Movie Marathons and Grid Flexibility

the end of the decade. In this same period between now and wind and solar power are projected to approach six of total power generation. So what is a grid with a lot of renewable energy need well flexibility to handle the times when the sun isn't shining and the wind isn't blowing so hard. The question we're exploring today is could data centers and all of the backup energy that they have become a distributed energy resource and help

provide grid flexibility. Michael ken Effect and Sarah Raza from B and E F worked on a report titled Data Centers and Decarbonization Unlocking Flexibility in Europe's Data Centers. This was done in partnership with Eaton and stack Craft. As a reminder, B and E F does not provide investment or strategy advice, and our full disclaimer is going to be at the end of the show. And now let's speak with Michael and Sarah about data centers and GRIT flexibility.

I am joined today with Michael and Sarah to talk about data centers, but not in the way that you may think about them. I think oftentimes when we're thinking about data centers, were actually thinking of the intense energy demand. Immediately what comes to mind actually is bitcoin mining. But that is a conversation maybe for another show. But we're here today to talk about data centers as a force and source of flexible energy demand. So Sarah and Michael,

you very much for joining today. Thanks data So let's start at the very beginning with what specifically we're talking about. What is a data center? Paint a picture in my mind of what this looks like. So a data center is a physical facility that organizations would use to house their applications and data. A data center's design is basically sort of based on a network of computing and storage resources that enable that delivery of the shared applications and data.

And if you're interested, the kind of key components of a data center include routers, switches, firewalls, storage systems, servers, and all sorts of other computer resources. So I mean essentially everything that we interact with in the electronic world. The recording platform we're on right now, my Netflix, and the bitcoin that I don't own. All of those things are stored in a data center somewhere exactly. And the

type of data center varies, right. So the main kind of two categories that we have and that we looked at in this report our co location and hyper scale data centers. And you may have heard both of those, and in case you're not entirely sure what they are. So a co location data center those built for the purpose of renting space for servers and other computing hardware

to clients. So you know, you might get a company who says, right, we need one room housing x amount of servers for us, and then and next door to that a different company. A hyper scale data center often called a self build. These data centers are basically owned and operated by cloud service providers like AWS, Microsoft or

Facebook or Apple. To put this in context, how energy intensive are these and how big is the scale of the energy demand here, So dass it is are very large buildings that consume huge amounts of electrical power, not only for the servers themselves actually I guess that we said all your our bitcoin and podcasts live upon, but then also the supporting so the exporting service like the cooling for the building as well, which is quite a

significant demand because they can overheat, right because their energy intensive, they get warm. Yeah, exactly, there's lots lots of really cool things looking at the efficiency of cooling for these buildings to really though that's only part of it for most of the demand, Like if the cooling partment makes about of overall electrical demand and the data center, most of that computing power and energy goes to doing the applications and hosting the data itself. So these are actually

really sophisticated energy resources. They have their own on site backup power generators, they have their own batteries on site as well, so they're really interesting. Legs actually can be not just connecting to the grids and causing more and more issues with supply or with congestion, But I should be more of this solution, you know, like how they

can interact and be more responsive to what the grid needs. Okay, so we've established that they're definitely a source of energy demand and will to the flexibility in a second, but just before we get too deep into that, and I think it matters for us to point out which countries in kind of which part of the world you guys specifically looked at, because this is a bit of a case study. It seems like everything is a bit unique here.

So we've done a case study on some specific countries for some specific reasons which will hopefully have applicability to other parts of the world. And maybe you could shed some light on that. What did we look at? Yeah, so, Danna, you might be familiar with the flat D markets. I don't know if you've come across that. No, I have

not come across. Said so, most data center capacity in Europe is concentrated in five countries Germany, UK, France, Ireland and the Netherlands, and that kind of capacity is almost in five of those cities, and that's referred to as flat D. So these markets are the largest for a bunch of reasons, Like Frankfurt, London and Amsdam obviously have the largest Internet exchanges Dublin is a data center hubs specifically for you know the history of large technology companies

headquartering in Ireland. But we actually decided to yes, focus on the UK, Ireland, Germany and the Netherlands, which, as you guys just heard, you know, they're four of the largest markets. But we also chose to focus on Norway, which is a very sort of emerging market could potentially, you know, in the future accommodate a lot of green

and flexible data centers. Does every country have their own market or do they sometimes by this data center space from another country When we talk about European data centers, A lot of that is really in these five countries. I mean we we are seeing more sort of data centers cropping up in Italy and Croatia and places that

