The case for renewable procurement

The UK government has set their 2050 net zero carbon targets, which heavily rely on renewable energy being supplied to the UK electricity grid. As data centres in the UK and globally consume a significant amount of electricity, their contribution to the grid’s decarbonisation and overall net zero carbon objectives is crucial.

According to the International Energy Agency (IEA), global data centre energy consumption in 2022 was between 240-340 TWh, which accounts for approximately 1-1.3% of worldwide final electricity demand (excluding crypto mining). This represents a significant increase of up to 70% from the 2015 figures.

In the UK, data centre energy consumption is even higher, with the National Grid reporting that up to 2.5% of UK energy is going towards powering UK data centres, and this figure could increase to 6% by 2030. Since data centres represent such an important part of the UK grid, what options are available for renewable energy procurement, and how do they compare in effectiveness?

What does the guidance say?

Data centres are not just consumers of electricity; they are also investors, generators, and buyers in the renewable energy market. By doing so, they contribute to the opportunity for decarbonising the UK grid. However, not all renewable energy procurement strategies are equally effective.

The UK Green Building Council has issued best practice guidance for procuring renewable energy. They have identified three key criteria to determine the effectiveness of renewable energy purchasing:

Whether the amount of energy consumed is met with onsite or traceable renewable energy.

1. To what extent does the procurement strategy add new capacity to the grid.
2. To what extent does the procurement match renewable supply at an hourly or sub-hourly rate.
3. Considering this best practice of energy procurement, how do different purchasing schemes compare in effectiveness for data centres?

The hues of a ‘green’ tariff

Simply opting for a ‘green’ tariff is the least effective method of procuring renewable energy. This is because these tariffs offer little confidence that the energy supplier is procuring renewable energy due to loopholes allowing Renewable Energy Guarantee of Origin (REGO) backed contracts to be traded separately to the equivalent MWh of electricity. Green tariffs do not offer any new additional capacity to the grid. They are typically based on annually reported data for consumption and generation, which needs to meet the best practice metrics defined by the UK Green Building Council. Although this procurement method is still acceptable for carbon reporting, it is not considered best practice.

The best alternatives to green tariffs are those that require suppliers to demonstrate that the sourced energy matches the REGO certificates. These tariffs can be offered at an hourly reporting level and traced back to the true generation of power the supplier is purchasing, which satisfies items 1 and 3 of the UK Green Building Council best practice. However, these schemes draw on the existing supply and offer no additional capacity. These tariffs are also much more limited in availability, and the most significant providers are Good Energy, GEUK and Ecotricity. Some excellent examples of data centres’ purchasing energy at an hourly level come from renewable transactions company LevelTen Energy, which has partnered with Google, Microsoft and others to set up a time-based energy certificate trading marketplace aimed at supporting 24/7 renewable energy ambitions.

Empowering Power Purchase Agreements

The next best sourcing option for data centres is through Power Purchasing Agreements (PPAs) for off-site generation. This will ensure a secure energy supply and pricing and allow direct investments in adding new capacity to the grid.

Although this may not be suitable for smaller electricity users, data centres are significant consumers, making contracts an excellent partnership between data centre operators and developers. PPAs for off-site generation meet all three criteria set by the UK Green Building Council. A recent example is Google’s confirmation of PPAs with a rated capacity of 1.5GW. By analysing data reported in the Google sustainability report, these PPAs alone could meet around 60% of their global annual energy demand.

On-site PPAs are the most effective procurement route for renewable energy whenever possible. These are located ‘behind the metre’, limiting emissions from grid transportation, distribution losses, and connection to utility costs. Similar to off-site PPAs, this policy meets all three criteria set by the UK Green Building Council. However, for data centre projects with enormous energy demands, onsite PPAs will rarely meet the full data centre demand. Organisations must supplement them with off-site PPAs or sourced energy matching. For instance, at Cundall, we recently worked on a data centre where photovoltaic panels required 20 times the site’s footprint.

The new baseline for action

UK data centres are crucial in achieving our decarbonisation goals and reaching net zero. They are energy consumers, significant stakeholders, and policy influencers. Purchasing energy claimed to be ‘green’ is not enough because this alone cannot drive significant progress. To make real progress, it is necessary to understand the suppliers’ sourcing and for data centre operators and suppliers to work together to obtain more accurate data on consumption that matches generation. The most effective way for operators to achieve this is by entering into Power Purchase Agreements (PPAs) and investing directly in adding local or off-site renewables.

However, this is the minimum action required if data centres are truly serious about meeting their sustainability goals. It will be a significant step up for many data centre developers, but more must be done to achieve full sustainability.