Wednesday, July 20th, 2016

Time	Event
12:00p	Why Data Center Provider Switch is Suing Nevada and NV Energy Last week, Nevada data center provider Switch sued the state’s energy regulators and utility NV Energy, asking for $30 million in damages for getting what it feels was a raw deal on an agreement it made last year to buy renewable energy for its data centers. The lawsuit is just the last development in the conflict between the company, the utility, and the Public Utilities Commission of Nevada that’s been ongoing since at least 2014, when Switch started pursuing renewable energy for its enormous data center operations in the state, which include an existing campus in Las Vegas and another one under construction in Reno. The conflict illustrates a problem with procuring renewable energy for data centers – and other high-load energy users – that exists in many states across the country. Energy markets, regulations, and delivery systems for the most part have not been set up to enable these customers to get enough energy from renewable sources to satisfy their needs. As a result, companies have to resort to complex and costly workarounds, including registering subsidiaries as energy companies – something Google and Apple have done – and/or buying renewable energy in one state and stripping it of Renewable Energy Credits to make non-renewable energy consumption by their data center in another state “carbon-neutral,” all while lobbying utilities and regulators to create special pricing structures and new rules. (More on this here: Cleaning Up Data Center Power is Dirty Work) Data Center Knowledge recently asked customers of data center services how important renewable energy is in their data center selection strategy. Download results of the survey in full here:Renewable Energy and Data Center Services in 2016 Breaking Up is Hard to Do Switch’s problems in Nevada started when it wanted to untangle itself from NV Energy, which serves a good portion of the state. When the data center provider found a developer that would build a utility-scale solar farm and sell it energy, it wanted to switch from NV Energy being its primary provider to First Solar, the developer. Losing a customer as big as Switch is not a good thing for any utility. Data centers are energy providers’ dream customers. They buy a lot of energy, and their load remains constant over long periods of time, which means that serving them adds little to the overhead of managing the transmission system to ensure all customers get the electricity they expect from the utility. But a state law that has been on the books since 2001 allows customers that require 1MW or more to leave the state’s grid and buy or generate their own energy if approved by PUCN. Switch applied for such approval in late 2014 – it wanted to “unbundle” itself from NV Energy and tap into the national grid – but was denied. Switch Claims Renewable Rate Unfair The state’s reasoning for denying the application was that unless Switch was replaced by a customer with similar load, allowing it to exit NV Energy would harm the utility’s other customers. Switch asked for reconsideration and indicated it could go to court but many months later negotiated a settlement agreement with the utility. Under the agreement, the utility would buy energy from First Solar and sell it to Switch at a special renewable energy rate. This rate, or rather the difference between this rate and the much lower rate Switch believes it would pay if it was buying the energy directly from the solar farm developer, is primarily why Switch is suing. The state allows the utility to charge customers premium rates for renewable energy under its Nevada Green Rider program. Switch claimed NV Energy was paying 3.8 cents per kWh to First Solar, while charging Switch about 9 cents per kWh. On top of it all, the PUCN earlier this year authorized three huge casino and hotel operators in Nevada – the Sands, Wynn, and MGM – to do just what it prohibited Switch from doing earlier. They were allowed to unbundle from NV Energy and buy and use electricity from other producers, including those across state borders, independently. Why Sign an Unfair Agreement? As the company explains in its lawsuit, it signed the agreement because it had a deadline for closing its contracts with First Solar. The developer wanted to take advantage of a federal investment tax credit, which was approaching expiration. Had the contracts not been signed in time, First Solar would not have received the credit and presumably would not have agreed to start building the plant for Switch. PUCN has not yet officially responded to the lawsuit, while NV Energy issued a statement saying it would fight Switch’s allegations and calling them “baseless.” A Switch spokesman declined to comment for this story. Large Data Center Providers Seek Renewables Switch is one of three major US-based data center providers that have recently moved to secure utility-scale renewable energy purchase agreements to power substantial portions of their operations. Switch says it has signed for enough capacity to power all of its data centers. Its much larger competitor, Equinix, has secured renewable energy contracts that cover its entire North American footprint, while Digital Realty Trust, another global player, will