By Adam Lesser
When Dean Nelson, the vice president responsible for provisioning and consolidating EBay’s (EBAY) data centers, evaluated Utah as a site for EBay’s next mega-data-center project, he was mostly happy. It offered tax incentives, low latency for serving EBay’s customers, and the right workforce. But for one problem: “There was a challenge around getting clean power,” says Nelson. Utah has less than 3 percent renewable energy and generates 82 percent of its power from coal, according to data from 2009 provided by the U.S. Energy Information Administration.
The question of how EBay would find clean power for its Utah data center—which is part of the company’s global consolidation of data centers into just three mega data centers in Utah, Arizona, and Nevada—opened up another possibility: Would it make more sense for the online marketplace to power its Utah data center by generating its own power and using the grid as backup?
For the much larger Topaz data center, which is modular and built to scale to 30 megawatts, EBay has issued a 10 Mw public request for information in the past couple of months, seeking proposals to generate renewable energy for the data center. But for the adjacent smaller add-on Quicksilver data center, EBay decided to have 6 Mw of Bloom Energy’s solid oxide fuel cells installed on site, making the installation the country’s largest non-utility fuel cell installation. Bloom’s fuel cells generate power by combining natural gas and oxygen to produce carbon dioxide and water. EBay is operating a micro-grid on site that will allow it to divert excess power from the fuel cells not used by the Quicksilver data center directly to the larger Topaz data center.
Nelson like the design of fuel cells themselves because thousands of redundancy points are built in. Each fuel cell produces 25 watts, is combined into a stack producing 40 kilowatts, and is part of a brick producing 200 kw. If one or a group of fuel cells fails, the entire fuel cell brick doesn’t go down. “Fuel cells are primary power for the computers and then the grid is used as backup. We have a higher available data center with this design than we would have with a traditional generator and UPS [un-interruptible power supply] design. That was a big ‘ah-ha’ moment for me,” says Nelson.
Nelson is much more excited about the capital expense savings EBay is getting as he shifts his backup power source.
“We’re not putting UPS [uninterruptible power supply] or generators at Quicksilver. They’re completely removed,” says Nelson, referring to the Quicksilver data center, the smaller of the two data center projects in South Jordan, Utah. “This required us to completely change how we approach data center design. We’re using the fuel cells as the backup and the primary source.”
Nelson added that while the upfront cost of fuel cells creates a scenario in which fuel cell power is more expensive than grid power, a number of cost-avoidance returns makes the economics work—namely the elimination of UPS and generators, along with simplification of building design, which includes changing the height of the building, as well as the structural support needed. He noted that EBay examined the risk of an outage on the gas grid and found it more reliable than the electrical grid. EBay also looked at large-scale battery storage, which Nelson says wasn’t cost-effective.
Generators and UPS exist at data centers in the event of a power outage and are used about 1 percent of the year. Generators themselves have been criticized. For example, the environmental impact of Microsoft’s (MSFT) diesel generators in Santa Clara, Calif., and Quincy, Wash., was recently highlighted in a controversial New York Times article on data centers.
In terms of the broad pressure on leading Web-scale IT companies to move away from non-renewable sources of energy such as coal power and diesel generators, fuel cells can be renewable if they use biogas. Biogas is reclaimed methane (CH4) from landfills or water treatment plants, rather than mined natural gas. This is why Microsoft has discussed the possibility of locating future data centers near water treatment plants, which wind up having to flare excess methane because it’s a greenhouse gas 20 times more potent than CO2.
No biogas is currently produced in Utah, according to Nelson, and EBay is offsetting its natural gas use there by paying a premium to enable biogas production elsewhere. Nelson said the offset will be “meter in/meter out,” meaning for whatever amount of natural gas EBay uses at its Utah data center, it will enable that amount of biogas production elsewhere. EBay didn’t disclose the premium it will pay.
Generating one’s own power is typically more expensive than grid power, which utilities generate at scale from inexpensive coal, natural gas, and nuclear energy. But there’s a growing amount of discussion from data center operators that being in control of one’s power generation could lead to better “up-time.”
A June power outage in Virginia caused service problems for Amazon Web Services (AMZN), which affected Instagram, Pinterest, and Netflix (NFLX). In places such as India, whose grid is inherently unreliable, companies have been generating their own power for years. Five of India’s biggest electricity consumers generate 96 percent of their own power, which is why such major Indian conglomerates as Reliance Industries (RIL:IN) and Tata Motors (TTMT:IN) were largely unaffected by last summer’s massive blackout.
While getting off the grid was not EBay’s primary motivation to install fuel cells, Nelson says, “If there are limitations within the grid, we’d like to not be bound to them. And we got the benefit of having the grid as backup.” Using the grid as backup creates a relatively safe redundancy; if it enables the elimination of UPS and generators, data-center operators can rethink the upfront capital costs of installing on-site power generation.
EBay is getting its fuel cells from Bloom Energy, which targets corporate customers that are interested in generating their own power on site. To address the hefty upfront capital costs of buying fuel cells, the fuel cell pioneer now offers energy-as-a-service, in which Bloom carries the upfront purchase cost of the fuel cells in exchange for a kilowatt-hour power-purchase agreement. We’re seeing this financing strategy in solar as well, as initial public offering hopeful SolarCity is actively pursuing a strategy in which it waives the costs of rooftop solar panels in exchange for a long term power-purchase agreement. There’s even talk on Wall Street that bankers want to bundle the contracts and securitize them as debt products, to be known as solar backed securities, though the market for fuel cells is probably too small for this type of securitization.
EBay opted to pay the upfront capital costs of the fuel cells, combined with a 20-year guarantee from Bloom of minimal power generation, including maintenance obligations. The EBay deal is a major win for Bloom, which dove headlong into the data-center market this year when it hired Peter Gross to head up its data-center group. Gross led data-center design for EYP Mission Critical Facilities, which Hewlett-Packard (HPQ) bought in 2007.
According to my colleague Katie Fehrenbacher’s August interview with Bill Kurtz, Bloom Energy’s chief financial officer, the company remains “halfway” to breaking even. Bloom is in the process of raising an additional $150 million at a valuation of $2.7 billion, which would bring capital raised so far for the 11-year old company to $800 million. It would also make Bloom No. 4 on the list of top 10 U.S. venture-backed companies in terms of total equity raised, just ahead of Metro PCS (PCS) and Facebook (FB), but two slots behind Solyndra, which accumulated close to $1 billion in funding.
For the time being, Bloom will have to sell more data centers VPs on the idea that the extra expense entailed by fuel cells brings secondary benefits not evident in the initial cost of power, such as decreased need for UPS and generators and maybe less vulnerability to grid outages. If using reclaimed biogas ensures that the fuel source is renewable, all the better. For now all eyes will be on EBay, as well as Apple (AAPL)—which is deploying a smaller fuel cell facility in North Carolina—to see how the fuel cells perform and whether they could be part of a rethinking of how to provide backup power for the modern data center.
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