Energy is the biggest expense for data centers, and although efficiency improvements can help by reducing consumption, cost remains a critical factor in determining operating budgets. The recent crash in oil prices raises a number of questions about demand, but there’s more to the picture—especially for such a politically charged topic.

Overall Energy Consumption

According to the U.S. Energy Information Administration (EIA), total primary energy consumption in the U.S. has remained largely unchanged for the past 15 years, perhaps echoing a similar plateau in the mid-1970s to mid-1980s. I’ve noted this fact on a number of occasions, particularly because it raises questions about the broader economic situation as well as, perhaps more relevantly, the supposed danger of data centers consuming a greater portion of the national energy appetite.

energy

One noteworthy point is that consumption has remained stagnant—or even fallen slightly from the peak—despite a sharp uptick in production. Consumption and production in the U.S. followed a similar trend until about 1970, when the two began to diverge. At about the time of the Great Recession, these two metrics appeared to begin converging again. Regardless of the dynamic, however, the increase in production combined with stagnant consumption would tend to lead to falling prices. Since exports reduce domestic supply, however, global demand plays a role.

The situation with oil has demonstrated that energy prices don’t necessarily rise consistently. Even with emerging markets demanding more energy, the price of oil recently crashed to Great Recession levels, taking gasoline prices down with it. According to Bank of America, a supply glut may be partially to blame, but demand factors seem to be applying the greatest downward pressure currently. The implications of declining demand for energy in an energy-driven economy are gloomy for the broader economy.

Energy Politics

Energy is by no means a simple supply-and-demand market. It’s a matter that drives all sorts of policy decisions—some good, but most probably bad. Regulations, for instance, generally increase the price of products and services without adding any value to customers. Writing at DatacenterDynamics, David Chernicoff notes that government decrees could have a tremendous impact on prices. “Whichever side of the arguments for and against coal burning for power you believe, the high profile arguments are, to a large extent, masking the actual killer issue here. The government plan and its adherents call for coal based energy, and in some cases, all power produced in the US, to come from renewable sources.” To get an idea of what such an effort would entail, consider the current power-consumption breakdown, shown in the EIA chart below.

energy

Looking just at electricity (rather than all forms of energy) for 2014, the EIA reports that fossil fuels constitute about 67% of all generation, with coal at about 39% and natural gas at about 27%. Renewables—in particular, wind and solar—barely register at a combined fraction of just 5% of total electricity generation. Needless to say, a shift entirely to so-called renewable sources would require massive changes to the industry, no doubt prodded by subsidies and regulations, both of which are costly (whether through opportunity costs imposed on taxpayers or operating costs passed on to consumers and businesses). Said Chernicoff, “We currently subsidize energy produced via wind using the Renewable Energy Production Tax Credit at $0.023/kWh and which the current Administration is fighting to make permanent. With the Department of Energy hoping to make wind power supply 20 percent of the US grid by 2020, the annual subsidy is projected to be in the $12 billion range and would increase every year with additional production. This number is never included in the overall cost of power to consumers.”

The Environmental Rock and Hard Place

One of the main arguments for a move to alternative energy sources—again, most notably wind and solar—is the environment. Proponents argue that because these technologies produce no carbon emissions, they are superior to coal and natural gas, and they lack the radioactive byproducts (and other hazards) of nuclear. But even ignoring the muddled debate over climate change (the constant howling about a consensus is extremely dubious), other environmental factors come into play.

Specifically, the manufacture of wind turbines and solar panels is by no means an environmentally pristine process. “Dealing with the toxic byproducts used in most current [solar-panel] manufacturing requires careful handling and exposes significant environmental risks,” said Chernicoff. “And the basic process for creating the panels requires a huge amount of power to refine quartz into metallurgical grade silicon, power that is not being provided by solar power. A detailed article on the issues with the production of solar panels, from the IEEE, can be found here.” Furthermore, the environmental catastrophe in China thanks to rare-earth mining for materials to build wind turbines (among other products) also reduces the benefit of wind. Queue the discussion about which is worse: carbon dioxide or toxic materials.

Moreover, the vastly different nature of renewables versus fuel-based power makes for serious logistical problems. Fuel-based energy can be generated and delivered in accordance with demand; wind and solar produce exactly as much as the sunshine and air movement dictate. Thus, for instance, countries like Germany that have rushed headlong into renewables are facing a number of problems, from excess supply to inefficient operation of coal plants that must make up for shortfalls. Lacking infrastructure to support this kind of electricity generation (perhaps most notably, a good large-scale storage technology) means the goal of relying largely, if not exclusively, on alternative energy sources is currently pie in the sky.