power all of its colocation and interconnection facilities in the US with renewable energy. There are several reasons now is a good time for data center providers to buy renewable energy. Its costs have come down enough to effectively compete with energy generated by burning fossil fuels and more and more of their customers, especially their biggest customers, are interested in data center services powered by renewable energy. A recent survey by Data Center Knowledge showed that more and more data center customers consider energy sources when selecting data center providers, and that this consideration will only grow in importance in the future. More than half of respondents said data center providers and utilities should share the responsibility for ensuring data centers are powered by renewable energy. Download results of the Data Center Knowledge customer survey on renewable energy in full: Renewable Energy and Data Center Services in 2016 (Comment on this)
5:00p	Tech’s Old Guard Is Fighting Back, By Making Profits: Gadfly (Bloomberg Gadfly) — Tech companies that make business software are never going to match the glamour of their consumer counterparts. Facebook’s Mark Zuckerberg is a household name, but many would be hard-pressed to identify the bosses of SAP or Oracle even if we use their products every day. For investors, though, dull doesn’t have to be unattractive. As second-quarter results at SAP and Microsoft show, the old guard is doing alright despite a generational shift in how businesses buy and use technology. Cloud computing, which uses networks of internet-hosted remote servers to run technology tasks (rather than doing so locally), is forcing SAP, Oracle, Microsoft and others to overhaul products and business models. It’s given birth to fast-growing upstarts such as Salesforce.com, Workday, and Amazon Web Services, which offer less cumbersome subscription-based systems. See also: IBM Investors Get First Sign of Turnaround at Big Blue SAP and Microsoft began adjusting a while ago. SAP believes its sales of cloud-based software will be bigger than traditional products by 2018. It’s had 13 consecutive quarters of more than 30 percent growth from cloud services, excluding M&A effects. Microsoft sales in its cloud division rose 6.6 percent to $6.7 billion in the quarter. Revenue from Azure, the Microsoft platform that sells data center computing power and services, has doubled in two consecutive quarters. Nomura estimates that the cloud will account for about 30 percent of Microsoft sales by mid-to-late 2018 from just 5 percent in early 2015. CEO Satya Nadella (recognize him?) deserves credit for starting to fix Microsoft after predecessor Steve Balmer’s missteps, including the value-destroying buy of Nokia’s mobile phone business. See also: Microsoft Ramps Up Cloud Data Center Spend Of course, it’s early days in the cloud era. The old guard must still prove they can cut costs to protect margins, while being nimble enough to ward off those new rivals. Cloud services, sold by monthly subscription, are often less profitable than on-premise software. For SAP, the shift doesn’t mean it can ignore traditional products entirely. Investors are closely tracking adoption of its new S/4 Hana suite, a complex set of products sold mostly to big companies. Growth-obsessed investors favor Salesforce and its upstart kin since they were created exclusively to provide cloud computing services. Salesforce trades on 72 times expected earnings over the next 12 months, showing the faith people have in that growth. Yet while sales have quadrupled in five years to hit almost $7 billion, it didn’t make a profit over the period. Nor does it pay dividends. Boring old SAP (with a more modest P/E of 18 times), Microsoft and Oracle do. That’s a bonus in a low-interest rate world where yield is scarce. It might be time to brush up on those names. This column does not necessarily reflect the opinion of Bloomberg LP and its owners, or that of Data Center Knowledge and Penton. (Comment on this)
6:17p	Nadella: We’ll Build Cloud Data Centers Wherever Demand Takes Us One of the cloud’s early promises was that it wouldn’t matter to the users where the physical servers that store and process their data are located. While that’s still true for many users, as cloud providers tackle what they all say is the next wave of cloud adoption, its acceptance and growing use by big companies and government agencies, cloud data center location starts to matter more and more. Companies in heavily regulated industries aren’t free to store their own and their customers’ data anywhere they like, while the last several years have seen a stronger regulatory focus specifically on data sovereignty and data privacy in several countries, including Germany, Russia, and Brazil. This means cloud providers that want to ride that wave of enterprise cloud adoption have to ensure they have cloud data centers close to the companies they hope to serve. Microsoft execs confirmed this much on the company’s quarterly earnings call Tuesday. “The position that we have taken is that we want to serve customers where they are and not assume very simplistically that the digital sovereignty needs of customers can be met out of a fewer-data center approach,” Microsoft CEO Satya Nadella said on the