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Power Hungry By Robert Bryce Special To Interactive Week, Inter@ctive Week October 22, 2000 7:03 PM ET
The explosive growth of the Internet is facing a brownout. From Seattle to Amsterdam, a shortage of electric power is slowing the development of the Internet's nerve centers - the huge server hubs that collect and distribute data over high-speed fiber-optic lines.
These data centers - which can use as much power as 35,000 homes - are putting a strain on electric utilities, and in some regions there simply isn't enough power available. In other areas, utilities are struggling to build the substations and other costly infrastructure the centers demand.
In the U.S., the power shortages are most acute in regions that have become synonymous with the New Economy - San Francisco and Seattle. In Europe, where electric power is in even shorter supply, data center operators have been forced to wait as long as 18 months to secure the power they need for expansion.
On Oct. 9, the Seattle City Council enacted a law authorizing the city's municipal utility, Seattle City Light, to charge a higher rate to new industrial customers seeking large quantities of power. The new rate level hasn't yet been established, but utility spokesman Dan Williams said the "premium price" Seattle City Light would have to pay for the extra power would be passed on to the new customers.
Over the next 24 months, the utility expects a handful of new data centers to raise its average daily demand by about 250 megawatts, nearly 25 percent more than today. The utility will also begin charging a connection fee that will allow it to recoup any infrastructure expenses for connecting the data centers. The fee will vary depending on the type of infrastructure required, but all the costs - whether for a few transformers or an entire substation - will be paid for by the data center operators.
Officials at Puget Sound Energy, a publicly traded utility that provides power to 920,000 customers in Washington state, said that since January, Internet infrastructure companies have requested 700 megawatts of new power - all of it for data centers.
"That's a ton of juice," said Steve Secrist, the utility's director of rates and regulation. He said 700 megawatts was enough to power about 700,000 homes.
Puget Sound Energy will need time to build the infrastructure to handle the companies' growing power demands. The new load will increase the average demand by 25 percent. Like Seattle City Light, Secrist said his utility wants the data centers to pay up front for any new infrastructure, "to make sure these new customers are not putting a burden on PSE's other customers."
Shop on the Open Market
Puget Sound Energy plans to buy the extra power on the open market, then resell it to the data centers. But first it must gain approval for a new tariff from the Washington Utilities and Transportation Commission. The utility hopes to have a proposal to the agency by Oct. 31 and an approved plan in place by January 2001. But there are some unknowns - chief among them is whether the Pacific Northwest's power grid can meet the increased demand. Nor have the companies asking for the power agreed to a pricing schedule.
What's more, Secrist suspects that this is just the first wave of power requests by data center operators and that even more are in the offing. And everyone is running on Internet time. "The companies coming to us are saying, 'We want it yesterday,' " Secrist said.
Indeed, the market for data centers is red hot. Michael Ruettgers, chief executive of storage equipment maker EMC, has estimated that many large companies will need to increase their data handling capacity twelve- to fifteenfold over the next four or five years. Much of that storage capacity will be outsourced to data center operators. International Data Corp. has estimated that between now and 2003, total storage capacity for all uses will nearly quadruple.
Demands for Web hosting and other services are fueling a boom in data center construction, with dozens of centers planned across the U.S. Exodus Communications, one of the biggest Web hosting companies, plans to have 36 data centers open or under construction worldwide by the end of the year - a 66 percent increase over its current capacity. But the data centers' voracious appetite for electric power could unplug some of that growth.
"In general, the United States' electric power supply is pretty tight," said Steven Taub, associate director at Cambridge Energy Research Associates, an energy consulting firm in Cambridge, Mass.
Exacerbating the tight supply is the burgeoning economy and the rapid growth of the Internet. What's more, amid a flurry of deregulation, Taub said, "utilities haven't been investing in power plants because of regulatory uncertainty."
Taub described California as "the poster child for this problem." A booming economy, warm summer weather and a red-hot Internet sector have combined to increase the demand for electric power in California by about 5 percent in each of the last two years, compared with a national average of 1 percent to 2 percent per year. In June, demand in the San Francisco Bay area got so high that Pacific Gas & Electric was forced to cut power to about 100,000 customers after managers at California's power system warned that the Bay area's power grid was near collapse.
Shortly after the outage, a spokesman at the Silicon Valley Manufacturing Group said his association of 175 mostly high-tech manufacturers had "no confidence that the power we need is going to be there." The group has since formed a task force to study the region's electricity shortage.
"The economic boom has raised all the boats out here, and they all want to plug in," says Pacific Gas & Electric spokesman Scott Blakey. "Generation hasn't kept pace with demand, and it will be a year to 18 months before the generating capacity now in the pipeline or under construction goes online."
Electric rates in California are frozen by law until March 2002.
Wall Street Watches
Wall Street is watching nervously. On July 28, Morgan Stanley Dean Witter issued a report on Exodus that said that by the end of this year, "Exodus' data centers in Silicon Valley are expected to be consuming 25 percent of the area's power." Exodus is building a third data center in London, and the facility is expected to "require so much power backup that the local utility's contract requires Exodus to also serve as an emergency backup within its grid," the report said.
Exodus declined to comment on the possibility of power shortages.
Whatever problems data center operators are having in the U.S. are small compared with challenges in Europe. In September, officials in Amsterdam, The Netherlands, announced that new data centers would face a wait of at least six months for power. That announcement, coupled with difficulties in other countries, has forced CityReach International, a London-based Internet infrastructure company, to plan far ahead.
"It takes a lot longer to do things in Europe than it does in the United States," said Tim Burks, CityReach's co-founder and vice president of business development. "There are places in Europe where it will take 18 months to get an adequate power supply. Take Budapest [Hungary]. The city is divided into 23 districts and each one has its own mayor and council. And it's been destroyed a couple of times. So you don't do a lot of digging up of roads. It's very time-consuming," he said.
CityReach, which also has facilities in Amsterdam, plans to have 20 data centers online by the end of 2001. But power shortages in western Europe are forcing the company to plan six to nine months ahead to assure that adequate power will be available when it finishes building its new facilities. In the past, data centers could get by with about 40 watts of power per square foot of floor space. Today's data centers routinely demand up to 100 watts per square foot, about 10 times what an average office building requires, Burks said.
A controversial report issued last year by Greening Earth Society claimed equipment tied to the Internet was using 8 percent of the U.S. electricity supply.
Resolving the power supply problem will likely take several years. A number of large new power plants are planned for California, including a 600-megawatt unit proposed by Calpine for the San Jose area. Nationally, dozens of power plants with a total generating capacity of more than 200,000 megawatts have been proposed.
But given the special needs of data centers, some analysts believe small-scale generating plants may make the most sense. Data centers require backup generators to ensure reliable power.
"Instead of putting in a diesel generator as a backup, companies could put in a small gas-fired turbine that would meet part or all of their power needs," said Ritchie Priddy, the manager of the Distributed Energy Resources Initiative at Louisiana State University.
Several companies, including Enron, are already investing substantial resources in small-scale generating plants, which could be sized to meet the demands of a specific data center. Any excess power could be sold back to the local utility.
Whatever the solution for the current power crunch, Internet entrepreneurs have learned they cannot do business the way they used to. Just a few years ago, the crucial issue for new data centers was "getting the routers and the hardware out of the box and plugging it in," Burks said. "You just assumed the power was going to be there. Today, the critical issue is electric power."
-- Martin Thompson (email@example.com), October 23, 2000