traditionally weren't massive hubs for data centers. And I think also a lot of the newer places that are seeing a lot more build our due to you know, more land being available and milder climate, perhaps near more solar and wind resources. So what about the future of this space in terms of demand? Because I don't see myself deleting any of my children's baby pictures anytime soon they're going to stay on that cloud server forever. Is this

growing rapidly? Is this one of those kind of up into the right or almost straight up energy demand stories. So in this report, our actual goal here in one of the you know, one section of the report was to actually extrapolate and understand what demand would look like in twenty thirty. So we kind of looked at current data center power demand in one data center actricity demand and you know, project that out until twenty thirty, and kind of some of our conclusions here were that this

level of growth, you know, is not slowing. You know that there is obviously uncertainty around how much data centers in Europe will grow. So for the twenty thirty forecast,

we actually built three different scenarios. So we built a low, a medium, and a high growth and these scenarios assume sort of different compound downual growth rates, taking into account a lot of other things within the data centers to reflect those uncertainties regarding planning, permission, constrained land options, available power connections. So it's definitely a difficult task in all about scenarios. You know, data centers do grow across all

five of those regions. Since I was kind of under sun nerves less slightly, there should a huge amount of work of building from a database of how much capacity of data centers exist in these five countries, and we use that they're actually too while amount of capacity in each Markish could be the same, are are less even, but actually the impact they have on the grid is really relevant to the size of the grid that they're

connected to. There's a big range there. So m I say, like like Ireland and UK might have similar amounts of data center capacity connected while in the UK doesn't just make up about two and a half percent of the amount of electricity the UK consumes. In Ireland, data centers today consumed by fourteen or fift of all of Ireland's electrical generations. So the big gap between the impacts that the data centers can have on grids. Okay, so they have an impact, and I think we've set this up.

Let's go to the flexible part of the demand. What is the opportunity here because I'm thinking as we talk about flexible demand, we're not going to be able to take them offline. This is there's a security of supply issue here. So what are the choices available to data centers to build that flexibility. I mean, this is kind of the crux of it, and I guess what we really wanted to dive into with the reports. When you're looking at a data center, there's several sources of flexibility available,

so you can have the load. So actually if that is the applications and the data's going on, and you could shift that by time, you know, so if you've got something that doesn't have to happen at two o'clock in the day, and you can actually do that too a m at night, let's shift that also if something can happen in Germany, especially the German grids really congested at the moment, how we can shift that computational task to France where actually there's a it's a far more

relaxed grid. What is the load you can shift us? As I was saying earlier, is a lot of electrical equipment on site, so you have the up Yes, so that's the uninterruptible power supply. So this is a battery that pretty much every data center will have that if the grid goes down, which is a huge issue for data stays, as you said, das do not want to go down they get paid to be online when we want to have our podcasts, and we all get very

upset when our podcasts aren't there. I certainly do. So they have what they call the UPS and the power supply that will come on instantly. The power supply goes down and we'll run for about five ten minutes until the backup generators come online. Because it's like starting up your card, you have to turn the engine on, it takes the while for the engine to warm up. So UPS is a battery that can jump in. Every dozener has a backup generator. The problem is most of those

are diesel. We don't want to use diesels for flexibility. Ideally, these backup generors will never be run. There are alternative options. You could use hydrogen, new options that if those were installed, maybe we can actually start to use that backup generation to do more flexible things with it. Well, so first of all, how much flexibility are you talking about? Minutes, hours, days? What's the duration of time that's being proposed here. It will all be quite short. I think it does vary

on those different aspects of the load shifting. The UPS and the backup generation. The ups to be very short we're like, we're talking it's seconds to two minutes. Also, does centerpposers wary of using the UPS to do these interesting things for the grid because it's a backup plan, then you don't have a backup plan for the backup plan exactly. So if there's a lot of hesitation, and we can definitely talk about that in the future. But were those actually those ups can work really well? Is

to provide frequency response to the grid. This is a very big topic get too. But you can think about frequency response as like it's the as frequency as the heartbeat of the grid. So the grid needs to need suppose a fifty hurts, so that's fifty times second. And how the UPS could work with like a pace maker.

