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By Alexandra Felekis, Partner, Bowmans
Data centres consume enormous amounts of electricity, and in a country like South Africa where supply is already high on the list of business concerns, energy is understandably a major factor that investors and developers must take into account.
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What has become increasingly clear is that there is no single energy solution. A portfolio of energy sources is needed to generate the sheer volume of electricity to run a data centre and to ensure that there is a continuous and uninterrupted supply while achieving a reduction in carbon emissions.
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In South Africa’s increasingly market-friendly energy landscape, it is possible to meet all these requirements, provided data centre investors and developers thoroughly consider the different options and their advantages and limitations.
What is the optimal energy mix?
Both fixed and backup power sources, comprising conventional generation and renewables, are needed to provide a sufficient, continuous, sustainable supply of power.
Under South Africa’s current regulatory framework, the fixed energy source would either be Eskom or a municipality providing the volume of power required. Securing a connection and access is a long and complicated process, but once that access is in place, half the battle is won.
However, Eskom or municipal power is generally coal-generated baseload electricity, so it is not sustainable. There is also no guarantee of security of supply – users can easily be load-shed or curtailed. This is why backup power is so important, as is the choice of backup fuel sources, whether gas or diesel, or renewables, or both.
Depending on what the fuel source is, the key component of sustainability might be missing from the mix. Using batteries that are charged by solar PV as backup would contribute to sustainability, while using generator sets charged by gas or diesel would not.
Having decided on the sources of energy for backup, the data centre investor or developer needs to decide whether this electricity should be generated onsite or offsite through wheeling.
Which is best – onsite or offsite?
For onsite generation, the data centre site must have sufficient renewable resources (solar irradiation or wind) and enough space for the backup energy facility, either on the rooftop or on adjacent land. This is not always possible, but if it were, the advantage would be lower consumption of electricity from Eskom and, therefore, lower overall electricity cost.
With onsite generation, developers also face another set of choices: whether to self-provide or to enter into an onsite power purchase agreement (PPA) with an independent power producer (IPP). The IPP then takes the financing and operating risk, and all the data centre owner has to do is buy the electricity for a set tariff over a set period.
The flipside is that the risk allocation in the PPA has to be bankable, which means the customer is required to make certain undertakings, such as having a very high level of credit support and paying a penalty for early termination of the PPA.
Enter wheeling
Ten years ago, there was an abundance of on-site generation projects in South Africa. That has changed in the past few years as the regulatory framework has evolved, with Bowmans alone working with clients to close more than 5 000 MW of wheeled energy, mainly through trader-led procurement.
Major benefits of wheeling are that the supplier, whether an IPP or trader, bears the operational and capex risk and enables the customer to accrue environmental attributes as the wheeled energy is typically generated from wind or solar sources.
Another advantage is geographical flexibility. The supplier can wheel energy from a wind facility in the Eastern Cape, for example, to a customer in Gauteng or Limpopo.
It is important to note that wheeling does not provide security of supply, however. This is because the energy ultimately delivered to the data centre is Eskom or municipal energy, transmitted via the national grid.
What wheeling does have is a cost reduction advantage. Eskom has agreed that for every kilowatt hour exported into the grid for the benefit of a customer, that customer receives a credit on their electricity invoice at the wholesale electricity price.
The bottom line – strategies must be flexible enough to accommodate change
In two or three years’ time, in terms of South Africa’s electricity legislation, the country will move from an Eskom-reliant, vertically integrated electricity structure to a hybrid multilateral structure. This will entail the introduction of a trading platform where customers will be able to buy energy on a day-ahead or intra-day basis.
That means less reliance on Eskom and municipal distributors in terms of electricity supply (although not, unfortunately, in relation to grid access).
Ultimately, building an energy-efficient data centre in South Africa requires an energy strategy that is flexible and evolves with the regulatory framework and changes in technology.
As the country shifts towards a liberalised energy market and as technology advances, data centre investors and developers must balance the immediate realities of grid reliance with the long-term advantages of wheeled renewable energy and rapidly evolving innovation in the sector. Those who are able to do so will have a competitive advantage in powering Africa’s digital future.
