Why Data Center Provider Switch is Suing Nevada and NV Energy

Last week, Nevada data center provider Switch sued the state’s energy regulators and utility NV Energy, asking for $30 million in damages for getting what it feels was a raw deal on an agreement it made last year to buy renewable energy for its data centers.

The lawsuit is just the last development in the conflict between the company, the utility, and the Public Utilities Commission of Nevada that’s been ongoing since at least 2014, when Switch started pursuing renewable energy for its enormous data center operations in the state, which include an existing campus in Las Vegas and another one under construction in Reno.

The conflict illustrates a problem with procuring renewable energy for data centers – and other high-load energy users – that exists in many states across the country. Energy markets, regulations, and delivery systems for the most part have not been set up to enable these customers to get enough energy from renewable sources to satisfy their needs.

As a result, companies have to resort to complex and costly workarounds, including registering subsidiaries as energy companies – something Google and Apple have done – and/or buying renewable energy in one state and stripping it of Renewable Energy Credits to make non-renewable energy consumption by their data center in another state “carbon-neutral,” all while lobbying utilities and regulators to create special pricing structures and new rules. (More on this here: Cleaning Up Data Center Power is Dirty Work)

Data Center Knowledge recently asked customers of data center services how important renewable energy is in their data center selection strategy. Download results of the survey in full here:Renewable Energy and Data Center Services in 2016

Breaking Up is Hard to Do

Switch’s problems in Nevada started when it wanted to untangle itself from NV Energy, which serves a good portion of the state. When the data center provider found a developer that would build a utility-scale solar farm and sell it energy, it wanted to switch from NV Energy being its primary provider to First Solar, the developer.

Losing a customer as big as Switch is not a good thing for any utility. Data centers are energy providers’ dream customers. They buy a lot of energy, and their load remains constant over long periods of time, which means that serving them adds little to the overhead of managing the transmission system to ensure all customers get the electricity they expect from the utility.

But a state law that has been on the books since 2001 allows customers that require 1MW or more to leave the state’s grid and buy or generate their own energy if approved by PUCN. Switch applied for such approval in late 2014 – it wanted to “unbundle” itself from NV Energy and tap into the national grid – but was denied.

Switch Claims Renewable Rate Unfair

The state’s reasoning for denying the application was that unless Switch was replaced by a customer with similar load, allowing it to exit NV Energy would harm the utility’s other customers. Switch asked for reconsideration and indicated it could go to court but many months later negotiated a settlement agreement with the utility. Under the agreement, the utility would buy energy from First Solar and sell it to Switch at a special renewable energy rate.

This rate, or rather the difference between this rate and the much lower rate Switch believes it would pay if it was buying the energy directly from the solar farm developer, is primarily why Switch is suing. The state allows the utility to charge customers premium rates for renewable energy under its Nevada Green Rider program. Switch claimed NV Energy was paying 3.8 cents per kWh to First Solar, while charging Switch about 9 cents per kWh.

On top of it all, the PUCN earlier this year authorized three huge casino and hotel operators in Nevada – the Sands, Wynn, and MGM – to do just what it prohibited Switch from doing earlier. They were allowed to unbundle from NV Energy and buy and use electricity from other producers, including those across state borders, independently.

Why Sign an Unfair Agreement?

As the company explains in its lawsuit, it signed the agreement because it had a deadline for closing its contracts with First Solar. The developer wanted to take advantage of a federal investment tax credit, which was approaching expiration. Had the contracts not been signed in time, First Solar would not have received the credit and presumably would not have agreed to start building the plant for Switch.

PUCN has not yet officially responded to the lawsuit, while NV Energy issued a statement saying it would fight Switch’s allegations and calling them “baseless.” A Switch spokesman declined to comment for this story.

Large Data Center Providers Seek Renewables

Switch is one of three major US-based data center providers that have recently moved to secure utility-scale renewable energy purchase agreements to power substantial portions of their operations. Switch says it has signed for enough capacity to power all of its data centers. Its much larger competitor, Equinix, has secured renewable energy contracts that cover its entire North American footprint, while Digital Realty Trust, another global player, will power all of its colocation and interconnection facilities in the US with renewable energy.

There are several reasons now is a good time for data center providers to buy renewable energy. Its costs have come down enough to effectively compete with energy generated by burning fossil fuels and more and more of their customers, especially their biggest customers, are interested in data center services powered by renewable energy.

A recent survey by Data Center Knowledge showed that more and more data center customers consider energy sources when selecting data center providers, and that this consideration will only grow in importance in the future. More than half of respondents said data center providers and utilities should share the responsibility for ensuring data centers are powered by renewable energy.

Download results of the Data Center Knowledge customer survey on renewable energy in full: Renewable Energy and Data Center Services in 2016