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Volume 27, Issue 3

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Datacenter Energy Regulation: It’s Real, It’s Coming, It’s Expensive

In the energy market, carbon regulation goes by many names— cap and trade, carbon reduction commitments, CO² reduction and more—but they all mean one thing: higher costs for power. More expensive electricity will have an enormous financial impact on companies that are in energy-intensive industries. That includes the datacenter industry, but you wouldn’t know it based on how little discussion there is in our industry about carbon regulation legislation making its way through the U.S. Congress and legislative bodies in other countries. There is a general belief that because no current legislation specifically uses the term “data center” in its title, IT facilities will not be affected. Nothing could be further from the truth. With no strong lobbying arm, or notable friends in Washington, the datacenter industry joins a host of others within the stampede path of a variety of soon-to-be regulators.

The Impact of Proposed Legislation
Regardless of where you may stand on the issue of man-made global warming, it is this issue that is serving as the impetus for regulation currently being debated on both national and global stages. Globally, attempts continue to be made to bring all nations to heel via agreed upon carbon reduction thresholds at conferences such as Kyoto in 1997 and Copenhagen in 2009. From a national perspective, these efforts are encapsulated in legislation that has passed in the U.S. House in the form of the Waxman-Markey bill and the Kerry-Boxer bill currently pending in the Senate. Although the methodologies in these different bills may differ, their end goal is to compel dramatic reductions in CO² emissions across the business spectrum. In the United States, the proposed reduction targets of 17 percent of 2005 levels by 2020 and 83 percent by 2050 (a level which would be the per capita equivalent of the energy usage levels of 1910 and that reduces GDP by over $393 million annually) will dramatically increase the cost of energy. 

A Real Life Example. The UK’s Carbon Reduction Commitment (CRC)
Adopted in the UK in 2008, the Carbon Reduction Commitment (CRC) was implemented to reduce carbon emissions by 80 percent from 1990 levels by 2050. In order to achieve this objective all companies whose electrical energy consumption exceeds 6,000 Mega Watt Hours (a cumulative total that includes all corporate facilities) will be responsible for paying a carbon tax of £12 (~$21 as of the date this article was written) per ton of carbon emitted. Although billing will begin in 2010 based on 2008 usage levels, a recent study conducted by Digital Realty Trust and InfoAge Magazine found that almost half (45 percent) of datacenter operators are not measuring their power usage. This failure to fulfill this basic requirement of CRC legislation will prove to be a costly error on the part of these firms as they will absorb not only a substantial increase in power prices but government assigned emissions taxes as well.

Preparing for Regulation
Any energy regulatory scheme adopted by the United States will place datacenter managers front and center in terms of responsibility for minimizing the cost impact of the legislation agreed upon by Congress. The problems that managers will face in dealing with any new regulations placed on energy usage are exacerbated in many instances by the structures of their own organizations. For example, operational responsibility for datacenters are often divided between the facilities and IT organizations. A typical manifestation of this division of labor is that IT often does not see the power bill. This sub-optimal management structure obviously places a greater burden on the datacenter manager to coordinate organizational efforts to deal with the impact of impending energy regulation.

Part of the paradox of upcoming energy legislation is that both of the current legislative bills focus on energy usage reduction while datacenter’s actually become more efficient as their power consumption increases. Thus, taxes on datacenter energy uses, as well as power costs, will increase as the facility becomes more efficient. Unfortunately, the answer to this quandary is not going to be found in the “cloud” or “virtualization” as the cost increases are a function of usage thereby negating the impact of consolidation or distribution of operations.

Regardless of the final format of pending energy legislation the ability to measure your energy usage will be a required core competency. Although this capability will be essential for firms to minimize the impact of expected cost increases, as evidenced by the results of Digital Realty Trust’s CRC study in the UK, most firms are unprepared to support this fundamental requirement. The use of strategically located meters is essential for your organization to cultivate an understanding of your usage patterns, as well as calculate your on-going efficiency. The use of efficiency metrics such as PUE is based upon the ability for you to capture energy usage information at regular intervals across extended periods of time. Although, as previously discussed, efficiency is not the attribute that any proposed legislation is modeled to reward, it is an important consideration to ensure that your organization’s energy expenses are not further inflated due to inefficient operations.

Act Now
In order to prepare your organization for the requirements of impending regulation you need to start now. As discussed above, implementing a comprehensive metering program is imperative. In essence, this requirement actually enables you to “kill two birds with one stone” as understanding your organization’s power usage patterns is a key element of datacenter planning with or without regulatory considerations. In our experience we have found that our customer’s usage patterns are closer to that of a factory, with discernable peaks and valleys than they are to steady state constants. Thus, the use of metering enables you to plan more effectively for your future datacenter activities as well as, preparing your organization to best respond to new regulatory mandates.

Identifying the tools that you will need to obtain the most detailed level of data collection possible is a second preparatory requirement. From a positive by-product perspective, the requirements of proposed energy legislation will force many organizations to cultivate a much more in-depth understanding of their datacenter energy utilization. For example, the use of branch circuit monitoring or IP addressable power strips will enable firms to extract a level a more exacting level of measurement than they have previously attempted to obtain.

Another area that may require modification to better align your organization with new regulatory requirements is the structure of internal departments and group responsibilities. Using our earlier example of a divided level of responsibility between the IT and facilities organizations it is not unreasonable to draw the conclusion that this corporate structure is inefficient under proposed regulatory schemes. Ownership of all datacenter energy usage administration must reside within a single designated body within the company. This group would bear responsibility for the collection and interpretation of all usage data and be the point of initiation for all energy related policy modifications.

The issues related to organizational responsibility are exacerbated should final regulations parallel the UK’s CRC and force firm’s to account for their energy usage (and associated carbon emissions) in aggregate. The cost impact for firm’s operating multiple datacenters can easily be impacted should state and local governments choose to overlay their own “taxes” on federal dictates. The potential for this added level of complexity will have significant impact on firms that choose not to begin their planning and organizational reviews now. In the spirit of the old adage “ignorance of the law is no excuse”, a lack of preparedness to comply with regulatory requirements will not be an acceptable response to regulatory bodies or the executive suite.

The rush to regulate energy usage to reduce carbon emissions has surmounted all obstacles in its path to this point in time. It is probable that some type of legislation or agency edict will be forthcoming in 2010. Although many in the datacenter industry currently entertain a false sense of security due to the absence of regulatory initiatives that specifically call out datacenters, this is a foolhardy mindset. The imposition of a government regulatory scheme will have a substantial amount of financial impact on datacenter operators and will be particular abusive to those organizations who choose to ignore the prevailing winds and prepare themselves accordingly.

About the Author

crosby_chris.jpgChris Crosby has served as senior vice president of corporate development of Digital Realty Trust (www.digitalrealtytrust.com) since August 2009. Prior to this role, he served and senior vice president sales and technical services since October 2005. He joined Digital Realty Trust as vice president of our sales and technical services activities at the completion of our initial public offering in October 2004. Since 2003, Crosby was managing director of Proferian, an operating partner of GI Partners. While at Proferian, Crosby was responsible for leasing and sales within the GI Partners portfolio with an emphasis on technology-related leasing including turn-key datacenter space. Crosby has more than 17 years of technology experience and was most recently a consultant for CRG West, an operating partner of The Carlyle Group, formed in 2001 to oversee and enhance strategic telecom assets managed by Carlyle Realty Group. Previously, Crosby was active in sales, sales management and product development at Nortel Networks, a leading supplier of products and services that support the Internet and other public and private data, voice and multimedia communications networks. Crosby received a B.S. degree from the University of Texas at Austin.