Digital Power Optimization plans 100 MW of behind-the-meter datacenters in Texas

Datacenter owner and operator Digital Power Optimization Inc. plans to build 100 MW of datacenter capacity connected directly to six wind farms in Texas, placing them behind the meter and thus avoiding certain costs and complications of wholesale power markets.

Digital Power Optimization (DPO) said "a major, multinational producer of renewable energy" owns the wind farms contracted under a power purchase agreement. DPO will develop and operate the onsite datacenters for an undisclosed partner.

"In this case, they're selling us power," Andrew Webber, CEO of DPO, told S&P Global Commodity Insights. "It's an arm's length deal where they're selling power to us as a third party. We have separate private equity capital coming in to fund the buildout of the facilities."

The project has funding for the first phase buildout at the initial site, according to Webber. Datacenter operations are expected to begin this year. Over the next 12 to 18 months, the remaining sites will come online.

Using behind-the-meter renewable energy provides benefits for both parties to the deal, Webber said.

"You're pulling direct power from the generation asset, so it's demonstrably clean energy" in comparison to virtual PPAs or offsets, Webber said. He added that costs can be lower behind the meter and that such placement for datacenters also reduces the need for new transmission infrastructure.

"If we set up directly on the asset, and we're behind-the-meter and we're pulling the power before it ever gets sent to the grid, you'd lose all of those demand charges and all of those incremental costs in transporting the power from here to here," Webber said.

Quicker timeline, lower build costs

He said the arrangement allowed DPO to pay "a couple extra dollars per MWh" to the energy company, but take advantage of the wind project's site and land.

"They let us use and connect directly to their existing substation," Webber said. "So, we don't have to apply for a permit to build a big 100-MW substation to run our 100-MW datacenter.

"The substation's already there because the wind asset needs it to dump that power into the grid. So, we can move faster. Our construction costs are lower because we don't have to build as much stuff as a brand-new site and the power is cheaper than if we just went [and] set up on the grid somewhere else."

Webber added that this also provides an additional investment opportunity for Digital Power Optimization's private equity partners.

In this instance, each wind asset site will have its own datacenter. Webber said that the six wind assets are producing about 1,500 MW total, so 100 MW is a small portion of their output.

He noted that it is important to size the datacenter relative to the size of the generation asset, so that little to no power would need to be pulled directly from the grid.

Webber said the datacenters will host a mix of bitcoin mining and advanced power computing datacenters which will be used for artificial intelligence training. Bitcoin mining requires an energy-intensive process to validate blockchain transactions known as proof-of-work. New artificial intelligence technologies have also spurred new demand for power.

"Some of them may be proof-of-work, where the intention is to turn them on and off and follow the production of that load or that generation," Webber said. "Others almost certainly will be AI training sites that will run pretty much consistently. And in those cases, if we do have a power shortfall from a lack of wind, we will pull grid power to keep that consistent, operating as a more traditional datacenter."

Webber said these types of datacenters can help energy management and energy arbitrage.

"We were never like bitcoin cheerleaders," Webber said. "We always looked at it and said 'this is a really cool energy management tool,' like that's it. The energy company should really be thinking about how to arbitrage stranded energy using this tool ... it's just a tool to get more money for your electricity."

Webber noted that rules and regulations vary by state, energy market, regional transmission organization and independent system operator, as do the conditions under which a power generator might be able to sell electricity to Digital Power Optimization. All are factors that the company has to take into consideration.

Texas' appeal

"Texas is a pretty easy state to do things along the lines of what we're doing, both from just the general business climate, but also from the energy regulations," Webber said. "It does allow us to do some things more flexibly."

Cryptocurrency miners have found Texas an attractive market, due to both the regulatory climate and the volatile energy prices that they can take advantage of by powering down their operations at times of high demand.

"They bring with them a lot of benefits to the grid, but there's certainly concerns about how much has been built in that market over the last several years," Webber said. "A lot of the Texas regulators have adjusted to that and then put in a few additional steps to get connected. If you're some sort of flexible load, you're going to be participating in demand response programs to curtail your activity when grid prices are high, so you can capture additional economic benefit there."

He noted that the project sites are in relatively unpopulated areas, so the regulations were more relaxed than in a major metropolitan area.

Webber said this is a model — either having energy producers build their own datacenters or for Digital Power Optimization to buy their energy, use third-party capital and create the datacenter — that also can be used in other markets, which the company is already doing.

"The idea of putting this computing load, any types of computing loads, in a more appropriate spot where there's a bunch of stranded energy is something that I think is really just now frankly starting to get traction, but I would say over the coming five to 10 years, I certainly hope that there'll be a lot more of this being done," Webber said.