Utilities & Site Selection

Part
01
of three
Part
01

Data Center Site Selection

Some of the top criteria that companies use when selecting a data center site include operational costs (especially the cost of power), the security of data, and the quality of internet and broadband connectivity.

The Cost of Power

  • Data centers are power-intensive, with those in the US consuming power equivalent to that consumed in 5 million US homes. A data center incurs higher operating costs than any other facility, with energy costs making it to the top of the list.
  • According to CB Insights, "data centers currently account for 3% of global electricity consumption. Power surges and network outages can severely increase data center downtime and associated expenses, so owners should evaluate the state and reliability of available power infrastructure and network connectivity for their data center."
  • The cost of cooling power is also a pain point for data centers. According to an Amazon presentation, "an eight-megawatt data center could have more than 46,000 servers at a cost of $11 million per megawatt and a power cost of roughly 7 cents per kilowatt-hour. For every watt of power to run a server, another watt is being utilized in cooling power."
  • Companies, therefore, choose locations that have low rates of electricity and access to at least two power grids, which should be mature. Apple, Google, and Facebook have built data centers by considering proximity to hydroelectric sources.
  • The Midwest US, in general, is experiencing a data center boom because of its central location between two coasts, providing increased network connectivity and access to low-cost power.
  • Missouri recorded the lowest electricity rates as of November 2019, at 9.79, a 5.2% decrease from the previous year. Illinois and Indiana, however, were 13.32 and 12.39, representing a decrease by only 1% and 2.1% from the previous year, respectively.
  • "Missouri’s weather, with a four-season climate and an average annual temperature of 57 degrees Fahrenheit, enables free cooling for data centers for up to half of the year (NOAA,Comparative Climatic Data through 2010)."
  • Illinois is also a hub for data centers, considering that most of its power is from non-carbon sources such as wind. The state of Illinois has the largest number of power plants among all the other states.
  • "Data centers obviously use a significant amount of power, and in conjunction with high-efficiency cooling designs, electricity rates have the greatest influence on data center operational Total Cost of Ownership."
  • Lakeside Technology Center in Chicago Illinois is strategically located where there are over 53 back-up generators to minimize outage.

Security of Data

  • According to an article by Ross Warrington, an expert with more than three decades of experience in the colocation business, 7 out of 10 data centers experience data loss due to natural disasters. Six of those companies fail within six months.
  • Ross goes on to say that anything could go wrong, from hurricanes, lightning, tornadoes, flooding, earthquakes, and unexpected events.
  • The Midwestern USA is especially prone to natural disasters, like the Bomb cyclone, which happened in March; April tornadoes; and heavy rains in May and June.
  • According to Suzanne Malec-McKenna, the former commissioner of the Chicago Department of Environment, Chicago is unlikely to face natural disasters such as hurricanes. It is, however, vulnerable to other disasters such as snowpocalypse and flooding.
  • Illinois was ranked 5th among the U.S. states most prepared for disaster, with the most common disasters being floods and lightning that take place in June. The ranking was based on the number of disasters in each state, funding, response, and infrastructure.
  • Missouri is considered a low-risk state for security threats of terrorism, and natural disasters such as hurricanes and earthquakes. FEMA reported that the state had not experienced these disasters since record-keeping began in 1957.
  • Some major companies that have installed data centers in Missouri are AT&T, Centene, DST Systems, Enterprise, Express Scripts, MasterCard, Mercy Health, Thomson Reuters, and Walmart.
  • Indiana's natural disaster preparedness is in question, with credible sources indicating that the state has inadequate funding. Some major disasters include flooding and tornadoes.

Access to Fiber Networks and High-Speed Internet

  • According to a CB Insights 2020 report, access to fiber networks is critical to the efficient functioning of data centers by easing congestion and making services faster.
  • The state of Virginia and neighboring areas are hotspots for data centers because of the excellent fiber-connectivity built by AOL.
  • Companies consider excellent fiber-optic connectivity to be able to handle large volumes of data and transmit it at high speeds.
  • Chicago Tribune reports that companies want to set up data centers in Chicago, and a significant factor is its fiber-optic connection. The fiber-optic cable used to run the internet was placed on railroad trucks, hence connecting the east and the west.
  • According to the 2018 Broadband Coverage Statistics and Average Internet Speed, Illinois had an internet speed of 32.1 Mbps with a broadband coverage of 91.9%, Indiana was at 36.7 Mbps with a broadband coverage of 85.7%, and Missouri was at 38.5 Mbps with a broadband coverage of 80.1%. Illinois, therefore, had the best broadband coverage among the three states.

