The Energy Paradox of Virginia-based Data Centers

Loudoun County promotion for its data centers.
Loudoun County promotion for its data centers.

by James A. Bacon

There’s a fascinating paradox in the energy economics of data centers. Outsourcing data storage and computing to hyper-scale, hyper-efficient data centers allows businesses to conserve energy and consume less electricity than they would otherwise. But the outsourcing phenomenon increases demand for electricity where the data centers are clustered.

Because so many state-of-the-art data centers have located in Northern Virginia, Loudoun County in particular, and because those data centers are serving customers as far afield as Philadelphia and Charlotte, outsourcing reduces overall electricity demand compared to what it would be otherwise but also concentrates that demand in a localized geographical area.

That paradox might — and I emphasize might because there may be mitigating factors of which I am unaware — undermine the case that Virginia can meet its proposed goals for the Clean Power Plan through energy conservation. Data centers are a major force in driving electricity demand higher for Northern Virginia utilities, primarily Dominion Virginia Power and the Northern Virginia Electric Cooperative.

Here’s how outsourcing promotes energy conservation: Thanks to economies of scale and the pooling of customers with diverse peak demand, data centers can store and process the same amount of data with a single server that most businesses handle with four. Fewer servers translates into less electricity consumed. Moreover, because state-of-the-art servers invest in more efficient cooling systems, their servers sip less energy. Combine the two and the synergy is powerful. “This represents an 88% reduction in carbon emissions for customers when they use AWS vs. the typical on-premises data center,” writes Jeff Barr for the official Amazon blog.

For good reason, environmental groups have targeted data centers as one of the most promising strategies for improving energy efficiency and reducing carbon dioxide emissions in the United States. If all data centers could achieve just half the savings available by attaining industry-leading performance standards, writes Pierre Delforge with the National Resources Defense Council, the country could save  39 billion kilowatt-hours annually — “equivalent to the annual electricity consumption of nearly all the households in the state of Michigan.”

What applies to the nation, however, does not apply to locations where data centers are clustered. Playing on its location on the Northern Virginia fiber network, a tech-savvy workforce and an expedited permitting process, among other advantages, Loudoun County has targeted data centers for economic development. The 60 or so data centers in the county don’t support many jobs — although the jobs are high paying — but they give a massive boost to the tax base. Buddy Rizer, Loudoun’s economic development director, says data centers contribute $70 million a year in local taxes. Better yet, they create very little demand for local services. Every locality in Virginia would love to recruit data centers if it could.

This enters the debate over implementation of the Clean Power Plan because energy efficiency is one of the strategies which the Environmental Protection Agency says states can use to reach their goals for reducing carbon dioxide emissions from its electric utilities. The goals effectively force Virginia power companies to shut down their least efficient coal-fired plants, with lost capacity to be made up through increased use of natural gas, renewables and energy efficiency.

The operative question is how much can Virginia reasonably expect to reduce electricity demand through energy conservation? Environmentalists say that energy efficiency can help reach the Clean Power Plan goals but power companies say the savings will be offset by increased demand from other sources — such as more electric gadgets and appliances, greater use of computer power and data and, eventually, more electric vehicles. State Corporation Commission staff have expressed skepticism that energy conservation can compensate for shutting down coal-fired power plants, especially if Virginia does not build a new nuclear reactor at North Anna, as some environmental groups propose.

A new study shows that investments in household energy conservation may be far less cost-effective than thought. “The findings suggest that the upfront investment costs are about twice the actual energy savings,” states a University of Chicago Study, “Do Energy Efficient Investments Deliver? Evidence from the Weatherization Assistance Program.” “Even when accounting for the broader societal benefits of energy efficiency investments, the costs still substantially outweigh the benefits; the average rate of return is approximately -9.5% annually.”

Can conservation investments in a business setting like building automation or data outsourcing, where the ROI can be much higher, take up the slack? Perhaps it can on a national level, but it’s harder to make the case in Northern Virginia, where data centers are, in effect, sucking up electricity demand from other parts of the country, even the world.

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  1. Cville Resident Avatar
    Cville Resident

    You’ve been doing great work this past week on this topic. Pulitzer!

  2. larryg Avatar

    Agree.. but I’d like to see more scale comparisons on the energy use across the US and compared to other countries.

    I think what California and New York and Europe and Japan have shown us is that people will use less electricity if it is more expensive.

    how do we explain such a wide divergence ?

  3. Interesting data comparing Virginia’s per capita electricity consumption with that of other states. The price of electricity is undoubtedly one factor — the more expensive electricity is, the more people have an incentive to invest in energy conservation. Another factor is land use patterns. Metropolitan areas with more townhouses, condos and apartments, which share walls and thus require less heating/cooling, are more energy efficient than metros dominated by single family dwellings.

