Data Center Developers Are Caught In A Backup Power Pinch

As developers try to keep up with the record amount of data center demand, they are navigating a difficult path on a critical issue for operating these facilities: providing backup power. 

Power grids in the U.S. are becoming less reliable, and in order to avoid costly outages, data center operators are being forced to rely more on their on-site backup power systems. The vast majority of the time, this means running diesel generators.

But at the same time as a record pipeline of new data centers is moving forward to meet sky-high demand, the industry’s use of diesel generators is facing growing scrutiny and regulatory oversight due to the emissions they produce. 

Concerns over generator emissions have derailed or delayed data center projects in markets from Maryland to Texas, and developers say local restrictions on on-site generator use are becoming a significant part of the equation when it comes to siting data centers.

Other on-site power options with fewer emissions concerns do exist, but they are often not feasible for most projects — at least for now.

Yet even when these cleaner technologies are viable, the industry’s largest tenants, Big Tech companies, often mandate diesel generators in contracts, according to data center operators and technical experts speaking at Bisnow’s National DICE Power Capacity, Energy & Sustainability summit this month at The Statler Dallas.

These experts argued that the industry's ability to meet both record demand for new data centers and sustainability goals will require Big Tech tenants to change their requirements around backup power. Otherwise, generators will remain an increasingly difficult hurdle, complicating an already challenging development landscape. 

“We have these two things working against each other. There’s air quality and emissions rules requiring operators to reduce their use of generators, but grid constraints are trying to push generator use up,” said Rich Scroggins, a technical advisor at Cummins specializing in data center power systems.

“These are the forces we have to navigate in trying to make decisions on how we're going to build and power data centers.”

Not only is the data center industry facing energy constraints in key markets, but the power that data center firms do have access to is becoming less reliable. Power disruptions due to transmission problems are becoming more frequent, a trend driven largely by aging infrastructure and the complicated transition from fossil fuels to renewables like wind and solar.

These grid reliability issues are only expected to get worse in the foreseeable future. 

“The pace of change is just nuts in terms of how the power dynamic is shifting globally,” said William Chung, Iron Mountain’s global director for site selection and energy.  “The reliability we’ve seen for the last 15 years is definitely not an indicator of the reliability for the next 15 years or so.”

For data centers, growing grid instability means having to operate on backup generators more frequently. Operators and developers are investing in higher-grade generators and more advanced power systems and are shoring up supply chains for diesel as they prepare to spend more time disconnected from the grid. 

But the industry’s growing need to rely on diesel generators is running headlong into environmental regulations governing their use.

While Scroggins said that air quality rules and other emissions restrictions are becoming stricter at the federal, local and state levels, new data centers are also using far more power than they were just two years ago. As total on-site generation requirements grow from tens of megawatts to hundreds, the potential emissions from prolonged diesel generator use are bumping up against air quality rules and raising red flags in communities where these data centers are located. 

“It scares people when you start talking about the generators needed to back up half a gigawatt of IT load - and it should,” said Lindsey Bruner, chief operating officer at CleanArc Data Centers.

Whether emissions from diesel generators will lead to regulatory or permitting issues is becoming a prominent consideration in where developers look to build.

Aligned Data Centers in October withdrew its plans for a 264-megawatt facility at the Quantum Loophole megacampus near Frederick, Maryland, after state environmental officials limited the number of diesel generators the firm could deploy there. 

In other markets, local governments are enacting stricter emissions regulations to stay in compliance with federal Environmental Protection Agency air quality standards. Regions deemed to be in violation of the EPA’s clean air rules face federal mandates to impose stricter emission limits. It’s a process that is underway in areas like Dallas-Fort Worth, which is listed as being in “severe nonattainment” for a number of airborne pollutants, with a real possibility of a downgrade to “extreme nonattainment.” 

“That is going to impact generators and the ability to permit generators,” Haynes Strader, chief development officer at Skybox Datacenters, told Bisnow in November. “As that shift happens, Dallas is going to start to look a lot more like Santa Clara from an environmental regulatory standpoint.”

A region's EPA air quality status is becoming a significant factor in site selection for developers, panelists at Bisnow’s DICE summit said. 

Permitting times for generators in “nonattainment” regions can take more than a year longer, impacting speed to market. Those generator permits in some markets increasingly include strict limits on how frequently generators can be used — limits that Scroggins says can hurt a project’s viability. 

“At some point, you get to the point where the hours are so low that you can't really even deploy,” Scroggins said. “We see this as one of the major challenges we’re facing.”

Data centers do sometimes have other options for generating power on-site that produce fewer emissions than diesel generators. Or in some cases, no emissions at all.

Some data centers use natural gas generators that can be cleaner than grid power, while others have incorporated more novel technologies like fuel cells of utilized battery storage systems. Developers of large campuses are increasingly exploring aggregating multiple forms of generation and energy storage into self-managed “microgrids” that allow them to effectively serve as their own utilities. 

But for now, these technologies are typically not viable alternatives to completely replacing diesel generators for most projects. Barriers to adoption vary, but industry leaders point to high costs, performance limitations and manufacturing constraints, as well as the infrastructure required for natural gas-based systems. 

Yet perhaps the most significant impediments standing in the way of these alternatives to diesel generators, according to DICE panelists, are Big Tech cloud providers, the industry’s largest tenants, who often insist on diesel generators in their contracts with data center providers. 

“Even with all of the innovation in different aspects of data center design and operations, we still get customer RFPs that say ‘diesel generator backup required,’” CleanArc’s Bruner said. “It’s safe, it’s easy, it’s fast, they know it works, and when they're paying us a lot of money to make sure that their servers stay on, they want something that they know works.”

With generator permitting standing in the way of getting desperately needed capacity to market quickly, developers have expressed exasperation that some of the most innovative companies in the world have been so risk-averse when it comes to on-site power. Adding to their frustration is the fact that companies like Google, Amazon and Microsoft have ambitious sustainability goals that reducing or eliminating diesel generators would help meet.

This disconnect reflects divisions within these major tech companies, said Mercy Manning, vice president for sustainability and sales and Aligned Data Centers.

While these firms have data center sustainability groups, they are generally siloed from the procurement and engineering teams that negotiate contracts with third-party providers. These teams are typically incentivized to not deviate from the hyperscaler’s standard contract, creating a structural barrier to change, even if those changes align with the company’s broader goals. 

“We have executives talking about going generator-less, but then you have the engineering groups in these organizations that are absolutely not ready for that,” Manning said. “There's a lot of internal debate within the hyperscalars that I'm witnessing before they can get on the same page so we can write a contract and design a project around that.”