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Challenges Data Center Customers Face in Navigating Energy Efficiency Rebate/Incentive Programs

7x24 Exchange Fall Magazine 2020 | Challenges Data Center Customers Face in Navigating Energy Efficiency Rebate/Incentive Programs

By Alex Inman

Electric utility representatives, whose programs offer rebates or incentives for high-efficiency equipment, often question the participation rates of data centers. Looking at a cross section of markets that have high participation rates in commercial programs, hospitals and medical centers, grocery stores, restaurants, and large office buildings are at the top of the list. These types of facilities all share common traits that make them good candidates for energy efficiency upgrades: long operating hours, high-energy usage, and a drive to reduce their energy costs. Why then are the participation rates of data centers, particularly stand-alone facilities, so much lower when compared to other building types? And what steps can data center owners or managers take to maximize the benefits offered through energy efficiency programs?

Computer server closets, server rooms, data centers embedded within larger buildings and stand-alone data centers are ubiquitous. Embedded data centers can be found in virtually every type of building across the commercial property landscape. Stand-alone hyperscale, enterprise level, and colocation data centers are spread out around the world, typically located where features such as proximity to reliable and affordable power, real estate or new business tax breaks, and an established construction and operations labor pool are in abundance.

Most utilities that provide power to customers offer some kind incentive, rebate, or grant for high-efficient construction and/or energy efficient equipment upgrades. These programs share many common traits in their designs; including funding streams, incentives or rebates available for designs or equipment upgrades, and participation qualification requirements. The Database of State Incentives for Renewables & Efficiency, or DSIRE1, is one of the best resources of information on programs across the country.

Many energy efficiency programs operate from funding sourced directly from the customers of the utilities. A common form of funding is collected through customers (ratepayers) in the form of a public Purpose Charge, which typically shows up on their monthly utility bill. The Southern Cal Electric and Gas2, the Energy Trust of Oregon3 and NYSERDA4 (New York State Energy Research and Development Authority) are examples of programs whose funding comes from the utility ratepayers that lie within the service areas of the utilities. Paying the public purpose charge is often a first qualifying step for a commercial customer to participate in a program.

Another common trait in most programs’ design are the actual incentives or rebates offered to customers. They generally fall into two categories, prescriptive and custom.

Incentives or rebates that are established at a set rate per unit of capacity, efficiency rating, or quantity are known as prescriptive (or standard), and are the most common form of incentive offered by utility programs. These types of incentives or rebates are well suited for upgrades like LED lighting, smaller scale high-efficiency HVAC equipment, and Energy Star rated foodservice equipment. For data centers, Energy Star rated servers and storage devices, server virtualization strategies, UPS’s, and high-efficiency HVAC units are typical of a prescriptive measure.

Computer servers, virtualization, and other lower-cost IT equipment can qualify for incentives that cover a considerable portion of their initial cost, often exceeding 50%. However, prescriptive incentives for larger cost equipment, such as UPS, CRAC and CRAH units, or chillers, are often too low to make an impact in the market. In addition, experience has shown that few data center staff will devote the extra time required to pursue the application process for new equipment, particularly if the incentive fails to cover the incremental cost difference between standard and high-efficiency models.

Challenging the one-size-fits-all prescriptive model, programs that offer a custom incentive or rebate option may be more successful in benefitting data centers. Custom options offer the flexibility of addressing unique design features into new construction and retrofit projects, all while keeping pace with technological advancements of equipment and building code minimums. With incentives or rebates that can cover up to 50% to 75% of the project cost and total incentive caps upwards of $1M, the likelihood of larger projects falling within the return on investment (ROI) requirements of many facility owners increases.

Midstream and Upstream incentive programs offer efficient designs with the potential to deliver a relatively high amount of cost savings to owners and operators. Targeting equipment manufacturers, vendors and/or distributors to deliver the message of energy efficiency incentives or rebates, midstream and upstream programs often reach a much wider end-user audience. The further upstream the program outreach efforts target, the greater number of customers that can be reached to receive the benefit from the incentive or rebate.

Vermont Energy5 and Xcel Energy in Colorado6 are two examples of programs that offer incentives in Midstream or Upstream platforms. Vermont Energy’s upstream program is offered at the manufacturer level for computer servers, providing incentives and lowering the cost of the servers to distributors. Excel Energy in Colorado offers a midstream incentive to distributors of high-efficiency fan motors for CRAC and CRAH units. (The above information was provided by interviews of program representatives, since, at the time this article was written, no published information was available for these programs.)

The most common hurdles that many customers must clear in order to participate in incentive or rebate programs are qualification requirements that may be too strict or ambiguous. These requirements include paying any required charges on the utility bill, unclear or confusing application or preapproval processes, or the use of incorrect baselines when calculating the energy savings and return on investment.

