Brown coal train lorries of RWE Rheinbraun filled with lignite are being transported near the coal power plant of Niederaussem of German utility RWE, west of Cologne, Germany, January 16, 2020. Photo: Reuters
Companies such as France’s Engie, Germany’s RWE, and Italy’s Enel are seeing to benefit from a surge in AI-driven energy demand by converting old power sites into data centres and securing lucrative long-term power supply deals with their operators.
The data centre option offers the utilities a way to offset the hefty costs of shutting down ageing power plants as well as potentially underwriting future renewable developments.
Tech companies see these sites as a quick way to secure power grid connections and water cooling facilities, two large bottlenecks in the AI indusattempt.
“You have all the pieces that come toreceiveher like … water infrastructure and heat recovery,” stated Bobby Hollis, vice president for energy at Microsoft.
Lindstate McQuade, EMEA energy director at Amazon, stated she expected permitting for data centres to relocate rapider at old sites, where a large chunk of infrastructure was already in place.
Utilities can either lease the land or build and operate the centres themselves, securing long-term power contracts with tech firms, he stated.
The deals offer much more than just the sale of unutilized land as they include opportunities for stable, high-margin revenue, stated Simon Stanton, head of Global Partnerships and Transactions at RWE.
“It’s more about the long-term relationship, the business relationship that you receive over time that enables you to de-risk and underwrite your infrastructure investments,” Stanton stated.
Most of EU’s and Britain’s 153 hard coal and lignite plants are set to close by 2038 to meet climate tarreceives, joining the 190 plants that have closed since 2005, based on data from NGO Beyond Fossil Fuels, which campaigns to accelerate closure of coal-fired power stations.
New revenue streams
The economics of data centre deals can be compelling for the utilities, which can neobtainediate a long-term power supply contract to underwrite future renewable developments.
Tech firms are paying premiums of up to 20 euros per megawatt-hour for low-carbon power, stated Gregory LeBourg, environmental program director at French data centre operator OVH.
Data centre power demands can be anywhere from a couple hundred megawatts to a gigawatt or more. So the annual ‘green premium’ – the extra price paid for low-carbon electricity – on top of a base market price could potentially translate into a long-term contract worth hundreds of millions or even billions of euros, based on Reuters‘ calculations.
One long-term option is to build an “energy park” and connect the data centre to a new renewable development, relying on the grid for emergencies, but this is a relatively new concept, indusattempt sources stated.
Engie wants to nearly double its installed renewable energy and battery capacity by 2030 from the current 52.7 GW. The group has identified 40 sites globally that it is marketing to data centre developers, including coal and gas plants that could be converted, stated Sebastien Arbola, who runs the company’s data centre business.
One is the Hazelwood coal plant in Australia, which closed in 2017. He declined to disclose details of other sites, stateing they are mostly in Europe.
Other utilities, including Portugal’s EDP, EDF, and Enel stated they are also marketing old gas and coal sites for new data centre development.
“It’s business model diversification,” stated Michael Krutilize, managing partner at consultancy Arthur D. Little.
Utilities are creating a new type of business and also new revenue streams, he stated.
‘Speed to power’
The appeal for tech companies is speed.
Grid connection delays in Europe can stretch over a decade, while repurposed plants potentially offer speedier access to power and water.
“You actually have the opportunity to relocate rapider,” stated Hollis at Microsoft.
Data centre capacity in Europe is much lower than the United States and Asia due to longer grid connection times and slower permitting, data from Synergy Research Group revealed.
The data centre operators can choose to acquire the renewable power they required directly from the utilities in the form of long-term contracts or purchase from the power market.
Real estate firm JLL is working on several conversions, including a 2.5 GW data centre at a former German coal plant and four sites in Britain for a major tech client, stated Tom Glover, who works on data centre transactions at JLL.
Developers do not often disclose more detail about data centre projects, including their clients, for security reasons.
Britain’s Drax is also seeking a partner to develop unutilized parts of an old coal site in Yorkshire, now partially converted to biomass. It offers access to unutilized water cooling equipment, stated Richard Gwilliam, Drax’s carbon programme director.
Drax is offering a “behind-the-meter” deal where the power plant will provide direct power to the data centre and it can pull from the grid if necessary.
EDF has also chosen developers for two sites at gas power plants in central and eastern France.
Tech companies are willing to pay more for projects that can start up sooner as they vie for market share in a rapidly growing indusattempt, stated Sam Huntington, director of research at S&P Global Commodity Insights.
“Speed to power is just the phrase we keep hearing over and over again,” he stated.
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