Energy Prices: Going Higher or Lower?

Weighing all of these factors and identifying a price trend is difficult. Falling energy prices tend to catch the greedy eye of many politicians, who see them as a means to a quick revenue surge through higher taxes. Those with a greener tint may see an opportunity to impose more regulations. In either case, the result is a buffering of price drops. Either way, EIA data on electricity prices over the past decade or so suggests that price declines are rare, and when they do occur, they are small. The long-term trend, regardless of supply and demand or other factors, seems to be steadily higher prices.

price

For data centers, that means that regardless of economic or political factors, rising energy prices are a safe bet—barring, of course, extraordinary circumstances. In such extreme cases, however, other problems may offset any energy-price benefits that may accrue. Efficiency improvements can help, but they need not be all at once, given the rate of increase in prices.

Conclusions

Data centers are fairly safe in counting on rising energy prices. Were the market simply governed by supply and demand, that situation might be different, particularly in times of economic recession. But given the imposition of various government mandates, including both regulations and subsidies for chosen energy sources, economics is not the only driving factor. Data center operators will face some of those added costs directly, but others (particularly subsidies) tend to be more hidden because their costs are spread across society. Nevertheless, society as a whole must still pick up the tab in one form or another. The main opportunity for a data center operator to control energy costs is to control how much it consumes—particularly through efficiency efforts. There’s little hope in expecting or relying on lasting declines in prices.

Leading article image courtesy of Ramkumar under a Creative Commons license

The post Where Are Energy Prices Headed? appeared first on The Data Center Journal.

 

Ahead of SharePoint Fest in Seattle this week, managed cloud services provider Project Hosts has launched an Azure Application Management Service designed for enterprises and US government agencies.

The post Project Hosts Launches Azure Application Management Service for Enterprises, Government Agencies appeared first on Web Hosting Talk.

 

California-based data center provider Server Farm Realty has struck a partnership with Chinese counterpart 21Vianet to provide services to customers in the US and China. Initially, 21Vianet is using SFR’s Silicon Valley data center to host customer equipment.

The post Chinese Data Center Giant 21Vianet Expands Into Silicon Valley appeared first on Web Hosting Talk.

 

IO has officially launched a data center in Slough, just outside of London, the company announced Tuesday. This is the Phoenix-based colocation provider’s second data center outside the US and its first UK data center.

The post IO Launches UK Data Center With Goldman Sachs as Customer appeared first on Web Hosting Talk.

 

IO has officially launched a data center in Slough, just outside of London, the company announced Tuesday. This is the Phoenix-based colocation provider’s second data center outside the US and its first UK data center.

The post IO Launches UK Data Center With Goldman Sachs as Customer appeared first on Web Hosting Talk.

 

The head of ICANN remains confident that the planned transfer of the group’s stewardship from the US to a global multi-stakeholder group will be completed soon.

The post Plan to Transfer ICANN Stewardship from US to Global Multi-Stakeholder Group on Course appeared first on Web Hosting Talk.

 

The US Senate failed to approve the USA Freedom Act Sunday, meaning the temporary expiration of the National Security Agency’s ability to collect vast amounts of information on US telephone communications.

The post US Patriot Act Section 215 Expires, Vote on USA Freedom Act to be Held Tuesday appeared first on Web Hosting Talk.

 

The US Senate failed to approve the USA Freedom Act Sunday, meaning the temporary expiration of the National Security Agency’s ability to collect vast amounts of information on US telephone communications.

The post US Patriot Act Section 215 Expires, Vote on USA Freedom Act to be Held Tuesday appeared first on Web Hosting Talk.

 

A program that subsidizes phone bills in the US for low-income families should be expanded to include broadband Internet access, Tom Wheeler, FCC chairman said on Thursday.

The post FCC Considers Subsidized Internet for Low-Income Families in the US appeared first on Web Hosting Talk.

 

The National Security Agency began dismantling the program which collects bulk records of US telephone communications over the weekend, after the USA Freedom Act fell three votes short of passing through the Senate.

The post NSA Begins to Dismantle Program That Enabled Bulk Phone Record Collection appeared first on Web Hosting Talk.

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