Data Center Power Contracts

The continuing demand for power within the datacenter industry has received significant amounts of press in recent years. Great technology and energy efficient practices has been implemented, however, power supplies and power supply contracts will still need to be in place for the likely life cycle of the modern datacenter.

I am pleased therefore to be asked by Datacenter Dynamics to provide insight and guidance on issues surrounding installation of power supplies and setting up power supply contracts based on my experiences in the UK and Western Europe.

Most Western economies have deregulated power supply markets and there is at least some choice for datacenters when choosing a power supply company. The UK followed by Western Europe has arguably the most sophisticated Power markets in the World. Whilst this brings significant opportunities in the form of choice, price and products it also brings significant layers of complexity and confusion.

More choice…more confusion?

Taking the UK as an example there are up to 20 licenced power suppliers nationally from which a datacenter can select and choose their power contract. In Germany, Austria, France, Scandinavia and the Benelux there is a similar range of choice. Indeed many of the UK suppliers have a presence throughout Europe like French and German power companies EDF, GdF Suez (latter), Npower (RWE) and Eon (former). Recently, Russian giants Gazprom have entered the European markets and now have a gas and power presence in most of Europe. So cross border power supply contracts can be set up for multi-jurisdictional datacenters throughout the Europe.

As well as price, a power supply contracts has many important facets that need to be understood including legal risk and the charging methodology employed by the power company. The latter will be of particular interest in the coming blogs as no matter where you are in the world the actual cost of power/electricity is at best around 50% of your total power costs. The balance will be made up of the local and national transmission grid costs and in the UK now at least 15% is made up of government taxes and levies.

In the UK for example high energy users including datacenters pay around 8% in Renewables Obligations (RO) charges (a government levy that subsidises large Renewable Power projects) and 3% in Feed In Tariffs (FITS) (a subsidy for small scale power generation projects) and finally another 5-6% in Climate Charge Levy (CCL) (a green tax that is imposed on all non-domestic power contracts including datacenters). This represents a significant cost to UK datacenters, yet with good planning and skilful contract negotiations these levies and taxes can be hedged and/or replaced in UK power contracts.

RO and FITS levy rates are only published by the government 6 months in advance but energy suppliers can be convinced to price them long term (2/3 years), giving the datacenter budget certainty for the period and passing the risk to the supplier.

Exemption from CCL

CCL tax can be exempted by requesting the UK Supplier to offer a Green or Renewable power contract, which allocates the UK datacenter’s power usage from the supplier’s green or renewable power sources. These CCL exempt contracts are the same or sometimes lower in cost and have much needed CSR green credentials for the datacenter.

The above are all taxes collected via the UK customer’s power bill. There is another energy tax that UK customers pay called the Carbon Reduction Commitment Scheme, which for those who qualify equates to around another 7-10% of the total energy spend. To qualify you needed to have used 6,000 MHW of hours of power between 1st April 2012 and 31st March 2013. If you qualified you are mandated to pay the further 8% tax for the next 5 years. Through strategic forward planning you were able to avoid the qualification criteria and avoid the tax for the next 5 years.