Case study: Clean-energy plan proves too risky for 365 Main customers

Prompting this perhaps less-than-astute observation is a case study shared with me by two gentlemen from 365 Main, Miles Kelly, VP of corporate strategy and J.P. Balajadia, VP of operations. The short of it is, 365 Main, a datacenter developer and operator, attempted to pursue a very green project: a new datacenter in Newark, Calif. fueled entirely by natural-gas-powered generators. Although the company was ready to put down the substantial capital for the (relatively) clean energy source — without charging a dime to would-be customers — they found that said customers weren’t willing to risk leasing space for fear of insufficient uptime.

Let me start with some background on 365 Main, though. The company has had both green and lean practices on its agenda since it was founded in 2002 and opened its first datacenter in San Francisco on 365 Main Street. (A cookie to whoever can figure out how the company came up with its name.)

“From a green perspective, we started looking at datacenter efficiency long before I would say the green trend started in the last couple of years,” says Kelly.

For example, the company worked with California utility PG&E to perform an efficiency audit of the datacenter and implemented “low-hanging fruit” to cut energy waste, including lighting controls and precise temperature controls, based on where the hot and cold spots of the datacenter lie.

But the company wanted to take its green agenda a step further: looking at the energy consumption of a datacenter holistically and demonstrating quantifiably that it was possible to reduce both energy consumption and carbon emissions.

Thus, company leaders decided that in constructing its new datacenter in Newark, they would not only pursue LEED certification; they also investigated the viability of installing natural-gas fueled generators to fully power the datacenter, rather than relying on the local utility.

As Kelly and Balajadia tell it, they spent some three months figuring out how to make the co-gen plan work. By their assessment, the price tag for the generators would have been $25 million — which they say they would get back through energy-cost savings over 20 years. From an environmental standpoint, it would result in the datacenter producing 78,500 tons of carbon emissions per year, rather than 99,000 were it powered by PG&E — which is already a relatively clean energy producer. So the difference there is around 20,500 tons of carbon. And 365 Main wasn’t going to charge customers a premium for the cleaner energy option.

The guys were excited by the potential here. However, the plan proved a tough sell for 365 Main’s customers. Scratch that. An impossible sell. Companies were put off by the risk of downtime. By the company’s calculations, the natural-gas-powered generators alone could deliver only a 94 percent guaranteed uptime. However, the backup energy source was the local utility, which is, of course, far more reliable.

“While the combined reliability of the co-gen primary/utility backup solution would be higher than 94 percent — say 99.8 percent — customers didn’t like the co-gen option because it provided a less reliable primary energy source. Utility as primary is more reliable at 99 percent,” says Kelly.

One might wonder why the company couldn’t offer an on-site backup to the natural gas option to boost uptime. 365 Main considered that as well. “We cannot store a sufficient amount of natural gas on site to ride through a catastrophic seismic event,” explains Balajadia. “It’s likely that an earthquake large enough to take out the gas lines would also take out the power lines. That would mean less reliability between that type of building — co-gen with electric utility back-up — than one with utility primary and back-up diesel generators with on-site fuel storage.”

Thus 365 Main abandoned its plan to harness alternative energy at the Newark facility, which opens next year. “For me, it’s frustrating. Everyone talks about the beauty of the intersection between business needs and green. Here we are bringing a real option to the table with tangible benefits, and all of a sudden, we’re back to using traditional energy sources,” says Kelly.

Notably, building a datacenter facility powered entirely by alternative energy isn’t an impossible feat. AISO.net runs entirely on solar power and has natural-gas-powered generators as backup. There’s also a connection to the local power company, Southern California Edison, for emergencies. According to the company’s founder Phil Nail, AISO.net offers 99.99 percent uptime.

Square footage and associated energy requirements, however, are a significant differentiating factor: AISO’s entire facility measures around 2,000 square feet whereas 365 Main’s Newark datacenter facility measure 136,410 square feet, 83,000 of which is raised floor. Going solar would have required a lot more land around the Newark facility, which wasn’t an option.

Despite their disappointment, Kelly and Balajadia are taking it all in stride and chalking it up to a potential learning experience for 365 Main and other companies; hence their decision to share their tale. “If we were building this facility in New England, New York, or New Jersey where energy prices are even higher [than in California] and there are dirtier power plants, we may be able to make the argument that [co-gen] is the way to go, not only from an environmental perspective but also from a cost-savings perspective,” says Balajadia.

The lesson in all this appears to be that, despite the interest in environmental stewardship espoused by so many companies, many of them aren’t as eager to push the green envelope if there’s even a minute risk to affecting the bottom line — in this case, what appears to be a very slight chance of downtime. Or perhaps it’s a case of needing even greater financial incentive to take the risk.

Whatever the case, it’s heartening to see that companies such as 365 Main that are not only willing to push that envelope — to risk $25 million and their reliability reputation — in order to reduce carbon emissions in the name of eco-friendliness. Moreover, it’s downright admirable and refreshing for them to share the story and its inherent lessons with the rest of the world. Here’s hoping their efforts aren’t in vain. I remain optimistic that they won’t be.

Ted Samson is a senior analyst at InfoWorld and author of the free weekly Green Tech newsletter.