From pv magazine 6/24

Data centers come in many sizes. The largest, China Telecom’s Inner Mongolia Information Park, spans 100 hectares and consumes up to 150 MW per hour. North Virginia, in the United States, houses around 300 facilities in a grouping known as Data Center Alley, with each consuming about 10 to 50 times the energy per square meter of a typical commercial office.

Utility Dominion Energy was forced to pause grid connections for new members of Data Center Alley in 2022 and is now constructing new transmission lines to meet demand.

The United States has more than 5,000 data centers and consultant McKinsey & Company expects their power consumption to rise from a peak 17 GW/hour, in 2022, to 35 GW/hour in 2030.

Scaling up

Data centers are becoming more high density and power intensive but also more efficient.

“The hyperscale cloud providers all seem to be locked in an arms race to build out as much infrastructure as quickly as they can,” said Dan Thompson, principal research analyst at S&P Global Market Intelligence. “Some of this is high-density, high-performance, compute-type deployments, but a lot of it is also the cloud providers building out at scale. Densities in watts per square foot are rising, but I think what we’re seeing right now is just the tip of the iceberg.”

Data centers have a power usage effectiveness (PUE) ratio, which dictates how much energy is needed for computing versus other activity, such as cooling, lighting, and power losses. A PUE of 1.5 would indicate a data center requiring 500 kW of extra power for 1 MW needed for computing purposes.

S&P’s Thompson said power densities have fallen from an average 1.58 in 2020, as power density and cooling efficiency have risen. The lowest values, however, involve some trade-offs.

“The data centers we’re seeing built now are designed for PUEs of 1.3 to 1.4, so you can see some improvement there,” said Thompson. “That said, while they are designed for those PUEs, many factors could cause the building to never actually realize that PUE, depending on climate and operations. We have seen some constructions with a designed PUE of 1.15 to 1.2, however these facilities require the consumption of large volumes of clean water to reach those numbers. Given the issues around access to clean water, hyperscalers and the companies building data centers for them have tended to build slightly less efficient data centers for the sake of using very little or no water.”

Greener computing

The world’s technology giants are the biggest corporate power purchase agreement (PPA) buyers of renewable energy. On March 1, 2024, Microsoft and asset manager Brookfield signed a record 10.5 GW deal to deliver solar, wind, and “new or impactful carbon-free energy generation technologies” to Microsoft from 2026 to 2030.

Microsoft says its CO₂ emissions are now up 30% from when it set its 2030 net-zero target, in 2020, and mainly because of data centers.

“The rise in our scope 3 emissions [from third-party, supply chain companies] primarily comes from the construction of more data centers and the associated embodied carbon in building materials as well as hardware components such as semiconductors, servers, and racks,” said Microsoft, adding that the 10.5 GW renewables PPA is on top of a 19.8 GW clean power portfolio.

Simon Maine, managing director for communications, renewable power, and transition at Brookfield, told pv magazine that the deal was eight times bigger than any previous PPA.

“We have a very large renewable power and transition business, with over $100 billion of assets in that division alone, and 30-plus-years’ experience in the sector,” said Maine. “We look to either buy assets or, more recently and more likely, buy companies. The companies will have high-quality management teams that have a full spectrum of capabilities. We have projections to install somewhere between 5 GW and 7 GW per year [to 2030]. The deal with Microsoft probably covers about 30% of that growth and that’s without factoring in further acquisitions.”

Brookfield is reported to have acquired a majority stake in India’s Leap Green Energy for $500 million, and is also said to be preparing to acquire Australian renewable energy developer WindLab, which has around 24 GW of projects in development or under construction.

Anas Papazachariou, senior PPA manager at renewables developer Cero Generation, explained how colocation can meet data center energy demand.

“A single solution where solar meets the full increase from the growing number and size of data centers is probably not optimal and I have to be honest about that,” he said. “So a lot of the offtakers are looking to create virtual portfolios whereas wind and solar, and combined batteries, are part of their portfolio because they’re actually optimizing their profiles through that basis.”

Solar-plus-storage means more expensive energy offtake agreements, but reduced risk, said Papazachariou.

Efficient clusters

“Hyperscale” data centers are clustered for efficiency. Where latency is concerned, however, many other data centers, especially those serving internet and network services, are distributed closer to population centers. These are smaller and experience more variation in demand.