call. “Because right now, given the secular trend to move to the cloud across all of the regulated industries across the globe, we think it’s wiser for us and our investors long-term to be able to meet them where they are.” In the year’s first calendar quarter, Microsoft reported one of the biggest spikes in data center spending in its history: a 65 percent increase year over year. It has been building and leasing data center facilities at a rapid pace, and today has more cloud data center locations than any of its rivals. Read more: Microsoft Ramps Up Cloud Data Center Spend The second calendar quarter’s results show that the investment is justified. Revenue from Azure, its cloud platform, doubled when compared to the same quarter last year, according to Bloomberg. Its annualized commercial cloud revenue was more than $12.1 billion in the quarter. Microsoft Azure today is being served out of 26 data center regions, and asked whether that meant the company was going to slow down its infrastructure expansion sometime soon, Nadella said there wouldn’t be a cap on the number of data center locations. “We’re not taking these positions of which regions to open and where to open them well in advance of our demand,” he said. “If anything, I think our cycle times have significantly come down. So it will be demand-driven, but I don’t want to essentially put a cap, because if the opportunity arises – and for us it’s a high-ROI decision to open a new region – we will do so.” See also: What Cloud and AI Do and Don’t Mean for Google’s Data Center Strategy Bringing online new cloud regions doesn’t closely correlate with the level of spending on data center construction, the company’s CFO, Amy Hood, added. A lot of this spending goes to increasing capacity in existing locations. This is true for Microsoft and other big cloud providers, such as Amazon Web Services, Google, and, more recently, Oracle. The enterprise-software giant has recently been expanding data center capacity aggressively as it makes attempts to grow its cloud business. During the second quarter, Microsoft and Oracle leased more wholesale capacity than anyone else in Northern Virginia, home to one of the world’s biggest data center clusters, according to a recent market report by North American Data Centers, a real estate firm that helps companies find data center space. Read more: Microsoft and Oracle Gobble Up Data Center Space in N. Virginia Entering a new market doesn’t always mean a nine-figure investment in data center construction. Cloud providers often start by leasing small footprints in data center provider facilities. Then, if the demand calls for it, they either take more space from their partners or build their own data centers. (Comment on this)
7:44p	Google Launches Its First Cloud Data Center on West Coast Google has brought online its first West Coast cloud data center, promising US and Canadian cloud users on or close to the coast a 30 to 80 percent reduction in latency if they use the new region instead of the one in central US, which was closest to them before the new region launched. This data center in Oregon isn’t the first Google data center on the West Coast. The company has had a data center campus in the Dalles, Oregon, for a decade. The launch means this is the first time Google’s cloud services are served out of Oregon in addition to other Google services, such as search or maps. With the new cloud data center online, the company said its cloud users in cities like Vancouver, Seattle, Portland, San Francisco, and Los Angeles should expect to see big performance improvements if they choose to host their virtual infrastructure in the new region, called us-west1. See also: What Cloud and AI Do and Don’t Mean for Google’s Data Center Strategy The launch is part of an effort Google kicked off recently to expand its global cloud data center infrastructure as it competes with cloud giants like Amazon Web Services and Microsoft Azure, both of whom are far ahead in the amount of cloud availability regions. The company said in March it would add 10 data center locations to support its cloud services by both leasing data center space and building its own facilities. One of the planned new cloud data center locations on the list will be in Japan, the company has disclosed. See also: Nadella: We’ll Build Cloud Data Centers Wherever Demand Takes Us The Oregon cloud region has been launched with three initial services: Compute Engine, Cloud Storage, and Container Engine, the company said in a blog post announcing the launch Wednesday. The region includes two Compute Engine zones for high-availability applications, which usually means there are two separate data halls, each with its own independent infrastructure. “A zone usually has power, cooling, networking, and control planes that are isolated from other zones, and most single failure events will affect only a single zone,” Google says on its cloud platform website. Oregon is Google cloud’s fifth availability region. The other ones are Central US, Eastern US, Western Europe, and Eastern Asia. A lot more detail about Google’s cloud data center strategy in this presentation by Joe Kava, the man in charge of the company’s data center operations: (Comment on this)

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