Electric and gas utilities structure their rates to customers based on categories like type of customer (residential, commercial, industrial, etc.), the total annual usage the site accounts for, or whether the customer has purchased their fuel from the local utility or from a larger open market. Certain assigned rate codes will require the customer to pay a public purpose charge, and will be included on their monthly bill. For programs that collect funding through public purpose charges, customers must pay the charge included on their monthly utility bill in order to qualify for rebates or incentives.

However, several programs implement strategies to give high energy use customers the option to opt-out of paying a public purpose charge. The Energy Trust of Oregon program, for instance, offers high-usage customers the option to opt-out of paying the public purpose charge. These “Self Direct” clauses, allow customers the option to use funds that would normally be required for the Public Purpose Charge to implement their own internal energy efficiency designs or equipment upgrade strategies.

Data Centers and other critical facilities often fall into this category of high energy user. In lieu of paying potentially millions per year into customer funded programs, these customers can opt-out, and use monies at their discretion, giving them the ability to complete projects that may not qualify for rebates from the programs they may pay into. But caution must be taken when choosing to opt-out of these programs, and careful analysis of that option must be considered.

Other hurdles for program participation include strict local or regional building codes, minimum building size or a minimum amount of energy saved for the proposed project…particularly for projects that fall under a custom incentive track. In 2013, the Integral Group7, in collaboration with team members from Pacific Gas and Electric Company, Southern California Edison, Southern California Gas Company, and San Diego Gas and Electric, drafted a document titled “Energy Efficiency Baselines for Data Centers”. This document provides definitions of data centers, high-efficient equipment and design baselines, and energy modeling approaches for both HVAC and IT equipment loads. This document, along with the “2016 PG&E Data Center Baseline and Measurement and Verification (M&V) Guidelines”8, is considered “the bible” for both new data center builds and equipment retrofits, as well as third party firms which verify projects for appropriate energy savings. Other examples include a minimum building size of 20,000 square feet, Energy Trust for Oregon’s retro commissioning (RCx) program, and a minimum savings of 25,000 kwh or a minimum 1.5 years payback for the Pepco/Delmarva program.

There are inherent market factors that create roadblocks for a facilities’ ability to participate in incentive or rebate programs. These include data security requirements, the high cost of implementing high-efficiency equipment upgrades, and practices that are considered free-ridership in certain utility programs.

The security of stored data and the reliability of the IT and HVAC equipment are usually the top priorities of every data center. Adding to that the demands from volatile economic markets, a shift to virtual retail shopping trends, and meteoric rises in social media use, and the security and reliability of a customer’s data is all that more critical.

Historically, redundancy was considered the best way to achieve the highest level of operational security, resulting in high data security. Eliminate any potential down time of power or HVAC equipment and you greatly reduce the chance of IT equipment facing the same down time. But this redundancy conflicts with the goals of energy efficiency programs to reduce energy consumption. While redundancy can contribute to safety and security of data, it can also add unnecessary electrical loads to facilities.

Other roadblocks facilities face include exorbitant financial investments with challenging returns on investments (ROI’s) or industry practices misaligned with program guidelines. Where electrical utility rates are the highest in the country, New England and California for example, an acceptable ROI for energy efficiency upgrades is easier to achieve. Alternatively, the Midwest and the Pacific Northwest face an opposite scenario, where utility rates are relatively low, making projects financially more challenging.

Free-ridership is the practice of consuming a good or benefitting from a service without paying for it. A freerider in an energy efficiency program, defined by Stephen Heins of Orion Energy Systems, is “…someone who would install an energy efficiency measure without any program incentives because of the return on investment of the measure, but receives a financial incentive or rebate anyway.”9 Energy efficiency upgrade projects in data centers face this often. In many situations, a facility will move forward with an equipment upgrade project that shows a favorable return on investment, regardless of whether a utility incentive is available. If the incentive, or other program benefits, did not influence their decision to move ahead with the project, the utilities will question why the customer should be entitled to those funds. In the case of server virtualization, IT managers will implement the measure for machine consolidation resulting in space savings
and higher density. The energy savings is a side benefit. Many programs view these situations as free-ridership, disqualifying these projects from receiving incentives.

Incentive and rebate programs looking to recruit more data center and critical facility projects must consider their program design features to make this happen. Keeping a watchful eye on market trends and shifts is important. And being able to foresee major technological advancements in the industry would be ideal. But until we discover that “crystal ball”, other strategies must take place.

These include going above and beyond equipment upgrades whose efficiencies only meet code minimums, incentivizing equipment that would be considered redundant within the facility, and relaxing free-ridership constraints.

