Why You Should Build Datacenters in the U.S.: Power Costs

A recent study by 451 Research shows that—contrary to popular expectations—power prices in the United States are actually decreasing, with potential implications for choosing sites for next-generation data centers.

Perhaps even more significant is that, while the research firm expects power costs within the United States to decrease, those within Europe should continue to climb. The 451 report estimates that energy prices in the United Kingdom and Germany are roughly double those of the United States, adjusted using exchange rates—a trend expected to continue.

The implication: if you’re a U.S. data center company, build close to home.

As a result, the energy bill for a medium-sized 2 megawatt data center in the U.S. with 50 percent baseload energy consumption would be about $604,000—as much as $500,000 a year less than a comparable facility in the UK–and about $750,000 less than one in Germany. (The report used national energy data, collected annually, through 2011 to make its point. The U.S. Energy Information Administration has yet to publish 2012 numbers.)

The price of power can significantly alter the overall lifetime cost of a data center. Assuming a 15-year lifespan, a price of $0.067/kWh contributes about 30 percent of a facility’s operating expense and usually accounts for 10 percent to 15 percent of the total cost of building and running a datacenter, the report said. “This figure is large enough to sway decisions about where a datacenter should be built,” Andy Lawrence, a research vice president at 451 Research who co-authored the report, wrote in a statement.

The firm cited two reasons that energy prices within the United States are expected to remain low. First, U.S. shale gas prices are at record production levels, driving down the cost of gas-produced electricity below that of coal. Gas-powered utility factories can be manufactured for half the cost and twice as fast as a coal plant, making them a worthy investment for the utilities themselves. Coal prices have also fallen as demand has slowed in China, the biggest electricity producer.

That’s not the case in Europe, where gas production is much less. The 451 report admitted that energy forecasts were not as easy to come by within Europe, but that shale gas production was significantly less. The International Energy Agency has also predicted that by 2035, the cost of electricity in the EU will be 50 percent higher than in the U.S., partly driven by environmental restriction on coal-powered utilities.

The implications, the report notes, won’t be felt across all of the enterprise. In some businesses, for example, the data center is merely a fraction of capital-equipment costs—and simply building out a data center can quickly consume the bulk of the investment. The 451 report suggested that electricity costs could become critical at businesses like colocation, where the data center is the business. It also acknowledged that U.S. energy prices are expected to rise once again, meaning that businesses might not want to avoid investments in power-saving technologies, altogether.

Businesses will have to factor in the availability of power, as well as it its cost.

“Lower energy prices will lengthen the return on investment cycles for products,” the report concluded. “Some suppliers will need to reassess their ROI calculations and rethink their messaging. Over the long term, low energy prices may limit US demand for certain energy-efficient datacenter technologies, especially where there is a trade-off with risk and availability. But lower prices will also hold down the overall costs of running datacenters, and encouraging investment. The bottom line is that energy prices affect many choices concerning datacenter power management and are a significant operating expense for all. Prices are not rising as expected and feared, however, and some impact can be expected.”

The report doesn’t address the business need to distribute data around the globe, either mirroring an existing data center or placing data closer to customers to improve response times. That’s an important consideration.

If a customer is going to place a data center in Europe, however, the data suggests that Norway might be a good location: electricity prices were just $0.002 kWh more than in the United States in 2011, and there’s also that natural cooling thing, too.

 

Image: Ase/Shutterstock.com

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