Energy
Ensuring continuous power supply
Demand for electricity to run data centers is set to rise sharply because of the substantial amounts of computing capacity needed to deploy artificial intelligence (AI) tools. The availability of continuous supply of energy will therefore become an even more important factor for data center owners who may be liable in case of power outages.
After globally consuming an estimated 460 terawatt-hours (TWh) in 2022, data centers' total electricity consumption is expected to more than double to more than 1 000 TWh by 2026, according to estimates by the International Energy Agency (IEA).
A data center requires a lot of power to operate data-processing servers, network equipment, storage equipment, cooling systems, and monitoring systems. A power distribution system will transmit power from the utility company or generator to the data center's various devices and perform power distribution and management. It will typically include backup batteries, uninterruptible power systems, and even solar panels to stabilize operations and ensure that the data center can respond quickly in the event of an unstable power supply or sudden outages.
Availability of energy, particularly green energy, is likely to be an important factor for selecting the location of a data center. However, this needs to align with other factors such as availability of tax breaks, where data demand is coming from, and the absence of natural catastrophes.
Power supply options:
Leading data users are exploring renewable energy sources such as wind and solar power in order to reduce their carbon footprint. However, solely relying on these renewable energy sources is unlikely to ensure the energy resilience required by data centers. Renewables can’t match gas turbines when it comes to supply continuity and flexibility. Nuclear power is arguably turning into the most popular option as it’s considered ‘green’ and can offer a stable and continuous supply. A combination of different energy sources is likely to create the highest resilience. Because this sharp increase in power demand hasn’t been foreseen, old power stations (nuclear/gas/coal powered) are being kept longer on or even re-connected to the grid.
Since the servers and equipment in a data center must operate continuously, a number of alternative power backup systems, including uninterruptible power supply (UPS), generator sets, backup battery unit (BBU), and redundant power supply (RPS), redundant power systems, etc, are required to ensure that the data center can continue operating in the event of unforeseen circumstances such as power outages.
Data centers can take the power directly off the grid, usually via power purchase agreements (PPAs). These are fixed price contracts that provide certainty to buyers and sellers and avoid exposure to price volatility. If the energy provider fails to deliver the agreed volume it could be subject to penalties unless a ‘force majeure’ relief in the contract applies, in which case the risk falls on the power user.
It is crucial to clarify who will cover the cost of replacement power if the contracted power fails. The PPA is not dependent on how far away the power station is located since the data center will receive the power from the closest source. Data centers can therefore sap the power of communities, and this can become an issue if the power availability drops. It is worth getting consent from local authorities for power allocating before deciding on the data center location.
Grid blackouts are rare, but whilst insurers will insure a power plant from a property damage event that forces an outage, subject to deductibles, there is little appetite to offer coverage for outages to energy clients.
Alternatively, power can be generated on-site by building a power station on campus. This could be a wind or solar park, but also small modular reactors. For the latter, nuclear energy is becoming popular as the technology is advancing quickly. Hydro power, particularly in the form of pump storage is another source considered green and an attractive factor for selecting the location of a data center. However, with changing weather patterns droughts can affect supply continuity.
The supply of power can be structured as islanded power, self-supply of power or as contracted supply. “Islanded power” can be produced on the same campus, or “over the fence” from an adjacent power station. For all these options the interdependency of risks, a loss sustained to non-damaged insured property like a data center due to a damage at another declared location (the islanded power plant) must be considered. If the power station the data center relies on goes down, do you have a plan B? How much will it cost you?
Even when taking a cautious approach and ensuring there is a high level of redundant electricity capacity, you might experience a power outage. To mitigate this risk, it might be worth exploring alternative products that cover loss of revenue due to power loss in the first 48 hours. Conventional power market has high deductibles (30-60 days) which is likely to be too long to suit the needs of a data center, but the parametric insurance market may offer alternative solutions.
Availability of energy, particularly green energy, is likely to be an important factor for selecting the location of a data center.
Recommendations:
Here are some key questions to consider when deciding on a backup power plan:
- How long will the UPS run before the generator takes over?
- What's the maximum number of hours the UPS can run before it fails?
- How regularly do you check the power supply? UPS systems/backup batteries can be drained even before a power outage.
- Does the data center need an emergency standby, prime, or continuous generator?
- What hardware can shut down to preserve power?
- Is the backup power process documented? If so, how often is it reviewed and updated?
- In case of contracted power supply, how much will alternative power cost?