When the fifty hurts goes a little bit too higher, a little bit too low, the UPS the pacemaker kind of gives it a shock to keep the hurts, to keep the heartbeat going at that healthy point all of fifty hurts. So that's kind of one of the main uses we saw. So let's say the backup generation was built into the system with the intention to use it, and you mentioned a number of solutions. Okay, so bio

fuels one of them. I definitely am seeing this coming very much back into the lexicon after a decade of not being talked about quite as much. But then you mentioned to other things batteries and hydrogen, which as of

right now are very expensive sources of energy. Is there a point at which they become economically viable because the flexible demand is kicking in at a time when the grid really needs it, so the pricing signal is there or will it always be a commitment to let's say, certain emissions profiles as opposed is too Actually I don't know.

I mean, what's what's the what's the incentive? So you're hitting on a great point of the incentives and I definitely want to get to that in terms of these two technologies, so like batteries and hydrogen, I think to focus on those. There's only one data center in the world that we know that is even at the trial stage of using a large battery as backup Google as a data center in Belgium. So that's really interesting. See they're already thinking about the next step. Microsoft is pretty

keen on hydrogen. It's running a couple of projects at the moment, and Microsoft actually set a goal to be diesel free by twenty thirty. So there's an end goal there, and it's gonna be interesting, Actually, what are the options they're going to use to try and hit that goal? Because, as we're saying a number, but it's the vast majority of backup generation is I think that green incentive might be one of the best pushes we have to tapping

into that data center flexibility. And you're seeing these these two leaders of Google and Microsoft. You know, they're starting to talk about seven remove of energy matching. You know, shifting your load is going to make that a whole lot easier if you can do that. And are they sitting in the benchmark how corporations are going to think

about the energy procure image? Eliot at that benchmark ten years ago with p P A S. They setting that benchmark again today with this twenty seven renewable energy matching that other corporations will have to keep up with and years to come. Now for a very short break, stay with us out of curiosity the companies that are operating and running these data centers. I mean, you mentioned Microsoft and Google and companies that I know have net zero targets,

in some cases very ambitious ones. We maybe even negative missions targets. But what about the rest of the industry. Is there a high number of companies with net zero targets in this I don't don't have been called too many edge It's on fair because obviously those those companies have been so public with it. You, i think, said Sarah, spoke through a number of these co location providers as well.

But this is actually gets pretty difficult between let's say, the hyper scalers of those cloud operators we know well and these co location companies because on the one hand, the hypersco operators, they are very well resourced, you know, some of the wealthiest companies in the world, and the others had you had these co location operators who operate the majority of data centers we see, but they are

not as well resourced. I think Equinics were the largest data center collocator operators has a market cap of by thirty billion, as opposed to Google I think, which is at one point five trillion. Amazons around that two trillion mark as well, So it's kind of a it's difficult going to compare them. Also, the big companies have far more control over what they can do, like they own all their own data centers, they decide what servers that go into them. They know the ass that are going

through them, what their users are using it. For collocation oppertors don't have that visibility. You know, companies come in to build their servers in there. They have to serve their customers where it's called an s l A, a service level agreement, which can be quite restrictive to what these co location companies can do. Yeah, and I think just to add to that, exactly what Michael said, it is a lot easier I think for hyper scale as

compared to co location. That's another reason why we looked at Norway as an emerging market because of a lot of it's you know, a lot of the integration and renewables in Norway, and there's a provider I think Green Mountain.

Green Mountain uses add percent renewable power because obviously one of the main challenges in the data center industry is ensuring continual cooling throughout the day, and one of the benefits of being somewhere like Norway is you know, you can they can utilize some of the cold waters from the deep Norwegian areas located adjacent to the facilities of

the data centers, which again have so much land. So I think that we are seeing more and more colocation providers and operators, you know, prioritize net zero simultaneously with the hyper scalers. What's the policy environment for these data centers and our countries welcoming them in or they something where they're saying, you know, literally my grid has so much demand, You're going to have to find somewhere else. So I mean I can just speak to sort of

Ireland Breedflely. Obviously, growth in Ireland, you know, you would expect, typically as someone who knows nothing about data centers, you know, out of those five regions, you'd immediately be like, oh, you know, we expect Ireland to be have the biggest growth, just because we know that you know all the aws and you know Google's data centers. But actually it might not be as rapid as it has been in the

last few years. And that's that's really due to Ireland's recent sort of policy proposals, and some of those include limiting new data center build unless certain flexibility requirements are met.

