Digital Realty’s Buying Power Beats the Heat

Amid peak summer demand, the data center REIT uses its scale to negotiate discounts in major markets.
Photo courtesy of Digital Realty

Data centers are well known for their high energy needs, and during times of peak demand like the current hot summer, an operator that can control costs has a leg up. Digital Realty aggregating portfolio demand in a half-dozen large markets to bargain with utilities. That strategy is paying off in spades this summer, as the San Francisco-based REIT is using its bargaining power to mitigate sharp spikes.

Across a significant portion of its North American portfolio, which encompasses 150-plus facilities in 22 major markets, Digital Realty is driving down costs by buying in bulk, company officials say. Six major markets, all with unregulated power markets, are the focus of Digital Realty’s strategy:  Connecticut, Massachusetts, Illinois, New Jersey, Texas and New York.

“Aggregating cumulative customer load demand across multiple Digital Realty facilities within a given metropolitan area enables us to obtain substantial discounts on our projected utility load for extended periods of time,” explained Erich Sanchack, the firm’s executive vice president of operations, in a statement.

Erich Sanchack, Digital Realty

Driving Discounts

Digital Realty’s energy procurement initiatives are paying off in varied markets.  A bulk-order strategy for its metro Chicago portfolio enabled the company to secure prices through 2022 that will be more than 20 percent below the current market rate.

The firm took a similar approach in Texas, where multiple factors are driving up costs. Taking coal plants offline has reduced the state’s generation capacity. Moreover, the long, hot summer is creating a spike in demand for air conditioning and other functions in the state’s major metros. As a result,  demand reached 73,000 megawatts this summer, a new state record, and prices per megawatt-hour maxed out at $184. Digital Realty negotiated discounted rates for much of its load in the Lone Star State, leveraging its scale and investment-caliber credit rating.

Digital Realty is also ramping up its commitment to renewable power. In December, the company struck a deal with Leeward Renewable Energy for 276,000 megawatt-hours of wind power that will supply its facilities in Chicago. SunEnergy1 will provide an additional 48,000 megawatt-hours of solar power for the firm’s data centers in Ashburn, Va. All told, the contracts will result in an 80 percent boost in the volume of renewable energy sourced at the company’s U.S. facilities.

Other data center operators are turning to renewables, as well. In July, Pacific Power and Invenergy announced that they would develop solar energy projects to power Facebook’s data centers in the Prineville, Ore., area.