Energy Flexibility – The missing ingredient for the energy transition

This is the second article from our series dedicated to the release of the SDIA report:
The Utility of the Future – Where digital and energy infrastructure combine.
Download the executive summary here and stay informed about its full releases here.

We all want renewables to be the primary source of our energy. However, the intermittent and variable nature of Wind & Solar makes it difficult to integrate renewables into the electricity system. The key to delivering the renewable energy transition is the ability to compensate imbalances in energy supply and energy demand – with energy flexibility. Data centers are the flexible energy resource of the future, and this article will explain why.  

Flex is key in a renewable energy system

The key issue for the Electricity system of tomorrow is the integration of variability, caused by ever larger penetrations of intermittent renewables. If we’re serious about decarbonising our energy system, then integrating a large share of wind and solar power plants is necessary. At the same time, we’re phasing-out flexible coal and natural gas. As volatile renewables are phased in, the demand for flexibility increases. As flexible fossil fuels are phased out, the supply of flexibility decreases, exacerbating the challenge.

Flexibility is necessary to ensure demand and supply can be matched at every given point in time to keep the electricity system stable. Flexibility can therefore be described as the capability to compensate imbalances in supply and demand, as well as bottlenecks in the grid. 

Overall the value of flexibility is of increasing importance in markets where intermittent renewable energy supply (RES) will penetrate further, and all European electricity markets have signalled their intention to substantially increase RES penetration up to 70% of total generation mix by 2050. For perspective, today Europe currently averages  ~20% intermittent renewables in the generation mix. So things will get significantly more challenging.  

Current Flex is Insufficient

Storage (like Batteries or Pumped Storage), Fast Ramping Supply (like Gas & Coal) and Grid Infrastructure are relatively expensive forms of creating system flexibility. The increasingly feasible alternative is to activate large energy consumers who have a degree of flexibility in their energy consumption. These are typically large industrial players, like steel mills, who receive financial incentives to ramp down their consumption at times of low supply (no wind) and ramp up consumption at times of high supply (lots of wind). These incentives could be direct payments, or reductions in the price of their electricity.   

There are many ways to participate in such schemes. If you’re a large player you can work directly with utilities or grid operators. If you’re a small player, aggregators will need to pool your flex with a number of other small players. A player might respond directly to the electricity market through price signals, or work on a more contract-orientated approach with utilities and grid operators. The aim of the flexibility provider would be the optimization of costs or a secondary revenue stream, while those who demand flexibility – the electricity system – would relieve local congestion, or balance the wider electricity grid. The important part is flex is necessary to ensure the electricity system remains stable.  

Data Centers as a source of Flex 

Data center owners closely monitor and control the power consumption of their IT and cooling equipment, which makes data centers particularly suited as real-time energy flexibility players. Combine real-time management with a degree of flexible IT workloads, and data centers become a potentially large and reliable source of energy flexibility.

Many typical data center workloads are delay-tolerant, and could be rescheduled to off-peak hours. The result is a form of workload “shifting”, which would preserve the integrity of the grid during peak hours whilst providing DC’s with reduced peak energy costs. 

The viability of data center demand response is made more apparent when compared with the alternatives. A study by Wierman (2015) found one 30MW data center in California could deliver financial savings between $500,000 – $5,000,000 when compared to an equivalent MW of battery storage. Whilst the market in question is the high-RES California energy market, most markets are moving in this direction.  

Changing Perceptions

Data centers may hesitate to activate their flexibility because they’re typically in the business of avoiding down-time, minimizing risk and maximizing availability. There is a perception that workload shifting may reduce availability or lead to a higher risk of down-time. 

Google successfully disproved that. They’ve begun to schedule delay tolerant workloads during hours of low-carbon electricity supply. These workloads include keyword tagging and image recognition etc. Early results from Google’s first-of-its-kind pilot study are very promising. While Google shifted their workloads for carbon related reasons, we believe shifting workloads for price related reasons are equally desirable. Data centers reduce costs and the resiliency of the wider electricity grid is improved, enabling the integration of more intermittent renewables. Now that’s net-positive digital infrastructure and is covered in more detail in the SDIA’s “Smarter Power Consumption” working group. 

Green Service Level Agreements

A further reason given for the lack of engagement by data centers in electricity flexibility is that they are merely the middle man – answerable to their customers, and the customer either doesn’t care or specifically requires the data center be contractually over redundant. It is fair to say that Hyperscalers and enterprise data centers, with aligned IT and Facilities staff have more control over their workloads and are therefore, are best placed to become energy flexibility players. But colocation providers should view changes to Service Level Agreements as a speed bump, not a stop sign. 

The first step is educating customers on the financial benefits of shifting low priority workloads to more desirable hours of the day. Changes to the Service Level Agreements will need to occur, and colocation companies will find a way to reorganise service level agreements. It’s merely a matter of time and necessity. With hyperscalers blazing the trail, regulators requiring net-neutral data centers, and the electricity grid placing an increasingly high value on one MW of flexibility, the competitive pressure to participate in the Flexibility game will be unavoidable.   

In Summary – Don’t miss the boat 

Electricity flexibility is very valuable to the energy grid of the future and the large and growing size of data centers, the delay-tolerant nature of some of their workloads, and the instantaneous nature of their operations make data centers particularly applicable as providers of that flexibility. The result? Data centers would profit from their ability to integrate intermittent renewables into the wider electricity system. That’s what we call net-positive digital infrastructure. 

The SDIA is working with EPEX SPOT to create an economic space and pilot scheme where local flexibility markets can be tested, regulated and optimized before being rolled out on a larger scale to enable the activation of data center flex. We call on data center operators to get in touch and join our programme. Further the SDIA its full analysis on the synergies between the energy systems and digital infrastructure – The Utility of the Future. Sign up to be notified and get the executive summary today.

Mohan Gandhi

Mohan is Head of Research & Policy at the Sustainable Digital Infrastructure Alliance. The SDIA’s mission is to ensure digital infrastructure has a net zero impact on our environment, and is accessible and affordable to the next generation of innovators. As Head of Research & Policy Mohan leads the working groups in their attempts to solve major technical barriers to a truly sustainable digital infrastructure. These working groups focus on integrating Heat Recycling, smarter Energy Consumption and improved Server Utilisation Rates. Mohan authored the report “The Utility of the Future – Where Digital and Energy Infrastructure Combine”.

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