Energy efficiency programs that offer incentives for equipment upgrades do so for equipment that exceeds code minimums. Why would a program “incent” equipment that doesn’t provide energy savings above what is already installed in a facility? Equipment that only meets code requirements is generally considered one that has a standard efficiency rating. Encouraging (or incentivizing) data center owners and operators to install equipment that goes beyond code minimums ensures that a measurable amount of energy savings can be claimed by that upgrade, and meet basic requirements of a program.

As mentioned previously, equipment redundancy has long been considered the best way to achieve a high level of security in data centers. Backup, or redundant power and cooling systems results in little to no down-time of this critical equipment, ensuring reliable operations of the computer servers and storage devices. But often times, incentive programs view redundant equipment as an additional electrical load within a data center. Adding additional power and HVAC systems as a backup aren’t creating energy savings.

Additionally, designing and operating a data center with the appropriate level of redundancy is critical. Incorporating redundancy beyond what may ever be needed adds unnecessary electrical load, consuming excessive amounts of power and costing the owner or operator money. For owners and operators that are working toward lowering the power usage effectiveness (PUE) of their facility as much as possible, redundancy can have the negative effect of increasing the PUE.10

Often times, facilities that feature efficient designs with high efficiency equipment face situations where the efficiency suffers, and actually may cost more to operate. Adjustments to controls by unqualified personnel or operational details that sacrifice efficiency are common problems many facilities face. To resolve these problems, many times it may only require re-commissioning, or retrocommissioning the existing equipment.

By definition, Retrocommissioning is “a systematic process to improve an existing building’s performance. Using a whole-building systems approach, retrocommissioning seeks to identify operational improvements that will increase occupant comfort and save energy. The process can be performed alone or with a retrofit project. Typical energy savings are between 5 percent and 20 percent, according to Portland Energy Conservation Inc. (PECI), often with paybacks of less than one year.”11

Utility program incentives offered for retrocommissioning measures are still in their infancy, but are gaining traction across the landscape. While they differ slightly in design between various programs, they fill a demand for deeper energy savings in challenging markets, and another option for operators to cut costs.

Another incentive that mature incentive programs are beginning to consider is a pay-for-performance measure. These measures are designed to pay an incentive to customers who exhibit energy savings on behavioral and operations and maintenance (O&M) improvements — improvements that are difficult or impossible to estimate or quantify using traditional engineering calculations. These types of programs could be a good fit for facilities that feature energy efficient designs from the beginning or for those that have completed many equipment upgrades, and are continuing to pursue other cost-cutting measures.

Seattle City Light is currently in the final steps of designing and implementing a Pay-for-Performance (P4P) offering to commercial customers.12 This program will pay incentives for energy savings measured at the building’s electric meter, and will benefit those projects that capture O&M, behavioral and interactive savings. Additional features the program will offer include:

  • Support of deep-energy retrofits
  • Capturing multiple measures through a single transaction
  • Allowing for flexible and creative projects
  • Simplified participation by not requiring up-front energy savings calculations
  • Multi-year agreements provide predictable cash streams relative to savings

Since modern data centers are typically designed to be highly efficient, a pay-for-performance offering could be an attractive option in many situations.

Energy efficiency incentive and rebate programs face increasing challenges to meeting annual savings goals. Mature programs that have been offering incentives for many years are no longer able to rely on measures that are considered “low-hanging fruit”, as those opportunities no longer exist. Programs now must offer new, innovative measures to incent and look to unique markets to find opportunities for energy savings.

While data centers have been in existence for decades, new facilities are being built at an alarming rate to satisfy the demands of our modern cultural needs. Additionally, edge computing is transforming the critical facilities market away from centrally located, large enterprise level data centers to more numerous and strategically located, smaller computing facilities. This trend is challenging the way energy efficiency programs have traditionally marketed their benefits to the data center industry.

In order to maximize efficiencies and profits, satisfy customer and shareholder demands, and execute corporate sustainability initiatives, data center owners and operators are tasked with exploring new and innovative solutions to meet high expectations. Working with IT and HVAC cooling equipment manufacturers, design/build engineering firms, and government funded entities like Energy Star13 are good first steps to take in achieving a successful operation. And working with local utilities can not only offer financial incentives, but can also provide valuable assistance in applying for those incentives as well as free publicity to the data center ownership in the form of white papers and industry conference keynote topics. A willingness to consider innovative ideas, along with flexibility and agility in operating procedures will go a long way in capitalizing on the benefits utilities offer.


Alex Inman is Manager of ICF. He can be reached at Alex.Inman@ICF.com.

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