Can fuel cells find a home in the data center?

A few weeks ago at a ribbon cutting in Cheyenne, Wyoming, Microsoft officially announced that biogas was flowing to fuel cells to power its experimental data center there. The data center is located by the Dry Creek water treatment plant and has direct access to biogas harvested from the facility to power the fuel cells that are in turn powering its data center. The whole system is completely renewable.

“We’re cutting the cord from the electrical grid. That doesn’t mean that we are never going to connect another data center to the electrical grid. The point is now we have another option,” says Microsoft’s Data Center Research Manager Sean James. “It’s also a very clean option.”

Fuel cells have been around for decades and in many ways have been a technology in search of an application and a market. We’ve seen them tested and deployed in transportation, and megawatt scale fuel cell parks are trickling into the utility market. But there are now signs that they may in fact be best suited for data centers.

Data centers are mission critical infrastructure. They cannot afford downtime. Moving to fuel cells allows for grid independence while still maintaining the option to access the grid as backup. In conversations with eBay and fuel cell maker Bloom Energy both have noted to me that the analysis they’ve examined says the natural gas grid is more reliable than the electrical grid.

Is the price right?

But perhaps as important as reliability is cost and future pricing visibility. Utility power prices continue to tick north, slowly but steadily, in most states. Data centers would love to be in greater control of what they pay for power ten or twenty years into the future. Fuel cells mitigate that risk. Yes, natural gas powered fuel cells are still vulnerable to price swings but data center operators can hedge natural gas pricing up to ten years out. And fuel cells take other costs, like electricity transmission and distribution, out of the equation because power is generated on site. (For a deeper analysis of the opportunity for fuel cells in the data center, see my full Gigaom Research report on the topic.)

Fuel cell power is in the neighborhood of 12 to 13 cents per kilowatt-hour right now. That’s still a far cry from dirt cheap 4 to 6 cents per kilowatt-hour power in North Carolina and Washington State, where the likes of Apple and Microsoft have gone to locate their data centers. But in regions like the Northeast and California, where electricity prices are much higher, fuel cell costs are competitive. Fuel Cell Energy, the maker of the fuel cells at the Microsoft data center in Wyoming, has said its goal is to get to 9 to 11 cent power in the future.

Fuel cell power is only renewable if the natural gas is biogas, harvested from the likes of dairies and wastewater treatment plants. They are required to flare their natural gas rather than release the potent greenhouse gas methane into the atmosphere. (Fuel cells could also run on the natural gas that is flared during fracking though this would somewhat defeat the sustainability purpose.)

Microsoft’s project is forward looking and an impressive attempt to prove that locating a data center by a source of biogas could create a loop that is carbon neutral. If it helps spawn a new data center market for fuel cells in the process, the likes of Bloom Energy, which has raised over a billion dollars in venture capital, and Fuel Cell Energy, which is slowly inching its way toward profitability, would be thrilled.