How Energy Costs Can Affect IT

Wednesday Aug 9th 2006 by George Spafford

IT and organizations as a whole must recognize the risks associated with rising energy costs and take a proactive stance.

Our digital world floats on a sea of energy. Data centers and workstations are powered by electricity and countless trillions of bits traversing the globe are done so by electrons. Even optical networks and processors are made possible by electricity powering the transmission infrastructure.

It’s amazing to stop and ponder it all. Digital information technology today is so intertwined with electricity, that one must wonder how energy costs could impact our world.

“Plastics” was the advice given to a young man about to enter the workforce in 1967's The Graduate. “Energy” might very well be today's advice. The military-industrial complexes of the world know that having access to cost-effective energy supplies can make or break an economy. This is true not just from a manufacturing perspective but from an information technology perspective as well.

For IT, this is a critical debate. For one thing, large data centers can consume a megawatt of electricity per month, which can then translate to a $50 million annual budget. Urs Hoelzle of Google once noted that at 400 watts of consumption, a PC’s electricity expenses can add up to half the cost of the PC.

With expenses such as these, not only should IT be very interested in managing energy consumption in their organizations but also in understanding energy consumption at the national and global levels in order to manage the associated risks and leverage new opportunities.

The Invisible Impact of Rising Oil Prices

Globally, oil is an interesting case in point. It is in so many products ranging from plastics to tar and asphalt to lubricants and fuels such as heating oil, diesel and gasoline that fluctuations in its price has far reaching impacts.

Not only do we feel the pinch during our drives to and from work, but the logistics firms bringing new hardware, software and supplies to our organizations are pressured to raise their prices to cover increases in fuel and lubricant costs. Our people flying to training are onboard aircraft whose airlines are being hit by price pressures and rising oil costs in tandem. The costs of the asphalt in our roads, driveways and parking lots are increasing. The plastics in our computer cases, desks, and cars are also going up in cost.

These are but a few examples. All the while, our vendors are feeling the pressures to increase prices realizing that if a competitor can have a lower cost, then the business may well be lost. At the same time, as the costs to our organizations increase, so does the costs of the services we provide.

As the costs of oil increases, it causes demand for other energy sources to increase. As that demand increases, prices shift upwards as well. Not to mention that oil is involved to some extent in the processing and distribution of the other fuel. Oil may not be in coal, but the plastics, lubricants, paints, maintenance equipment and vehicles likely utilize oil to some extent. Again, as demand increases, prices increase.

Coal has long been a staple of low cost energy but then pollution concerns shifted production to nuclear power. The Three Mile Island incident on March 28, 1979, slammed the brakes on the building of new nuclear power plants in the U.S. Further fueling concerns over nuclear power, the April 25, 1986, accident at Chernobyl only served to make the public’s perception of nuclear power worse. These incidents served to push electricity generation back toward coal fired plants and also natural gas. With the increased natural gas prices, coal has shouldered a great deal of generation needs in both the United States and China – the world’s two largest energy consumers.

One issue is that these all are fossil fuels that are not renewable. Once we use them up, they will be gone. It may be in 50 years, maybe in 100 – there are many different estimates out there and some state that the exact extents of oil and coal reserves are unknown.

Of the fuel source listed -– oil, coal, nuclear and natural gas -- nuclear power has the best potential for providing clean power into the future. To do so, the industry needs to address perception issues and show how it has evolved in the last 27+ years in terms of efficiency, effectiveness, economy, and most importantly, safety.

Now, as the prices of the traditional fuels increases, the prices become such that research and development into new fuels becomes possible. At a $1 per gallon of gasoline, the desire for substitutes just isn’t pressing. At $3-$5 per gallon, the interest grows significantly from companies, consumers and governments. The invisible hand of the market, as Adam Smith called it, will push companies to evolve their offerings to try and get ahead of their competitors and this is just what we need.

Cooler-Running Equipment Needed

At the same time, we must beware of price controls and rationing. They always appear as political machinations to try to appease the populace, but they have extremely negative impacts. All things being equal, if you fix prices and/or try to ration out distribution, the net result is that energy producers will send their products elsewhere to maximize profits. In today’s world, if the U.S. fixes prices to consumers and China, or elsewhere does not, then the energy resources will go there.

Moving forward, we must break the cycle of increases in speeds, storage and networking causing increased power consumption. As concerned information technology practitioners, we must find ways to reduce power consumption in our data centers. We need more efficient, cooler-running equipment. We can very clearly see the linkage between power consumption and heat.

The more our equipment uses, the hotter the equipment is, the hotter the data center is and thus the larger the air conditioning systems are that we install that then also consume power. Moving outside of our data centers, workstations and other devices cause the same issues in the office environment.

IT and organizations as a whole must recognize the risks associated with rising energy costs and take a proactive stance. Not only must actions be taken within the firm to manage the risks, but the risk management must extend into the web of utilities, other businesses and government.

Today, we have local governments and entire countries realizing that they must be actively involved in the competition for scarce energy resources. Those who can secure lower cost energy and reduce their consumption requirements in concert will have a distinct advantage.

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