design. That was a big ah-ha moment for me,” said Nelson.

Aside from the redundancy of the fuel cells, Nelson was much more excited about the capital expense savings eBay’s getting from shifting his backup power source.

“We’re not putting UPS (uninterruptible power supply) or generators at Quicksilver. They’re completely removed,” says Nelson, referring to the Quicksilver data center, the smaller of the two data center projects in South Jordan, Utah. “This required us to completely change how we approach data center design. We’re using the fuel cells as the backup and the primary source.”

Nelson added that while the up front costs of fuel cells creates a scenario where the fuel cell power is more expensive than grid power, there were a number of cost avoidance returns from the fuel cells that made the economics work. Namely the elimination of UPS and generators along with the simplification of the building design that included changing the height of the building as well as the structural support needed. He noted that eBay examined the risk of an outage on the gas grid, and found it more reliable than the electrical grid. EBay also looked at large scale battery storage, which Nelson said wasn’t cost effective.

Generators and UPS exist at data centers in the event of a power outage and are used about 1 percent of the year. Generators themselves have been criticized. For example, the environmental impacts of Microsoft’s diesel generators in Santa Clara, California and Quincy, Washington were recently highlighted in a controversial New York Times article on data centers.

In terms of the broad pressure on leading webscale IT companies to move away from non-renewable sources of energy like coal power and diesel generators, fuel cells can be renewable if they use biogas. Biogas is reclaimed methane (CH4) from landfills or water treatment plants, rather than mined natural gas. It’s this reason why Microsoft has discussed the possibility of locating future data centers near water treatment plants, which wind up having to flare excess methane because it’s a 20 times more potent greenhouse gas than CO2.

There is currently no biogas produced in Utah, according to Nelson, and eBay is offsetting its natural gas use in Utah by paying a premium to enable biogas production elsewhere. Nelson said the offset will be “meter in/meter out,” meaning for whatever amount of natural gas eBay uses at its Utah data center it will enable that amount of biogas production elsewhere. EBay didn’t disclose the premium it’ll pay.

When the grid becomes backup power

Generating one’s own power is typically more expensive than grid power, which utilities generate at scale and from inexpensive coal, natural gas and nuclear energy. But there’s a growing amount of discussion from data center operators that being in control of one’s own power generation could lead to better uptime.

The June power outage in Virginia caused service problems for Amazon Web Services, impacting Instagram, Pinterest and Netflix. In places like India where the grid is inherently unreliable, companies have been generating their own power for years. Five of India’s biggest electricity consumers generate 96 percent of their own power, which is why major Indian conglomerates like Reliance Industries and Tata Motors were largely unimpacted by the massive blackout over the summer.

While getting off the grid was not eBay’s primary motivation for the fuel cell installation, Nelson did say, “If there are limitations within the grid, we’d like to not be bound to them. And we got the benefit of having the grid as backup.” Using the grid as backup creates a relatively safe redundancy, and if it enables the elimination of UPS and generators, data center operators can rethink the up front capital costs of installing costly on site power generation.

Bloom Energy

EBay is getting its fuel cells from Bloom Energy, which targets corporate customers interested in generating their own power on site. To address the hefty up front capital costs of buying fuel cells, the fuel cell pioneer now offers energy-as-a-service in which Bloom carries the upfront purchase cost of the fuel cells in exchange for a kilowatt hour power purchase agreement. We’re seeing this financing strategy in solar as well, as IPO hopeful SolarCity is actively pursuing a strategy in which it waives the costs of rooftop solar panels in exchange for a long term power purchase agreement. There’s even talk on Wall Street that bankers want to bundle the contracts and securitize them as debt products, to be known as solar backed securities though the market for fuel cells is likely too small for this type of securitization.

EBay actually opted to pay the upfront capital costs of the fuel cells combined with a 20-year guarantee from Bloom of minimal power generation, including maintenance obligations. The eBay deal is a major win for Bloom, which has dived headlong into the data center market this year, hiring Peter Gross to head up its data center group. Gross led data center design for EYP Mission Critical Facilities, which HP bought in 2007.

According to my colleague Katie Fehrenbacher’s August interview with Bloom Energy CFO Bill Kurtz, Bloom remains “halfway” to breaking even, and is in the process of raising another $150 million at a valuation of $2.7 billion. If successful, the raise would bring the lifetime capital raised for the eleven-year old company to $800 million. And it would also make Bloom number four on the top 10 U.S. venture-backed companies in terms of total equity raised, just ahead of Metro PCS and Facebook, but two slots behind Solyndra, which clocked close to a billion dollars in funding.

For the time being, Bloom will have to sell more data centers VPs on the idea that the extra expense of fuel cells has secondary benefits not evident in the initial cost of power. Like a decreased need for UPS and generators, and maybe even a data center less vulnerable to grid outages. And if the possibility of using reclaimed biogas ensures that the fuel source is renewable, all the better. For now all eyes will be on eBay, as well as Apple which is deploying a smaller fuel cell facility in North Carolina, to see how the fuel cells perform and whether they could be part of a rethinking of how to provide backup power for the modern data center.