Digital Realty Leverages Scale to Cut Clients' Data Center Energy Costs

Digital Realty Trust is taking advantage of its buying power by negotiating lower electricity bills for those of its data centers that are located in deregulated energy markets, and it says it’s passing those savings to its customers.

The San Francisco-based company, which provides wholesale and retail colocation and interconnection services, used to purchase energy individually for each data center campus. Now, it’s aggregating the power needs of those campuses in each metropolitan area, so it can strike better deals with electric utilities. 

In doing so it’s able to lock-in lower energy rates and provide customers protection from seasonal spikes in electricity costs, Erich Sanchack, Digital Realty’s executive VP of operations, said.

For example, during the past quarter, the company locked in a price for electricity at its Chicago-area data centers that was more than 20 percent below current market prices through 2022, he said.

That’s important because Digital charges customers for the amount of power they use, so the price of electricity is reflected in their overall bill, he added.

“If Chicago has unseasonably warm weather coming through, and it takes more power to cool our data centers, our customers will be insulated from cost spikes,” he said.

The new bulk energy purchase strategy is targeted at the deregulated US markets in Illinois, Texas, Connecticut, Massachusetts, New Jersey, New York, the European Union, and Australia, Sanchack said.

“Where there is a deregulated opportunity, we will look to lock-in rates and insulate more of our customers from these (financial) risks,” he said. “We are starting to see this strategy has provided financial insulation and competitive advantage for our customers.”

In Texas, an unregulated energy market, a recent summer heatwave sent daily market prices for electricity soaring to $184 per megawatt-hour, a 60-percent to 75-percent increase.

Digital Realty softened the spike’s blow for its customers. It has struck deals with utilities in the state to ensure steadily low energy prices for its data centers in the Dallas, Austin, San Antonio, and Houston areas, according to Sanchack.

“We are giving customers a reasonable and predictable rate and insulating them from financial risk or cost risk when there is a spike in costs,” he said.

IHS Markit analyst Liz Cruz said Digital Realty’s announcement is significant, because it gives enterprises another reason to outsource their data center services.

Traditionally, companies outsource to colocation providers to cut capital spend, she said. “If you get better electricity prices, that’s huge on the OpEx side,” Cruz, IHS's associate director of data centers and IoT, said.

Digital Realty’s effort to purchase power at discounted rates is a new strategy that takes advantage of the company’s scale, market intelligence, and a strong, investment-grade, credit rating, Sanchack, who joined the company in January, said.

To help negotiate the lower prices, for example, the company is providing energy suppliers with data that guarantees a certain amount of energy consumption per year. This is valuable data for utilities and grid operators, who go to great lengths to match energy supply to demand on the grid.

The data also provides detailed information on time periods when Digital Realty’s customers are expected to demand more data center resources, which, in turn, results in more energy usage. Online retailers on Black Friday, for example, will use their server and storage capacity more than other times of the year and therefore consume more energy.

That predictability allows energy suppliers to better plan and provision their supply for any given time-period.

“Based on what we know with customer demand, we tell them what we need, and we guarantee it, and they know how to manage their load from their control systems,” Sanchack said.