Data centres are on a rapid increase with more AI usage, and with global companies such as Microsoft, Google, Meta, and Amazon aligning their growing energy usage with their data centres. With their notorious water and energy use, data centres are a large and worrisome energy cost. Businesses need to balance the growing energy usage with corporate sustainability goals, while also ensuring that they don’t put communities at risk that are near large data centres.
One of these solutions may be VPPAs (virtual power purchase agreements). This article will explain why data centres take so much energy to run, what a VPPA is, and how they can help curb the energy usage that data centres are increasing.
What are VPPAs, and how do they work?
A VPPA (virtual power purchase agreement) is a financial transaction in which the energy buyer receives environmental attributes such as renewable energy credits (RECs) tied to a specific amount of electricity generated by a renewable energy project. However, the buyer does not physically receive the electricity; it instead flows to the grid, and the buyer continues to power their facilities with electricity from their local utility. If done this way, the buyer’s electric load doesn’t require being near the renewable project and can be aggregated across multiple facilities. Decoupling facility load from energy projects makes VPPAs a popular renewable energy solution for organizations that have facilities that are spaced out across countries or continents.
A single VPPA contract can power 100% of facilities with renewable energy, significantly adding more to the grid. Organizations can use a VPPA to incorporate renewable energy into sustainability strategies and meet decarbonization targets as well. Renewable energy partners, such as Enel, as an example, have expertise and projects across North America and can offer VPPAs in a region where they will have a meaningful impact.
The difference between a VPPA and a physical power purchase agreement is that:
- A VPPA is a purely financial transaction, where the energy buyer receives just the environmental attributes, RECs, associated with energy generated by a renewable energy project. The electricity from the project flows to the grid, and the buyer does not physically receive it.
- In a physical (or traditional) PPA, the energy buyer takes physical delivery of the electricity generated by the renewable energy project in the same energy market.
VPPAs allow facilities that are spread out geographically to support renewable energy projects while also meeting their emissions reduction targets, even if their operations are not directly connected to the renewable energy source.
Why do data centres consume so much power?
Data centres consume a staggering amount of water to keep their systems cool. Thermal pollution is a real problem with them, as the water used to keep the thousands of servers cool is a very high amount. A closed-loop system where the water is cycled through would be ideal for data centres, where it goes through cooling towers to be reused, as opposed to needing to continuously add more and more water for power and cooling. Currently, there are not many regulations on how data centres use their power and the limits that come with their use, which is where VPPAs can help curb their energy overuse. Especially as AI data centres become more prominent with companies pushing AI usage, it’s imperative to learn about the different ways that companies and businesses can help reduce their environmental footprint, and to help use sustainable energy while dealing with large data centres.
Data centre developers are still increasingly tapping into freshwater sources, which also puts communities at risk. Large data centres can consume up to five million gallons of water per day, which is equivalent to the water use of a town populated by 10,000 to 50,000 people, as an example in comparison. With AI-focused data centres, this water consumption is increasing alongside energy usage and carbon emissions. Newer technologies, such as direct-to-chip cooling and immersion cooling, can reduce water and energy usage for data centres.
How can VPPAs cause data centres to be less energy hungry?
Virtual power plants can be developed quickly to help with data centres’ demands, but reaching the scale required to meet the load growth will take a lot of work. A VPPA offers a compelling way for businesses to access renewable energy, achieve sustainability goals and decarbonization targets, reduce financial risk, and enhance their reputation, all while supporting local communities – instead of hindering them. Data centres can meet sustainability goals, or at the very least can advance their GHG emissions reduction targets. In addition, joining suppliers in procuring renewable energy via an aggregation (aggregated PPA) can help address scope 3 emissions as well.
VPPAs allow organizations to purchase RECs associated with a specific amount of renewable energy generated and sold by the project. This enables them to claim the environmental benefits of renewable energy without needing physical delivery to the site. Also, just one VPPA contract can help meet upwards to 100% of renewable energy needs by aggregating load across multiple geographically dispersed facilities. Stable energy costs are also available with multi-year contracts, which can be customized to meet the needs of the data centres and how much energy is needed for it to be sustainably used.
Data centres receive RECs equal to their purchased energy, ensuring transparency. As an offtaker for new renewable energy projects, there are benefits from additional and project-specific marketing rights. To enhance regional impact, renewables are being added to the local power grid where the facilities are located to help support local communities. They can even maximize emissions reductions by investing in projects targeting regions with fossil fueled based grids, instead of adding renewables in regions where that is already rich into the grid, such as places that have an abundance of solar or hydro power.
Data centre statuses within Canada
According to the Data Centre map and from our own research, currently, Canada has 284 data centres listed, from 36 different markets. Major data centres are in Toronto and Montreal, a large amount in BC and Ontario, with more data centres peppered throughout the country in all provinces, with Newfoundland and Labrador being the only province without a data centre.
Driven by AI, cloud services, and more data, such as in Montrea,l where film and video game studios are located and a large market Canadas data centres have been and are growing steadily, seeing rapid growth. Significant global investment and a push for sustainable energy, while more data centres go up, are being discussed, and solutions such as VPPAs are crucial to their status. Vancouver, Toronto, and Montreal are major investment centres as well, with Quebec and Ontario having the most increased energy demand, with AI being a massive driver to these data centres.
Top operators and key cities currently in Canada for data centres are:
- EStruxture
- Cologix
- Vantage
- Equinix
- Digital Realty
Major companies that are heavily investing in the Canadian market:
- Amazon AWS
- Microsoft
These companies, with the additional funding from the larger corporations such as Microsoft, Amazon, and Google, mean that more data centres will be popping up as time goes on and hopefully, with more regulations and things such as VPPAs, it will become less of an environmental problem.
Energy solutions beyond VPPAs
With the increasing demand and cost of energy, securing a cost-effective plan is essential for your home and business. At EnergyRates.ca, we walk you through available options for electricity and natural gas for large commercial and industrial facilities.
As Canada’s leading energy rate comparison website, our team is highly knowledgeable in multiple energy plans, custom quotes, and contract reviews, available to provide you with essential industry-related information for financially smart energy decisions for your business.
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