  4. larryg Avatar

    Here are the lowest 10 per capita consumers:

    Ranking State Population (thousands) kWh (millions) kWh per capita
    40 Utah 2,764 27,932 10,106
    41 New Jersey 8,792 78,999 8,985
    42 Vermont 626 5,620 8,982
    43 Maine 1,328 11,552 8,696
    44 Massachusetts 6,548 56,252 8,591
    45 Connecticut 3,574 30,432 8,514
    46 New Hampshire 1,316 10,909 8,286
    47 Alaska 710 5,648 7,952
    48 New York 19,378 144,693 7,467
    49 Rhode Island 1,053 7,825 7,434
    50 Hawaii 1,360 10,016 7,363
    51 California 37,254 250,384 6,721

    Here are the top ten states for price:

    40 Delaware 13.7
    41 Massachusetts 14.8
    42 Rhode Island 14.9
    43 California 15.2
    44 Maine 15.5
    45 Vermont 16.1
    46 New Jersey 16.3
    47 New Hampshire 16.5
    48 Alaska 17.5
    49 Connecticut 18.1
    50 New York 18.1
    51 Hawaii 33.2

    see a pattern?

    I bet we can meet the CPP on price alone…

  5. Reed Fawell 3rd Avatar
    Reed Fawell 3rd

    Excellent article with potentially powerful insights.

    If your insights hold water, and I suspect they do, then the need for more nuclear at North Anna, and the gas pipeline across inland Virginia most likely are critically needed to assure these benefits for the future of Virginia and surrounding jurisdictions.

    And, if these facilities are not built, then Virginia would be extremely ill advised to close down its coal driven power plants that then are needed as baseline energy to supplement and make work these other clean energy benefits, and reductions of electric demand elsewhere, that you suggest.

    Related and collateral points include –

    However helpful, and as you suggest, the role of energy conservation is now is likely offering diminishing returns, absent technological breakthroughs.

    Also, how does the state of Virginia better share in the cost savings that benefit other jurisdiction by reason of Va.’s increased energy load?

    Or otherwise, how does Virginia re-balance its Federal regulatory cost that now it must bear alone, despite the benefit it provides to others? Perhaps this balance is now now more than achieved. But is that truly so?

    1. Reed Fawell 3rd Avatar
      Reed Fawell 3rd

      Additional edit to above:

      However helpful, and as you suggest, the role of HOME energy conservation is now is likely to offer diminishing returns, absent technological breakthroughs.

  6. larryg Avatar

    I think it’s pretty simple – Dominion makes money selling electricity. They don’t make money if people conserve or if people make their own electricity.

    The states with the highest prices for electricity, seem to have the lowest per capita use and with the advent of LED lights and advanced technology like NEST and high efficiency heat pumps, cheaper natural gas for heating, and lower price on-demand water heaters.. more efficient windows, zone heating/cooling, etc… we’re probably going to see the same thing happen to home consumption that happened to automobiles.

    what’s going to be a game changer is this:

    and peak-hour pricing – like we see on HOT lanes..

    Now – you’d think this would be the perfect product for a power company to sell to its customers – to help keep from having to build more plants…

    I think there is a snowball chance in Hades of Dominion putting another Nuke at North Anna. They’re whistling Dixie on that…

    The cost alone is about 2 billion if not mistaken. That’s a lot of moola. That’s more than Virginia can afford to borrow for major new roads so they go to PPTA …

  7. You always hear a funny statement about electricity deregulation – “it was tried and did not work”. The facts are somewhat distant from that statement. 15 states and DC presently have deregulated electricity. Seven states tried to deregulate and failed. They have suspended deregulation. Anybody who has spent over an hour thinking about Virginia’s corrupt state government will find no surprise in the fact that Virginia was one of the failures. Virginia’s suspension of electricity deregulation does not erase the fact that 1/3 of the states are deregulated.

    Would a second effort to deregulate electricity be in the best interest of Virginians?

  8. Ok … what am I reading on this thread?

    1. Virginia needs energy conservation in order to meet federal guidelines.
    2. There are a lot of cloud data centers in Virginia.
    3. Cloud data centers use a lot of electricity.
    4. Cloud data centers are vastly more efficient that corporate and governmental data centers.
    5. Home energy management is not meeting the electricity reduction goals expected.

    So, establish a data center inefficiency surcharge. energy inefficient data centers pay the surcharge. Energy efficient data centers do not.