You know, there are a lot of pushbacks from Irish citizens who are concerned about power at climate issues, and I think unlike somewhere like Germany, most data centers in Ireland are really concentrated in one major city, Dublin, and Dublin's electricity grid was not built to cater for such high demand from data centers, which I think has resulted

in network supply constraints. Michael, and sure you can speach this little bit more, but you know, in June last year, the Commission for Regulation of Utility is the CRU proposed that the Irish network operators a grid and ESP networks and which are kind of the largest, proposed that they prioritize data center connection requests outside of network constrained areas, which means there was a lot of uncertainty around you know, estimating Ireland growth, especially for the future of thirty or

more proposed data centers in and around Dublin Islands. Obviously is we can tell by accident is quite close to my heart and Ireland is dozens in Ireland's consume four of the car contre's entire electricity consumption. Our estimates are twenty thirty, which actually aligned with what are grid the grid operator is looking at, is about like a quarter of all Irish electricity consumption will be data centers. That's

a big number, just to give a scale. In Germany, which is the largest data center capacity with a much charger grid, that numbers about one point five percent, So doesn't Actually they are scaring the Irish grid operator and there have been quite drastic proposals that Sarah just mentioned, but that's slightly different to actually what we're seeing in other regions. So in Ireland it's actually a concern of

security of supply. The Irish grid will not be able to meet you know, will not be able to meet all of the demand as well as meeting gridade energy targets, which is no electricity by twenty thirty. What we see in other regions, the most notably Abstam, which introduced a ban for an entire year. They said you could not build any more new data center is They have never lifted that, but said you can only build a certain amount by thirty and they have to be in these

particular regions. Fand first is talking to a bunch of proposals as well to like forced data centers to build in particular areas, and I think that's maybe some of the lessons to learn for like emerging regions that are looking to attract data centers is to think a bit more about where these data centers are going to sit on the grid. And it's actually the issues are not just purely the grid and the capacity of the grid locally to take it, but also the amount of land.

You know, the dozens are very really big things, and they take up a lot of land that could be used for you know, warehouses or offices. Reneable energy are exactly the actually it weren't the rules proposed. And find first is that that sid just can't be located near public transport hubs because they don't actually have many people. So they actually would rather push, you know, a warehouse that has a lot of staff, put that near the public transport hub. And what is the hourly demand profile?

Look for them? Is it constant or does it have a peak? It's flash, it's a flat so so there you it's pancake, but the rest of the grid is not. And you know, I'm guessing many of the people listening, although not all, know that when people come home in the evening on a regular day, now that many people are going back to work and going about their days a bit more than they maybe had been in the last two years, you see this very peak and trough

throughout the day in terms of demand profile. So data centers, if they're able to take some of their demand offline, presumably in the evening when everybody gets home, they're sort of solving part of the demand that they take. They're at least solving part of the demand that they are

adding to the grid. They're reducing the aggregate demand added to the grid if they're reducing that peak at certain points in the day, because the alternative, I suppose it's just to build more energy even with the diesel generators. Depending upon the grid you're on, is there a scenario where the diesel generators still lead us to a lower overall emissions environment, And so yeah, you can talk about actually does it to demand on what the profile looks like.

So I think it's funny every talks a lot about electric vehicles. They might demand they're going to break to the grid, and it will, but actually data centers, depending

on the region, we'll actually have more demands. So in Ireland data centers there will be four times in thirty centers be four times the demand of electric vehicles in tear what hours in Netherlands has twice the amount of electric vehicles use, and there's so much to talk about smart hairs for electric vehicles and shifting that load around and doing really interesting things, but doesn't as though they are a larger source of demand, nor really talks about it.

I guess it's harder for us to visit. You know, we know that tesa looks like we see it on the road and we can see it plugged it and charging, but us in arms, they're obscure. We don't see them and the electricity they use. So if we can shift that load around, that kind of a huge impact. The problem is are you asking us to listen to our podcasts at different times of the day. We listen to our podcast like to two to am mid night, it

was about six pm in the evening. Like it comes down to how we consume our digital goods and actually where are we willing to shift that or are there other ways that can be shifted? Which parties are most interested in watching this development? And you know pilot projects

come to fruition. Is it some combination of the grid operators, the data center providers or the data center providers with net zero targets, or the countries and the policymakers themselves thinking about the overall grid impact for their country, actually have the grid operators, the data center operators, and I

guess I think governments as well. And this is actually where we're Ireland is the interesting case study that the good operator is saying it's gonna be really hard, you know, to accept more of these data centers datapers want to continue to build in Ireland, and then the government is in this tough position of yes, we want this invert investment from these companies into the country, Yes we want

