As California And Texas Face Blackouts, Data Centers See Opportunity

The recent blackouts and power shortages throughout California and Texas are not scaring away data center operators.

Their facilities may require immense amounts of power, but industry leaders told Bisnow this week that the energy crisis could be a big opportunity for data center players.

While conventional wisdom dictates that grid instability should create havoc for data centers, major operators in both California and Texas have avoided significant service interruptions thanks to robust backup power systems at most facilities.

The energy shortage may lead to some headaches and increased costs, but it also opens doors for hyperscale and large colocation operators to leverage their on-site power generation to reduce their own energy spending and sell power back to public utilities that desperately need it. 

“There’s all kinds of things that the big boys can do,” said Robert McFarlane, a principal at tech consultancy Shen Milsom & Wilke who heads the firm’s data centers practice.

“They know down to the minute when they’re going to produce and how much — that includes things like configuring their generators to know the rates in the deals they’ve negotiated with the power companies. These guys have pretty sharp pencils.”

Californians are facing the possibility of rolling blackouts as record heat spikes energy demand while a prolonged drought cripples the production of hydroelectric power. State utilities are scrambling to procure additional capacity and begging residents and businesses to reduce electricity usage. 

Last month, power plants across Texas unexpectedly went offline amid a summer heat wave, eliminating 2.4 million homes worth of power from the grid. Officials ordered residents to set their thermostats no cooler than 78 degrees in an attempt to lower energy demand. These disruptions come just four months after winter weather took down much of the state’s power supply, leaving thousands of residents without electricity for days.

Although data centers are among the largest customers of power utilities in both these markets — and while just a few seconds of power loss at a large data facility can be catastrophic — the recent instability has produced little adverse impact on the industry.

A survey of Texas data centers during the February deep freeze showed that nearly all major facilities continued operating with no downtime, using on-site power sources at times when grid power was unavailable. 

“Throughout the crisis in February, we were up and running 24/7; we did not go down at all,” said Steve Friedberg, director of competitive intelligence at Evoque Data Center Solutions, a Dallas-based colocation provider with two data centers in North Texas.

“We voluntarily went off the grid and ran on diesel for about 15 hours and returned multiple megawatts of power to the grid."

The ability to produce backup power on-site has long been a core tenet of data center design.

The Uptime Institute, an organization that establishes facility standards for the data center industry, suggests that large colocation and hyperscale data centers should be designed as though their on-site power was their main power source. Because grid failure is certain to happen at some point, major data centers are typically designed with multiple layers of redundancy, complex power management systems, and the ability to produce more power than they need for days at a time. 

“Since the power coming from the utility is not under your control, the utility can turn it off for any reason at any time and you have no say over it,” said Christopher Brown, chief technical officer at the Uptime Institute. “So the only really reliable source of power that you can rely on is your source of power.”

With power shortages becoming a regular occurrence in both Texas and California, Brown and others in the industry said that data centers’ power generation capacity presents an opportunity for some facilities to sell energy to the state utility. 

“Look at a scenario where the power company says they’re going to be running a deficit for two hours until they can get another turbine at another power plant fired up and online and producing power,” Brown said. “Data centers can then pull some of that power off the grid by starting their own on-site power production and help to try to stabilize the grid.”

According to Brown, a similar model has existed for years in the petroleum industry. Pipeline operators will routinely shut down pumps or other equipment at the request of power companies to reduce their energy usage, creating a credit that can be traded and gain value over time. Brown said it is likely that a similar system will likely develop for data centers if power scarcity continues. 

Some companies are already using the energy shortage to their advantage, according to McFarlane. He said that hyperscalers like AWS and Google have sophisticated power management and storage systems that interact with the grid based on the cost of power in real time.

For facilities with these systems and on-site power from relatively inexpensive sources like natural gas, it can often be cheaper for a facility to produce its own power than buy it from the grid. While environmental regulations limit their ability to do that under normal circumstances, these rules disappear in times of crisis. 

‘When the utility asks for cutbacks on power usage, then the legal controls are gone and these guys can turn on their generators and run them for as long as they want to — the law no longer applies regarding the number of hours they can operate,” McFarlane said. “You may normally only be able to test for four hours a month, but you can run for five days in a row if there’s a crisis.” 

The power issues facing California and Texas have not been without consequences for the data center industry. The need to build more grid infrastructure means higher rates are on the horizon in both states, experts say. Preparing for future instability also brings added costs for operators. Many now keep more fuel on-site for backup generators and have strengthened the security of their fuel supply chain. 

Less tangibly, the renewed focus on backup power has somewhat counterintuitively hampered innovation in that space, McFarlane said. While the past decade saw the rapid development of new technologies for on-site power, from high capacity batteries to methane fuel cells, the sudden instability has drawn operators toward the most familiar and reliable options, generally diesel generators. 

Brown believes the current situation in California and Texas will become increasingly common as extreme weather and increased energy demand meet the growing pains of expanded renewables. 

“If it was just the situation in Texas this past winter, where they experienced temperatures they hadn’t experienced in 30 years, then I’d think it’s just a blip on the radar because their infrastructure wasn’t designed for those temperatures,” he said. “But now they’re having trouble in their normal times. This is a systemic problem.”