The UK’s problem with power

Datacentre power buyers say Britain’s deregulated energy market is as complex as trading in derivatives

With the British electrical power markets undergoing a transition, supply of power to the datacentre is becoming an increasingly important question of strategy in the UK.

It calls for new ways of thinking and possibly new skills as procurement of this vital commodity becomes ever more difficult to tie up.

The dynamics of energy generation and transmission capacity are much the same as they have always been, except the number of power stations is set to decline in the next three years. 

Rob Bath, vice-president of engineering at wholesale datacentre provider Digital Realty, says the more moving parts there are in any feat of engineering, the more likely the system is to break down, and the renewable energy market will create many microgeneration inputs that are inherently variable in nature.

With clean coal technology likely to be too costly and the nuclear new-build scheduled to add 16GW of capacity at least a decade away, there is likely to be a squeeze on the UK grid as the capacity margin is eroded.

Rising costs, short supply

Although the national UK transmission and distribution systems are effectively moving to become smart grids, there is a long way to go, and the combination of smart grid technology and the energy management systems will only scratch at the surface. 

“Significant investment is needed to upgrade the UK infrastructure in support of such a shift,” says Bath.

While the government’s recent carbon-reduction commitment (CRC) tax concession will come as a relief from 1 April 2014, Bath says the estimated 9% savings on energy bills could eventually be neutralised by rising costs driven by supply shortages.

Government announcements surrounding new nuclear facilities at Hinckley Point are being hailed by the industry as positive steps but there is less confidence that they will address all capacity needs. “To secure future-generation capacity, the government will need to make additional commitments to renewable, nuclear and emission-compliant fossil-fuel capacity,” says Matt Lovell, CTO at UK cloud and colocation company Pulsant.

It’s not just about the power stations. The grid also needs upgrading. Lovell says that unless further substantial investments are made to replace components in the grid as they reach the end of their useful life, there will be trouble ahead. The UK’s transmission capacity could benefit from new transmission-efficient alternatives, but there are no signs yet of new amorphous metal transformers being made available.

He believes the intent to generate as much as 30% of energy from renewable sources by 2020 means most investment will be focused on sources and technologies related to renewables. This will be to the detriment of investment required to increase transmission capacity and create a smart grid.

Datacentre power buyers already are speculators on electricity futures and options

Oliver Edwards, Colt

The supply side of the market is also not likely to be boosted any time soon, argues Lovell. He says industry regulation, the scale of investment required and the need for specialist maintenance equipment form a substantial barrier to entry in the UK power market. And despite dwindling supply there are unlikely to be new participants in the generation and transmission of power.

Taking control of power

This is why more datacentres may turn to generating their own power. Despite the government’s U-turn on climate change agreements for datacentres, many providers will continue to increase investment to generate electricity. Power prices will only go up and the electricity bill already represents a significant cost to any datacentre operator. “For the bigger operators, the initial investments (in onsite renewable sources like solar) could yield a return in as little as two to three years,” Lovell says.

Those that don’t create their own energy must become more tactical and strategic in power purchasing, warns Cyrille Brisson, vice-president of power quality at power-management supplier Eaton. He says energy should now be treated as a stockmarket commodity by datacentre managers. If they are lucky enough to work for a global bank they can ask their derivatives trading desk for advice on purchasing futures and options on energy portfolios. 

With more supplier options and flexibility to buy and sell at different time of year comes more pressure to get the best deal

Oliver Edwards, Colt

Buying energy at a fixed price can yield good savings but datacentre managers should be aware that prices are liable to be volatile, Brisson says.

Many managers or operations directors now use brokers. The Virtus datacentre in London uses a consultant to help it weigh up options while 4D Datacentres in Surrey, which caters to SMEs, uses a broker to run a reverse auction with suppliers. 

The brokers work to get the price down while narrowing the list of preferred suppliers. “We tend to opt for fixed-price contracts so we can more easily budget our costs over a long period of time,” says David Barker, technical director at 4D.

“When you have a market in which there is a rapidly fluctuating commodity, the market for derivatives will become significant. For a datacentre manager there is only one commodity that will matter, and they need to create some expertise in buying and selling it,” says Eaton’s Brisson.

European operator Colt’s datacentre service management team makes decisions about energy buying on a weekly basis across Europe, based on future volume and future pricing. “Datacentre power buyers already are speculators on electricity futures and options,” says Colt’s finance vice-president Oliver Edwards.

It’s a difficult skill in the UK, according to Edwards and Barker, because in highly regulated markets there are limited levels of flexibility and only certain time periods at which you can make procurement decisions with a finite number of suppliers. “If you hit the target price you wanted from your first auction, you might want to jump on it,” Barker says.

Less regulated

In less regulated regions in Europe there is more flexibility and monthly opportunities to buy and sell back energy. The German power market could offer the most relevant pointers to Britain’s power future.

To secure future-generation capacity, the government will need to make additional commitments to renewable, nuclear and emission-compliant fossil-fuel capacity

Matt Lovell, Pulsant

Both countries lack the resources of France, which has 59 nuclear power plants, and the Nordics, which have a surplus of energy from hydropower. And they both face challenges in power generation as the mix of input is changing rapidly.

In Germany, the grid is now reportedly under strain. Sudden fluctuations are causing major damage to several industrial companies, reports Der Spiegel newspaper. Many have responded by getting their own power generators and power management systems to help minimise risks.  And many industrialists are warning they might leave the country if the government cannot deal with power fast. Could this happen in the UK? 

Jon Evans, international accounts director of green datacentre provider Green Mountain, based in Norway, promotes the idea that leaving Britain is an option for power challenges faced by UK datacentres. He says Norway’s surplus of hydro power equals fixed prices and renewable energy sources.

It is a moot point among operators whether the latency involved in using a remote location is too high a price to pay. The instability of power prices, however, is having a transitional effect on the UK market. If British datacentre buyers respond like their German counterparts, they may increasingly source their own power generators to help minimise risk. 

In Germany, producers of batteries and power-management systems are benefiting from the disruptions, with many industrial energy system providers reporting a sales surge of 13% in 2013.

In the UK, power management companies such as Eaton have also reported increased interest. The European Commission’s recent guidance on the tradable certificates for renewable electricity and energy efficiency have created a surge in demand for products that make smarter use of energy, says John Dorman, power systems director at equipment vendor Cummins Power Generation.

If you hit the target price you wanted from your first auction, you might want to jump on it

David Barker, 4D

Start-ups are entering this space too, with companies such as Moixa Technology and Renovagen creating systems that will help datacentres sweat more performance out of the existing grid offering.

Moixa says it plans to put smart batteries into datacentres to alleviate the pressure of peak period demand on the grid and improve the energy efficiency of essential Direct Current (DC) devices. Renovagen is offering a transportable solar power solution that is capable of generating ten times more power than existing technologies

Although Dorman claims “energy is getting smarter”, it will be a long time before datacentre power buyers can source a stable, secure supply of power that doesn’t involve input from one of the big six energy suppliers. Getting power to the datacentre is the easy bit now, says Colt’s Edwards. 

The hard bit is dealing with the complexity created by a choice between the big six suppliers and a further six alternative suppliers. “With more supplier options and flexibility to buy and sell at different time of year comes more pressure to get the best deal,” Edwards says.

So, as if it wasn’t hard enough to keep an eye on the market for renewable energy, it seems managers must now also be futures and options speculators.

This article originally appeared in DatacenterDynamics Focus.

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