to hit our removal the energy targets. But then we have the good opperators saying you can't have these two things. It's an unfortunate conflict. It's almost like now that the regulations that were proposed that Sarah mentioned earlier data to operations actually need to care about this now because let's you know, let's be honest. Dat centers role is not to serve the grid. Their role is to serve us. It's to serve their users is to a kid to

to wear out. The to wear it out is to make sure that our podcasts are there when we when we want to listen to them. So but these new rules that i'll be introduced or making data center operators to have to respond and if they want to avoid causing these kind of unfortunate situation sations were seeing in Ireland and in frank first and and in Amsterdam, which causes a lot of bad public pushback. You know, you do see there is a letter European MPs MVPs are

receiving petitions to ban new build of data centers. You know, it's not good press. And there's that move to be more engaged, to be more responsive and actually maybe take the lead and maybe get ahead of any regulation that might come in. It could be a much more proactive saying that dataset or operators can do. Where do you think we're going to see development in this space? First? As we're watching it progress, what are the signs of life that you're looking for to see things really start

to move forward. Recent growth has been driven by cloud computing demand, and I think an interesting kind of observation to look forward to the future would be, you know, how does that kind of split look between hyper scale and co location. The report kind of states that you know, the UK and Germany are really lead strongly by co location data centers. You know, I think Germany has pretty much zero hyper scale data centers, but Google has actually

made a commitment to build one in Frankfurt. So I think looking forward to see, you know, how that split will look and how those countries will change in that split between co location and hyper scale, and how that increase in cloud computing will change that. I think also a lot of new build has actually been and what we've seen from when we did this analysis was actually

site expansions rather than brand new sites. So Dublin, London, Amsterdam and Frankfurt, which are kind of the four main cities that we see within those kind of countries that we looked at, are kind of very mature data center market.

I think the large operators there are kind of shown little to no interest to buy brand new sites, and in those locations actually have just focused on expanding current So for example, n d G advantages seventy megal what data center in the UK recently and now plans to

double this current capacity. If you really want to encourage DASA to be more flexible, I mean a lot of things that can happen within power markets themselves to improve the signals for flexibility, which it basically improves the economic case, like them money you can earn by being flexible, Because to be honest, if you can be flexible and earn loads of money out of it, I mean companies are

going to go for that their businesses. But as well as that kind of the economics is also the environmental side. So like if we can send those singles through to the companies and through to the end users, ultimately that if you actually, if you act more flexible or if you behave more flexible in your datas that your use, we can reduce overall emissions on the grid. I think the most important thing and actually going to drive all of this is we need to just more learning. Like

it's really it's really new. This is all quite new to everyone. There's a few ongoing at the moment and more on the way, but a lot of work to be done. We're probably fine to ten years before we start to see some really big movements in data centers

operations in their great responsiveness headed into this. I reference at the beginning the fact that when I think of data centers, I actually think of currency mining, the electronic currencies, And I think, Michael, you had an anecdote that maybe at least one of the currencies out there is looking at this space closely as well. Sure, so yeah, Actually, only a couple of weeks ago, a bitcoin mine and the U in the US actually agreed to shift this load.

And it's actually interest where Bitcoin actually might might work well for this is that it is somewhat free to shift its load, you know, like Google and Amazon kind of depends on how we as users are using their services. A bitcoin miners complete control over how it uses its

data center. So if it is willing and happy to shift that load to win wind is higher on the grade, to in solar is higher in the gride to win actually helps the flow of electricity across the grid, then it could actually be a good resource and breditionally more effective done some of these more traditional data centers that we've been talking about. So we'll watch the space develop. It's definitely one of the newer and more tech spaces that we look at the future of energy demand and

in this case, specifically data centers. Michael Sarah, thank you very much for joining today. Thank you, thank you, Dinna. Today's episode of Switched On was edited by Rex Warner of gray Stoke Media. Bloomberg an F as a service provided by Bloomberg Finance LP and its affiliates. This recording does not constitute, nor should it be construed as investment advice, investment recommendations, or recommendation as to an investment or other strategy.

Bloomberg ana F should not be considered as information sufficient upon which to base an investment decision. Neither Bloomberg Finance LP nor any of its affiliates makes any representation or warranty as to the accuracy or completeness of the information contained in this recording, and any liability of this recording is expressly disclaimed.