    What would a company or government agency do if they run an inefficient data center but don’t want to pay the surcharge?

    1. Make their data centers efficient – as the cloud providers have done.
    2. Move their computing workloads to a cloud data center.

    In the furtherance of energy efficiency and as an economic development tool … the state could offer tax breaks to Virginia’s operators of inefficient data centers who move their workloads to cloud data centers based in Virginia.

  9. larryg Avatar

    jesssusss – Don – you sound like a govt-loving progressive!

    Do you REALLY want the Clown Show in Richmond in charge of this?

    think man, THINK!

    But if you’re gonna do this – give the data centers the right to use SOLAR and sell the excess to Dominion for a fair price. That would be an incentive that
    would bring other companies to Virginia.


    Also .. whatever happened to the Center for Innovative Technology? Anyone know what their major accomplishments are?

    1. See LarryG … You don’t recognize crony capitalism even when you see it on this blog! What do I do for a living? Build high efficiency cloud data centers. I’d love to see the fine ladies and gentlemen in our state legislature save the polar bears by using taxes to force corporations onto my cloud. Any idea where one gets the best volume discount on Rolex watches.

  10. larryg Avatar

    Watching the GOP and Dems deal with the Transportation Funding issue is hilarious.

    Don speaks of the Clown Show in Richmond. Well, when it comes to Transportation Funding at the Federal Level, it’s worse:

    “A fight over raising taxes has bloomed as the chief obstacle to passing a desperately needed multi-year transportation bill by the end of next month, raising the specter of a possible shutdown of highway programs.

    Senate Finance Committee Orrin Hatch (R-Utah), who is tasked with finding a way to pay for a multi-year deal, has ruled out the prospect of raising taxes, putting him on a collision course with Democrats.

    …another short-term extension of highway funds after having done so 33 times.
    Lawmakers will have four weeks to solve the impasse before the Highway Trust Fund runs out of money on July 31.
    Republicans want to pass a multi-year transportation bill, but a schism has emerged within their conference over the thorny question of whether they should raise some taxes to pay for it.

    Republican Sen. Bob Corker (Tenn.) has called for increasing federal taxes on gasoline and diesel by 12 cents over two years and indexing it to inflation.

    The gas tax now stands at 18.4 cents per gallon while the tax on diesel is 24.4 cents per gallon [last increased in 1993]
    But any proposal to raise taxes would pick a fight with the conservative base led by Grover Norquist, the president of Americans for Tax Reform.

    Norquist said Congress would have more funding for highway construction projects if it wipes out the federal requirement established by the Davis-Bacon Act to pay local prevailing wages. [not sure this has been scored]

    “There is zero chance the Republican House and Senate will increase taxes. Highway spending is 25% above what is needed due to Davis-Bacon prevailing wage law…. eliminate that and your funding problem disappears,” he said in a statement to The Hill.

    “No need to raise taxes. This was tried in Michigan and Massachusetts and defeated by a vote of the people,” he added.

    So far, Hatch is siding with Norquist and other anti-tax conservatives.

    “We’re not willing to raise taxes,” he said. “I’m willing to look at everything but we’re not going to raise taxes to get there.”

    Democrats believe, however, that House Ways and Means Committee Chairman Paul Ryan (R-Wis.) has signaled interest in paying for a multi-year transportation bill with corporate tax reform.

    “Lots of other Republicans, including Paul Ryan, think international tax reforms that raise revenues are a good way to go. Democrats agree,” said a senior Democratic aide.

    Ryan has opposed paying for increased transportation funding by taxing overseas profits because he wants to use the reservoir of funding for a broader tax reform initiative.”

    so Norquist wants Davis-Beacon repealed and the Dems and some GOP want taxes on overseas corporations which is about as far away from a user-fee as you can get.

    this is illustrative of how governance is proceeding in Washington..

    1. The fact that Corker knows enough to want to index the gas tax to inflation proves the Feds are decades ahead of the clown show in their thinking.

      I’ve never understood the need for Davis-Bacon … If you don’t offer the prevailing wage in an area how do you attract workers? I assume it’s the prevailing wage for the type of job at hand.

  11. larryg Avatar

    The problem is – Corker is in the minority for the GOP… and a target of the anti-tax Grover Norquist crowd.

    They’ve been at this – literally for years … with the GOP not able to agree on a position…

  12. mindful Avatar

    I wonder if the study you refer to on residential energy efficiency compares only the capital costs of improvements to energy savings.

    Another factor that needs to be considered is the cost of the bureaucracy involved for tracking all data associated with energy savings at individual residences. I don’t think anyone really has a handle on that at the moment.

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