Will pending law make California too costly for data centers?

The state of California has considered three legislative proposals that may greatly increase the cost of building and operating data centers in the Golden State.

Anywhere in the country, building a data center is a major capital expense. And in California, a state with higher electrical rates and ambitious environmental goals, it may get even more expensive. A perfect storm of legislative possibilities is brewing in Sacramento with potentially reverberating effects for data centers being planned in the Golden State.

Sifting through the legislative possibilities, there have been proposals for a state carbon tax, a cap-and-trade system, and the expansion of an existing standard, California's Energy Efficiency Standards for Residential and Nonresidential Buildings, Title 24, all of which could be costly to data centers.

A California state carbon tax or California carbon cap-and-trade system would directly affect the largest emitters of greenhouse emissions, such as power plants and utilities -- with possible electricity rate increases for all data centers. Title 24, on the other hand, would directly affect data center infrastructure and construction costs by mandating that certain energy efficiencies be installed.

The cost of global climate change
Utilities consultant Mark Bramfitt, a former principal program manager at Northern California utility Pacific Gas and Electric Company (PG&E), said that electricity rate increases from a carbon tax or a cap-and-trade system would depend on the makeup of the power generation of the local utility where a data center gets its electricity. If the utility generates much of its power from coal-burning sources, it would yield more greenhouse gases, such as carbon, and data center costs would be greater. Fortunately for California, Bramfitt says that most of the state's utilities have a mix of power generation using large carbon-emitting fuels (e.g., gas, coal) and lesser-emitting power generation sources (e.g., hydro).

A couple of years ago, a carbon tax of 4.2 cents per equivalent metric ton of carbon was proposed, but the proposal lost traction, with the cap-and-trade talks picking up momentum. Additionally, no timeline has been set for setting up a potential tax, and one has to wonder whether the state wants a carbon tax and a cap-and-trade system in place.

Nonetheless, even if it were to pass, Bramfitt believes that the impact on a potential carbon tax would have a minimal effect. "If they do a tax on carbon, you might see your prices go from 9 cents to nine and a half or 10."

California passed a cap-and-trade bill in 2006 that by 2020 will cap major emitters of greenhouse gases, such as utilities' power plants by 15% of today's emissions, with a goal by 2050 to reduce greenhouse gases by 80% of 1990 levels. The bill also allows power plants the ability to trade permits (e.g., allowances) with others to emit greenhouse gases, such as carbon.

The California Air Resources Board, which is responsible for setting up the cap-and-trade program, has hosted public meetings recently. The deadline is January 1, 2011, to adopt regulation and statewide enactment that would begin in 2012. So if the target timetables remain in place, a cap-and-trade system would be the first of three potential legislative pieces to be enacted and enforced.

Additional data center costs associated with Title 24
With Title 24, new construction and additions on existing data centers within the state will face potential cost increases. There won't be any requirements for existing data centers. Title 24, which deals with construction of residential and commercial building, has been around for years, but it is periodically updated to include new efficiencies as technologies become available.

"There's a list of 30 or more criteria an owner-operator would consider before doing a multimillion-dollar investment in a new facility," said Jeremy Rodriguez, the senior manager of global data center efficiency at VMware and a board member of the data center user group Data Center Pulse. "It certainly adds to the pile of considerations around planning a data center."

Bramfitt works as a consultant for the state on Title 24 and said updates may require a few specific efficiencies be mandated. "It is going to require some minimum energy-efficiency measures in new data centers," said Bramfitt. "I think the upshot of it -- more than likely -- is it will require either air-side or water-side cooling system economizers."

Bramfitt said that the state is also considering efficient uninterruptible power supply (UPS) systems and variable frequency drives on air handlers for potential inclusion in the standard. But any mandated efficiencies must be cost-effective over the lifecycle of the data center.

For example, an air-side economizer might cost $800,000 to install, but it may save a data center $1 million in energy efficiency. So it becomes a case of balancing short-term major capital investment with the idea that data centers will reap long-term savings by implementing them in facilities.

"Are data centers going to be a little more expensive in California?" Bramfitt said. "You could argue that, but they certainly will be less expensive to operate if they have air-side or water-side economizers." At this point, specific Title 24 efficiencies have not been chosen. A final bill could be passed by the end of the first quarter next year, and could go into effect by 2013, according to Bramfitt.

Waiting for California legislation to shake out
One of the biggest issues for California data center managers is the waiting game. They know that there are these legislative possibilities out there -- in some cases, for years -- but they don't know what to expect. "One of the largest challenges is that there is not any regulation right now," Rodriguez said.

Phil Reese, Stanford University's faculty and research computing strategist, who sits on the Data Center Pulse's board of directors, says Stanford University has considered building a new center over the next few years, and he and the university's Land, Buildings and Real Estate unit will watch to see what happens with the state legislative proposals. "We are paying attention to all of these issues [legislation]," Reese explains.

Rodriguez said the data center community's initiatives toward developing greater efficiencies have made managers more aware of energy use and have prepared the industry to implement further efficiencies should legislative directives arise. "If you don't know what you are consuming, you will continue to consume as much as you can, without consideration," Rodriguez said.

There will always be unintended good and bad consequences to new laws. The axiom of "as California goes, so does the rest of the nation" could certainly apply here as the state proves to be a model for energy efficiency.

What did you think of this feature? Send your feedback to Executive Editor Matt Stansberry; email Matt Stansberry.

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