Mike Bates, general manager for the Intel Energy Center of Excellence, said data centers are using workload management software that can respond to real-time energy conditions. Intel is deploying software inside data centers to manage workflows and loads, while also tracking carbon footprints of workloads for audits by companies claiming low carbon or net-zero workflows.

“One of my customers is the [internal] Intel Data Center group and we work to deploy these same solutions we’re taking outside of the market, making sure that we’ve hardened data centers for climate impacts while opening up new opportunities as well,” said Bates. “For example, our software is also able to adapt workloads for certain conditions. If I can push a workload inside the data center to the times when energy is in surplus, I can actually get paid to consume that energy.” He added that energy resiliency also includes interruptions to supply, when considering climate impacts.

Ben Levitt – associate director for the gas, power, and climate solutions North American power and renewables research team at S&P Global Commodity Insights – highlighted the cost benefits of operating data centers with flexibility.

“Data centers with flexible operations – that is, interruptible, price-responsive – cost less to supply than ones that are less flexible,” said Levitt. “Data centers that are interruptible might even be able to get a faster grid connection. In addition, and separately, it is possible that big tech may drive investment in developing and scaling the new, ‘clean firm’ technologies needed for around-the-clock clean energy for their data centers.”

Levitt said new loads will lead to new renewables investment but fossil fuel generation, and increasingly batteries, will also pick up extra demand. Ultimately, a lot will depend on local bureaucracy and permitting.

Levitt added that it is possible big technology companies will play a role in scaling new clean technology. “These efforts could accelerate the development of newer technologies that could reshape energy supply mix at a faster pace than previously considered,” he said.

From pv magazine 3/24

In California, which represents half of the United States residential solar market, the third iteration of net energy metering (NEM) rules has reduced the payments made for electricity fed into the grid from new residential solar arrays by 75%, drastically changing return-on-investment calculations. The “NEM 3.0” rules took effect on April 15, 2023, for new solar customers, with existing solar arrays grandfathered into previous regimes.

While NEM 3.0 boosted the proposition for pairing batteries with solar, entry-level capital costs remain high. With interest rates rising over the past year, due to the U.S. Federal Reserve raising its target range for the federal funds rate, loans to help purchase and install solar panels have risen from historic lows to more than 5.5% in official rates – and to 8% and beyond from finance companies.

With loans expensive and incentives removed, Californian residential PV has been devastated. By late 2023, rooftop solar installations had fallen 80%, driving more than 17,000 layoffs – 22% of the industry. In February 2024, publicly traded installer Sunworks filed for bankruptcy following a 29.5% decline in quarterly revenues, year over year, for the third quarter of 2023, led by a 44.5% decline in residential PV. Sunrun posted a loss of more than $1 billion in its most recent quarter.

Deep Patel, founder and chief executive officer of California-based Go Green Solar, is chapter leader for the California Solar & Storage Association (CALSSA) in Los Angeles. He said NEM 3.0’s overnight change hasn’t just hurt solar uptake, it has damaged wider interest in PV, with online forums such as social media platform Reddit’s solar subreddit seeing plenty of complaints and questions.

“First of all, just on Reddit, a lot of people are confused [about whether solar] now makes sense or not,” said Patel. “There’s a whole consumer perception thing going on. Those people say, ‘If I didn’t get NEM 2.0, I’m not even going to look at NEM 3.0 rules.’ Or they say, ‘Hey, a battery can help me,’ but then they get sticker shock: A typical system runs you $20,000, but adding a battery on top runs you $40,000.”

“The American consumer finances everything and they just don’t have the capital to make big purchases. So even when those battery systems make sense, it might’ve been fine if interest rates were still at 2% but borrowing costs have risen. So they’re punting the decision down to when financing rates are lower. That’s causing stress with distributors and installers and so on.”

While the solar industry can somewhat cheerfully dub the dizzying highs and terrifying lows of the cyclical industry as all part of the “solar coaster,” the reality is grim when it comes to establishing a straightforward industry where people can rely on long-term warranties and support after a five-figure outlay that affects the value and appearance of their home.

Silver lining

The NEM 3.0 rules may eventually benefit key suppliers of residential power electronics – and also module-level power electronics (MLPE). The new rules in California incentivize both home storage and more advanced systems beyond earning feed-in tariffs, including solar self-consumption, energy storage, electric vehicle charging, and more. Achieving those features requires more advanced MLPE products from makers such as Enphase, SolarEdge, and others. The short-term downturn is particularly tough, though, given the state’s oversized contribution to the United States residential market.

