Data Center Profits Spark Debate Over Cost of Electricity

August 22, 2013
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Space is usually one of the sticking points for tenants when considering whether a particular lease is right for them—and they often pay a premium for the opportunity to set up shop in a convenient, central location. But for some tenants, the most important thing isn’t the location of potential space—it’s the electricity the landlord can provide there. That’s why data centers—commercial buildings that house banks of remote computer storage for businesses that are located elsewhere—have grown since the 1990s, when they first popped up to provide space where tenants could plug in their servers.

Now, for data center owners and tenants, a main point of negotiation is the amount and price of available electricity, which is included in the lease for such space. These deals, which make landlords energy brokers of sorts, garner profits by essentially reselling access to electrical power. That’s sparked controversy in the industry, especially since data centers are taking advantage of their place in the real estate market by not being subject to restrictions placed on power companies that are turning a profit in the same way.

To avoid regulations that could diminish profits, many data center companies have sought Internal Revenue Service approval to organize themselves as real estate investment trusts (REITs) because they would save on corporate taxes without the pressure of being under the watchful eye of utility regulators who normally set prices for delivery of the power to businesses.

Over the years, some tenants that need data center services have owned their own facilities, but with constant advancements in technology and increasing power needs, businesses have been forced into leasing spaces run by professional companies that specialize in operating data centers instead. And that may be costing tenants that contract for access to more electricity than they ultimately use. Some real estate experts say that depending on their leases, data center owners could profit from their ability to make power available, regardless of whether it’s used by tenants.

 

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