'The Game Has Changed': Data Center Builders Race To Educate Utilities, Avoid More Power Crises
After unexpected power shortages delayed data center build-outs in the sector's largest market, developers are scrambling to avoid future crises by helping utilities across the country better anticipate and prepare for the surging demand that lies ahead.
The revelation in early July that Dominion Energy — the main power utility in the data center capital of Loudoun County, Virginia — would be years behind schedule delivering power to a number of projects in what's known as Data Center Alley has been described by insiders as a shock to the system for the data center world.
It revealed that even the most sophisticated utilities dramatically underestimated demand from data centers and had been caught off guard by industry changes causing facilities to use more power more quickly. Now, many developers are scrambling to make sure utilities are up to speed on the forces driving the industry’s surging energy use in an effort to prevent future surprise shortages from putting billions of dollars in investment at risk.
Industry insiders say these conversations are happening with renewed urgency, because if surprise power shortages can happen in the industry’s premier market with perhaps its most trusted utility, they can happen anywhere.
“Dominion was the gold standard. They’re the best in the business, but the game has changed,” said Chris Curtis, senior vice president for acquisition and development at Compass Datacenters. “The demand signals have gone off the charts and none of the utility companies have ever seen this. This is new.”
Multiple data center developers tell Bisnow they have had urgent conversations in recent weeks with utilities in any market where they are considering future investment to ensure power providers can accurately model the flood of demand heading their way. Numbers released this week by JLL show a record data center development pipeline that is expected to grow, with future construction constrained primarily by a lack of available power.
Flexential Chief Innovation Officer Jason Carolan said he has been flying to meet with utilities in key markets, including Georgia and North Carolina, to make sure they understand expected demand increases and the forces driving them. Beyond the needs of the data centers themselves, he says utilities need to prepare for demand from other energy-intensive industries that are attracted to dense data center markets.
“It’s the value ecosystem that forms around data centers. It’s the electric vehicle battery plants, the chip manufacturers and other high-tech manufacturing,” Carolan said. “These are all now driving a lot of the same power demands that the data center industry would be using, and we just have to make sure we get ahead of that.”
But Carolan and other industry insiders also point to trends pushing greater energy usage within the data center industry itself that seem to have caught utilities by surprise. Perhaps the most significant: an increase in so-called utilization, the amount of allotted power that data centers actually use.
Up until the last few years, when tenants for major data center providers were predominantly large enterprise customers, data centers would typically only use around half of the power available to them. Most large corporate tenants would lease more capacity than they needed, expecting to grow into it. Or their IT departments lacked the sophistication to operate close to their power limits.
Utilities would plan around this reality when managing the grid. If data center providers were asking for 100 megawatts in a certain market, experts say, the power provider might plan for them to actually use closer to 50.
But this model has broken down over the past 24 months as cloud providers and social media giants — the so-called hyperscalers like Amazon Web Services, Google, Microsoft and Meta — have consolidated an ever-growing share of the global data center inventory. When these companies say they need 100 megawatts, they intend to use almost all of it.
“The major players have their way of doing things down to a science,” Compass’ Curtis said. “A Fortune 500 company might plan for a certain amount of capacity, but they don’t really know, and it takes time to build out that capacity. With the hyperscalers, their whole business is to provide compute, and they have spent a lot of time and energy understanding how to be efficient in that game.”
This dramatic rise in utilization caught utilities off guard, experts say. So did other industrywide trends, such as the amount of power used by each server rack — so called density — nearly doubling. The widespread failure of utilities to anticipate these trends, for some data center insiders, has been frustrating.
“Utilities are very regulated, very slow moving, and in many cases have not taken the steps necessary to prepare for this ongoing growth that they really should have seen coming,” said Tim Bright, executive vice president at T5 Data Centers. “Anyone who knows anything knows about the conversion to web-based systems and the cloud and things like that. It just takes the understanding that that’s going to drive data center use, which in turn will drive power use.”
With demand for new data center development significantly outpacing the expected supply of power, there is a growing sentiment that the industry’s future will be significantly less reliant on utilities for energy. In some ways this is already happening: Developers of large-scale campus developments build out power infrastructure like substations themselves, rather than waiting for a utility, according to Curtis.
“At this point, you have to bring the infrastructure,” Curtis said. “You can’t just call up a utility and say you need 100 megawatts. You have to build.”
Flexential’s Carolan said data center operators may eventually play a larger role in power generation as well. Although widespread adoption of on-site power generation is at best years away, he points to projects like Quantum Loophole in Frederick, Maryland, which uses a natural gas microgrid on the campus for some of its power. Developments like Quantum Loophole or Cumulus Data’s nuclear-powered campus may be outliers, but Carolan said this kind of creativity is going to be necessary to avoid power shortages grinding new data center development to a halt.
“Are we at a crisis point? I think we’re getting close,” he said. “It’s interesting times for sure.”