Using Solar Energy Systems to Offset Data Center Electricity Consumption

January 18, 2013 7 Comments »

Data Center Electricity Usage

It is widely acknowledged that data centers are large consumers of energy; in 2010, data centers accounted for about 1.3% of all electricity used worldwide, and about 2% of the electricity used in the U.S.  Furthermore, their energy usage increases every year.  Between 2005 to 2010, data center electricity usage increased by about 56% worldwide.  In the U.S., it increased by about 36% during that time frame   This energy usage pattern has raised questions about the future of data centers and how they relate to sustainability and pollution.  Additionally, it has been estimated that energy expenditures account for 12% of data center expenses.  From both a public relations and economic perspective, therefore, data center owners may wish to explore ways of reducing their electricity consumption from the electric grid.

Solar Photovoltaic Systems: A Possible Solution?

If you have a data center, one way to reduce grid electricity consumption is to install a solar photovoltaic (PV) system on the facility.  These systems utilize sunlight to generate electricity, which can then be used to power your data center.  Solar PV costs have fallen over the past decade, making them cost-competitive solutions in more and more areas.

There are many potential benefits to solar PV installations.  Such systems can:

  • Reduce energy costs
  • Act as a price hedge against rising energy costs
  • Reduce the amount of pollution-rich energy consumed from the grid
  • Reduce carbon emissions
  • Strengthen public relations
  • Capitalize on under-utilized roof or ground space

Is Solar PV Right for Your Data Center?

While solar PV systems are beneficial for many facilities, some sites are not suitable for solar PV.  It is important to ask the right questions before moving forward with a solar project.

Generally speaking, it is best to install solar PV systems in states with net metering policies.  Net metering allows end users to consume the electricity generated at the site if there is sufficient demand. If more electricity is generated than the facility can use, that electricity is fed into the electrical grid and the project owner is given a credit.  That credit can be applied to electricity consumed from the grid.  In other words, under net metering a customer’s electricity meter can “spin backwards.”

The facility itself must have the right physical characteristics.  First, there must be adequate space for a sizable solar PV system.  Systems that are too small do not allow for economies of scale.  Generally speaking, it is best if there is at least 100,000 square feet of available roof space, preferably in a centralized location, or five acres of open ground space.  This space cannot be significantly shaded by trees, nearby buildings, or even rooftop structures or HVAC units.   For a roof-mounted solar PV system, the roof should be in good condition with a remaining lifetime of at least ten years; twenty is preferred.  The roof should also have the structural strength to support the solar system and be composed of eligible materials; this excludes materials like clay tile, metal, or slate.  Ideally, the surface on which the solar system is installed would be flat.  It is best if the pitch of the roof does not exceed 5º for roof-mounted systems, and it is best if the pitch of the ground does not exceed 10º for ground-mounted systems.

The cost structure must also be considered.  Solar PV systems tend to make economic sense in areas with high electricity rates and incentives.  One of the most important incentives is the 30% Federal Investment Tax Credit (ITC); this is available nationwide.  Other incentives are state-based, such as sales tax exemptions, property tax exemptions, grants, and rebates.

Another factor that can affect project economics is the salability of solar renewable energy credits (SRECs).  SRECs represent the value of the environmental attributes associated with solar electricity. SRECs are often sold separately from the electricity generated by a solar PV system, and SREC values vary as a function of generation timeframe and location. As state budgets have tightened, some states have moved away from grants or rebates and implemented SREC-driven markets.

Project Investmentvs. Risk: Financing Structures

If a solar PV system makes technical and economic sense for your data center, the next question to consider is how the system will be financed.  Data center owners can certainly purchase solar photovoltaic systems.  Generally speaking, this approach leads to the greatest financial return, assuming that your company has tax appetite to take the 30% tax credit.  It does, however, carry certain risks with it.  As the system owner, you are responsible for ensuring that the system is properly designed, installed, and that it continues to operate properly.  Contractors and consultants can be hired to support this work; for example, an independent engineering firm can review the equipment selection and design, a consultant can oversee the project construction, and an operation and maintenance (O&M) firm can be hired to ensure ongoing system operations.  Locating, vetting, engaging, and supervising these firms does require an investment of time, of course, and should the system have unexpected operational issues, you would bear the cost of repair.

A popular financing option that minimizes risk is a power purchase agreement (PPA) structure.  Under a PPA structure, you do not own the solar PV system.  Rather, a third party financier owns the system and sells you, the project host, the electricity generated by the solar system at a predetermined rate.  This rate is often lower than the rate charged by the local utility.  The financier takes on the responsibility for the system design, installation, and ongoing operations; you are only responsible for purchasing the electricity produced.  The financier also takes responsibility for obtaining any incentives available, and typically passes through the benefits of the 30% tax credit and any other incentives to the site host via a lower PPA electricity rate.  The financier is also responsible for the sale of any SRECs; the project host can choose to purchase these, but typically they are sold to a third party or utility.

Procuring a Solar PV System

Once you know how you want to finance your solar system, the next step is to find the right partner.  Often, a solar development firm can either sell you a system directly or help you to find a financier that would own the system for you.  It is important to review the background, qualifications, and experience of prospective development partners and to get proposals from several knowledgeable, reputable firms.  Proposal evaluation should include more than just a comparison of the developers’ costs; a number of factors should be taken into account, including the experience of the developer, materials selected, the warranties and guarantees, the validity of the system size and output, the installation schedule, the subcontractor selection, and the proposed O&M.  It is especially important not to presume that the proposal has presented the savings to the data center accurately; you should perform your own financial analysis on the value of the system.  This analysis should be based upon the actual savings that you would enjoy, calculated by considering the electricity rate that you currently pay to an electricity utility and/or a direct access supplier.

Before selecting a developer to work with, it may also be advisable to consider draft or sample contracts from the developers; some developers will have unreasonable or unduly unfavorable terms in their contracts.  Once a vendor has been selected, it will be vitally important to negotiate the business terms of the contract appropriately.  The wrong terms can leave you unprotected and open to liabilities; the right terms can provide significant protection and ensure that the solar installation is an asset to the data center.  If you do have a direct access electricity supplier, it is extremely important to review that contract to ensure that it does not preclude you from engaging in on-site generation projects.

The amount of attention required during the construction phase depends upon the type of installation.  For systems that are purchased, more careful attention should be paid to the installation and system commissioning; the owner may want to consider hiring a third party firm to review the commissioning and verify proper system installation and operations.  Indeed, for many firms that have little to no experience with solar PV systems, it is helpful to engage with an energy consulting firm to help provide guidance throughout the assessment and procurement process.  Such a firm can verify that your site is suitable for solar, advise on the financing methods, identify reputable development partners, thoroughly evaluate proposals, negotiate advantageous contracts, and oversee construction.

As data center electricity usage continues to rise and electricity prices increase, we expect more and more data centers to procure solar PV systems to both reduce their financial exposure and improve their image.

Mark Crowdis is the president of Reznick Think Energy, a Bethesda, Maryland-based renewable energy consulting firm that is a subsidiary of tax and accounting firm CohnReznick LLP. Elyse Rhodin is a senior analyst at Reznick Think Energy. E-mails: mcrowdis@reznickthinkenergy.com and erhodin@reznickthinkenergy.com

To read more from the November issue of DCJ Magazine click here

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