Liam Coman, solar analyst at S&P Global Commodity Insights, told pv magazine that the situation is tough but not a disaster. “S&P Global predicts MLPE shipments to be down by 4% in 2024 but to grow long-term, out to 2030,” he said.

Data from the company show that global microinverter and power optimizer shipments grew 19% in 2023, to a record high of 26 GW, as non-United States geographies held up well.

While a drop from record highs isn’t inherently disastrous, the industry’s growth-dependent model is the problem for companies heavily invested in United States residential solar. Companies rely on increasing quarterly sales, leaving them vulnerable to overstaffing and excess inventory during downturns.

“High inventory levels and a slowdown in residential demand, particularly in California following the introduction of NEM 3.0, has had a twin negative impact on MLPE suppliers in the US since the second half of 2023,” said Coman.

MLPE woes 

Two of the United States’ largest solar MLPE suppliers, Enphase Energy – based in Fremont, California, and SolarEdge, headquartered in Herzliya, Israel – heavily target the residential market with advanced inverter and optimizer solutions. Both supply installers and companies, including Sunrun, leaving them exposed to the current United States residential downturn. 

Although other markets show better results, SolarEdge said it would cut 900 jobs – 16% of its workforce – while Enphase cut 350 roles, or 10% of its staff and said it would cease operations at its contract manufacturing locations in Timisoara, Romania, and in Wisconsin, in a blow to manufacturing. 

Sophie Karp, senior analyst for electric utilities, power, and renewable energy at KeyBanc Capital Markets, agreed with that assessment. “We believe that once channel inventory levels normalize, Enphase and SolarEdge should both grow at a rate similar to the overall growth rate in mature markets,” Karp said. “However, we do not expect this normalization to become apparent until mid-2024 at the earliest.”  

Karp also pointed out that the issues being experienced by the segment are not indicative of wider problems in solar.  

“I don’t believe the issue with Enphase and SolarEdge is indicative of the performance of the solar industry as a whole,” she said. “Both cater heavily to the residential solar market, a niche subset of the solar industry which experienced a “perfect storm” of adverse regulatory outcome and rapidly rising interest rates in a relatively short period of time. I believe that in the medium- to long-run, residential solar with storage will continue to present an attractive value proposition for homeowners in the US.”  

Biju Perincheril, an analyst at trading firm Susquehanna, agreed, noting that issues are improving outside California to an extent.  

“Recent permit data appear to show non-California markets are stabilizing,” said Perincheril. “This is consistent with recent commentary from Enphase. Of course, the California recovery is still a wildcard.” The analyst said the latter half of 2024 should see a recovery but it may not be equally weighted. “We think the recovery for SolarEdge could be slightly behind Enphase and, therefore, [we are] modelling a larger year-on-year revenue decline for SolarEdge this year.”  

Supplies squeezed  

SolarEdge appears to be facing more consistent pressure than Enphase, from analysts such as Perincheril and on the stock market itself.  

A November 2023 industry note from Phil Shen, managing director of Roth Capital Partners, said that an installer in the United States was shifting from serving 50% Enphase inverters and 50% SolarEdge inverters, to an 80% Enphase, 10% SolarEdge, 10% Tesla split. The quoted reason: “When we asked about why the move away from SEDG [SolarEdge], he shared that the higher failure rates have been a challenge.”  

Those reliability concerns continue to pop up in reports and online. On forums including Reddit, Go Green Solar’s Patel is one of many active participants, with the company founder freely providing advice for interested people and answering questions on topics such as “Need advice on batteries?” or “Best value inverter?” as well as about panel and inverter makers, including SolarEdge.  

Patel, when asked about his experience with the Israeli company, said his business, which has been active in the industry since 2006, had gradually transitioned away from SolarEdge, starting around four to five years ago.  

“We used to sell a lot of SolarEdge … but SolarEdge for us started slipping in terms of customer support, quality, and turnaround times,” said Patel. “Lead times got very long at one point during the pandemic. The downside with SolarEdge is that when the inverter doesn’t work, the whole system is down, so that wasn’t good for customers and we haven’t really been back to SolarEdge again.  

“The value proposition SolarEdge offers [via attractive pricing] isn’t there for us. You also have other inverter guys nipping at the heels – you have Sol-Ark now, and GoodWe now has a residential string inverter with four MPPT [maximum power point tracking] trackers in the US, which is great. Even Tesla is coming on strong, no longer just going direct to customers but letting installers sell it for them.”