Research Strategy

To determine the top factors that affect the selection of a site for a data center, we compared several reliable sources including trusted media sites and industry and government reports. We identified factors that were consistent in all of these sources. We also considered the practice of top companies with big data centers such as Apple, Google, and Facebook.

Part
02
of three
Part
02

Electric Utilities and Site Selection

The availability and cost of utilities, specifically electricity, has a limited impact on site selection for businesses in manufacturing, agribusiness, logistics and the biomedical industries. Priority is placed on other site selection factors such as the availability of skilled labour and the cost of labour in general. Primarily, data center companies prioritize energy availability and cost when making site selection decisions.

Utility Availability Prioritization

  • The industry in which an organization looking to select a site operates determines the importance of utility availability. Generally, utility costs and capacity are not ranked as high as skills availability, accessibility and labour costs.
  • In fact, energy availability and costs are considered of lower priority compared to the aforementioned and other factors in industries which require a combination of various production factors. This is because certain skills can be scarce, the cost of labour varies significantly and often according to geography, and excessive transport costs make the product pricing less competitive. On the other hand, utilities such as electric power are widely available and of comparable pricing.
  • As such, multiple sources, including a corporate survey, rank energy availability 10th in terms of factors critical to site selection. This means it has limited impact in site selection.
  • This relatively low prioritization of energy availability and cost is the case in most businesses like in manufacturing, including industrial food production, and in the agribusiness, where geography and climate are major factors in both.
  • Logistics companies primarily concern themselves with factors such as infrastructure, availability of labour and its costs, regulations, and both the natural and business environment as factors which influence site selection over the availability of utilities.
  • Biomedical industries place even more emphasis on skills and talent availability, and on proximity to higher educational institutions as these skills are rarer than most. As such, even though utilities are crucial, they are also of lower priority in this industry compared to other factors.
  • When it comes to the prioritization of the availability and cost of utilities however, the opposite is true for data center companies. They require less of other factors and, as such, cost of energy is a primary determining site selection factor.
  • It is evident that electric utilities play a minor role in site selection for companies as other factors are prioritized. Regardless, utilizing clean energy has become a critical issue and organizations are factoring the source of their electric power into site selection decisions.

Research Strategy

The findings regarding site selection factors are sourced from utility companies, firms active in their respective industries and an annual corporate survey, whose respondents included representatives from manufacturing firms (30%), while 60% of the participants were C-level executives.


Part
03
of three
Part
03

Economic Development and Utilities

Three drivers of economic growth in rural areas of the U.S. are clean energy, including the role electric utilities are playing in that transition, outdoor recreation, and promoting retirement communities.

Clean Energy Growth

  • Clean energy is "energy derived from renewable, zero-emissions sources (“renewables”), as well as energy saved through energy efficiency (“EE”) measures."
  • Ninety nine percent of U.S. wind capacity is held in rural areas of the U.S. Wind-related jobs increased by 32% in 2016, while solar jobs increased 25%. Wind turbine service technicians and Solar PV installers were the two fastest growing occupations in the U.S. in 2016, and this trend is expected to continue at least through the next decade.
  • In the Midwest, the majority of states have more clean energy jobs per capita in rural areas than in urban areas. In 2015-2016, clean energy job growth in rural areas of the Midwest exceeded the growth in urban areas, and also exceeded the economy-wide job growth in these states. The Midwestern states added 2.3 GW of new renewable capacity in rural areas in 2017, which represents the output of about 1,000 wind turbines or 10 million solar panels.
  • Royalties for wind and solar were worth $267 million to farmers and ranchers in 2017, as they were paid to lease their property.
  • With large companies such as Apple and Walmart looking to use more clean energy, they are investing in infrastructure in communities at the heart of clean energy growth.
  • Electric utility companies are playing a big role in this transition as they make the move toward carbon-free electricity, as Xcel has committed to do by 2050, or as they invest in energy efficiency. Electric and natural gas utilities invested over $7.8 billion in energy efficiency in 2016.
  • An example of a program to improve energy efficiency is the Upgrade to $ave program by the Roanoke Electric Cooperative. This program pays the up front costs for homeowners to make their homes more energy efficient, and then it is repaid through a tariff on the homeowner's monthly bill. Since the improved energy efficiency of homes results in lower electric bills, homeowners are still paying lower bills than they did previously, even with the tariffs.
  • Many examples of electric utilities making the push toward clean energy are provided here. These examples show that electric utilities are contributing to the growth of clean energy in rural communities, and therefore also contributing to the economic growth that is resulting from that push.

