Powering the future: renewable energy and hydrogen for data centres

The growing environmental impact of data centres

Data centres represent 3% of the energy consumption in the world (416 TWh). In 2030, they could represent more than 10% - if nothing is done. The growth of the sector shows the necessity for a big change regarding the energy sources fuelling these data centres.

From voluntary commitments to a regulatory compliance

Industry leaders are well aware of this situation and have already started to improve their sustainability record by reducing their carbon footprint and their energy consumption. The EU Code of Conduct for Data Centres further encourages such voluntary adherence to best practices. But it’s not only a voluntary commitment on a pilot project stage as the European and US legislators have already imposed regulatory compliance. Just a few recent examples:

European Union (EU)

1. Energy Efficiency Directive (EED):

• The EED sets out binding measures to promote energy efficiency and reduce energy consumption across various sectors, including data centres.
  
• Obligations under the EED include conducting energy audits, implementing energy efficiency measures and reporting on energy consumption and savings. Compliance is not only subject to penalties but will be a key element in commercial contracts and a competition factor between data centres. It will also impact the financing of such assets as ESG criteria become a crucial factor in loan agreements.
  
• The Commission Delegated Regulation on the energy efficiency of data centres and a dedicated rating scheme was published on May 17th 2024 and will enter into force on June 6th 2024. The delegated regulation defines the information that data centres with an installed computing capacity of more than 500 kW must provide to the European database. Operators must submit this information no later than 15 September, then 15 May 2025, and every year thereafter in order to build the future sustainability rating system for these facilities.
  
• Germany has been the first country to transpose the EED through its energy efficiency law. Data centre operators have to decrease their “Power Usage Effectiveness” for new and existing data centres. With respect to renewable energy use, data centres are increasingly obliged to source electricity from renewable sources. From 2024 they must source 50% of their energy from renewable sources and from 2027 this obligation will be 100% renewable energy sourcing! Data centre operators can demonstrate compliance by using a “certificate of origin (GoO)” for the energy used. Data centres will become major purchasers in the commercial Power Purchase Market and the trend will increase on a European and international level.

2. Renewable Energy Directive (RED):

• The third version of the RED directive published in 2023 establishes binding renewable energy targets for EU countries and sets out measures to promote the use of renewable energy sources.
  
• Industry should increase the use of renewable energy by 1.6% per year. The EU Member States have also agreed that by 2030, 42% of the hydrogen used in industry should come from renewable fuels of non-biological origin, going on 60% by 2035.
  
• Data centres may be encouraged or required to source a certain percentage of their energy from renewable sources to comply with the directive.

From regulation to practical change:

I. Renewable energy procurement through Corporate Power Purchase Agreements (PPAs) for data centres

Data centre operators are today (and will be obliged in future) securing renewable energy by agreeing Corporate PPAs with renewable energy producers. Those contracts are not easy to navigate through, they are long term, complex agreements, often with a financing angle, as the electricity producer will have to finance its (newly built) installation. Key challenges include contract duration, mutual (bank or parent company) guarantees based on respective counterparty risk assessment, termination grounds and liabilities. Foremost the data centre operator has to secure the correct issuance and ensure correct transfer of the guarantees of origin (or comparable environmental attributes).

Such transfer of guarantees of origin can today be made on a cross border basis. Such transfer will become increasingly important as data centres will operate under different jurisdictions and it can be of utmost importance to contractually secure the flexibility to transfer guarantees from one country to another to ensure regulatory compliance for each of an operator’s respective data centres.

However, renewable energy production is often dependent on exterior factors such as wind power or sunlight. In order to maintain a reliable energy source at any time, hydrogen could represent an alternative power and storage solution in the future.

II. The role of green hydrogen in data centres

Interest in using green hydrogen, produced by decarbonised or renewable energy sources as a replacement for diesel back-up generators, and ultimately as a primary power source for data centres, has risen in the past few years.

When considering the opportunities for hydrogen in powering data centres, it is important to consider the difference between using the hydrogen as an energy storage system or as an energy generation system. In addition, it is crucial to carefully follow the EU and International requirements in order to ensure that the hydrogen qualifies as green or low carbon hydrogen.

The potential of hydrogen for data centres typically falls into the energy storage category, where electricity (from renewable sources) is utilised to generate low-carbon or green hydrogen which in turn is transported and stored before being converted back into electrical energy whenever needed. Two potential methods for converting hydrogen back to electrical energy are hydrogen fuel cells and hydrogen-powered gas turbines.

Fuel cells are well-suited for smaller-scale applications, such as replacing diesel generators in single facilities, while turbines excel in generating high megawatt outputs.

Typical data centre power autonomy comprises 24 to 48 hours’ fuel storage. The diesel generators have to be tested regularly – and this requires diesel consumption just for testing purposes alone. Not very important on an individual data centre basis but significant on a global level. A growing number of data centre operators would like to end their reliance on diesel fuel for emergency backup power. Hydrogen is being advanced as a possible successor to diesel fuel generators.

The space requirement for hydrogen deployment is at least 2.5 times larger than that required for diesel back up generation, while capital expenditure could be five times greater or more. With the increasing push towards achieving net zero, it is widely expected that both the capital expenditure and footprint requirements for green hydrogen energy storage systems will decrease.

This decrease, together with the significant government and private investments, may continue to sway the balance in favour of hydrogen to decarbonise data centres.

For more information, please contact Sibylle Weiler.