Outdoor Recreation

  • Rural communities that have seen the largest population growth are those with strong recreational industries, such as Flathead Valley, Montana; Teton County, Idaho; and Eagle County, Colorado.
  • The rural U.S. population in the U.S. grew slightly in 2016-2017, and this was the first increase in ten years. Growth in areas with natural resources that promote outdoor recreation was a major contributor to that increase.
  • In 2012, outdoor recreation was responsible for $79.6 billion in tax revenue, but that increased to $124.5 billion in 2017.
  • Rural counties that are recreation-dependent have seen faster job growth than other counties, and wages are also growing faster in those counties, although overall earnings are still less than in non recreation-dependent counties.
  • These communities with many outdoor recreation activities have also seen an increase in tourism, which in turn helps the local economy. Although the data is not clear on whether the increased population is driving more tourism, or whether increased tourism is driving the community growth, it really doesn't matter because the end result is the same.
  • A Senate report from June 2018 titled "Investing in Rural America" recognized that the outdoor recreation industry supported over 4 million jobs in 2016 and also boosts rural economies.
  • One way to improve the economic impact of the outdoor recreation sector even more is to combine clean energy strategies with the use of public lands, and potentially even open public lands for clean energy projects.

Promoting Retirement Communities

  • Although there was not as much data available on this driver, a study published in February 2019 noted that rural communities that promoted retirement activity were significantly less likely to have a declining population than other rural counties.
  • Michigan's Grand Traverse county is an example of a county that promotes retirement activity and has bucked the trend of declining rural populations.
Sources
Sources

From Part 01
Quotes
  • "An eight-megawatt data center could have more than 46,000 servers at a cost of $11 million per megawatt and a power cost of roughly 7 cents per kilowatt-hour. for every watt of power to run a server, another watt is being utilized in cooling power."
Quotes
  • "Data centers currently account for 3% of global electricity consumption. Power surges and network outages can severely increase data center downtime and associated expenses, so owners should evaluate the state and reliability of available power infrastructure and network connectivity for their data center."
Quotes
  • "Missouri’s weather, with a four-season climate and an average annual temperature of 57 degrees Fahrenheit, enables free cooling for data centers for up to half of the year (NOAA, Comparative Climatic Data through 2010)."
Quotes
  • "Data centers obviously use a significant amount of power, and in conjunction with high-efficiency cooling designs, electricity rates have the greatest influence on data center operational Total Cost of Ownership."
From Part 03
Quotes
  • "Clean energy creates jobs, supports local infrastructure development, and provides new opportunities to build thriving economies. While many rural American communities have faced economic challenges, they have also recently experienced incredible growth in wind energy, solar power, and energy efficiency."
  • "Solar energy, too, is growing in rural places in the Midwest, as new models for solar energy development expand access to more communities. Energy efficiency also provides unique opportunities in rural areas to cut costs for agricultural facilities and provide lower electricity bills to rural households. "
  • "While wind and solar boom, energy efficiency remains the cheapest way to meet the nation’s growing energy demand. In 2016, electric and natural gas utilities spent more than $7.8 billion on energy efficiency, resulting in almost 26,000 gigawatt-hours (GWh) of electricity savings. Energy efficiency is the single largest employer within the energy sector, and as we continue to build more efficient homes and businesses, Americans will feel the benefits through new jobs, electricity bill savings, and cleaner air."