Seeking Alpha
Long/short equity, small-cap, tech, solar
Profile| Send Message|
( followers)  

Summary

  • Apple announces a third solar farm in North Carolina.
  • Global data center growth is very electricity intense.
  • Solar and data centers could substantially reduce electricity expenses in data centers.

Apple (NASDAQ:AAPL) is known for its promise to consume electricity from 100% renewable energy sources. Apple's 2014 Environmental Responsibility Report reported that Apple is now running on 73% renewable energy (solar, wind, hydro and geothermal). If we exclude the retail outlets than Apple is running on 94% renewable energy.

Recently, Apple announced that it had signed a deal to set up a third solar farm near its North Carolina data center. The latest plan is to build a 17.5 MW solar farm on a 100-acre parcel.

I did some thinking about Apple's plans to show its shareholders that behind the much talked about "helping the environment" cause, there is actually significant value for shareholders in Apple's renewable energy plans.

Apple has four data centers, located in Oregon, North Carolina, Nevada and California. These four data centers consumed 324 million KWh in calendar 2013. This is the equivalent power consumption of 30,000 American households for an entire year.

Data centers are becoming an ever-increasing burden on global electricity capacity. It was estimated that, in 2010, data centers consumed about 1.3% of the total global electricity, or about 200 TWh (terawatt hours). According to certain forecasts, that will increase x7 to 1,400 TWh by 2025, which will be approximately 5%-6% of total global electricity consumption.

The ever increasing power consumption by data centers is clearly related to the exponential growth in digital data creation and storage.

Taking Apple as a case study, the electricity consumption of Apple data centers grew from 138 MWh in 2011 to 324 MWh in 2013, a 135% increase in just three years. If we assume that Apple paid the commercial electricity rate in the four states it owns data centers, we get the following:

State

Oregon

Nevada

California

North Carolina

Average

April 2014 average commercial electricity rate

$0.0881

$0.0960

$0.1311

$0.0876

$0.1007

Source: EIA database.

If we plug in $0.10 per KWh to the electricity consumption of Apple's data centers, we get:

Fiscal Year

2011

2012

2013

Consumption in KWh

138 million

217 million

305 million

Electricity Bill

$13.8M

$21.7M

$30.5M

Source: Apple's 2014 Environmental Responsibility Report

We can see that the electricity consumption of the Apple data centers amounted to $66M over the past three years. If we assume that, over the next 25 years, electricity consumption will grow at a modest 15% CAGR, we arrive at some conclusions.

With just a 15% CAGR, Apple will have an $873M electricity bill for its data centers 25 years from now - with a consumption of 8.3 billion KWh related to its data centers in 2039. If we sum up all of the electricity expenses related to Apple's data centers in the next 25 years, we come up with $6.5B.

Apple Data Centers Electricity Sources

North Carolina

Apple has two 20 MW solar farms around its Maiden, North Carolina, data center. The recent deal will bring another 17.5 MW solar farm online.

Source: Apple's 2014 Environmental Responsibility Report

The North Carolina data center consumed 168 million KWh in calendar 2013. The combined 40 MW solar capacity provided about 60-70 million KWh, and the reminder came from fuel cells, using biogas.

Nevada

Apple is developing a 20 MW solar array to produce about 40 million KWh for its Reno, Nevada, data center, which is currently under construction. The array is expected to be operational by 2015. Until then, Apple is purchasing geothermal electricity from the local utility company.

Source: Apple's 2014 Environmental Responsibility Report

California

For its California data center, which consumed 129 million KWh in 2013, Apple is purchasing wind power electricity from the local California utility.

Source: Apple's 2014 Environmental Responsibility Report

Oregon

The Oregon data center is smaller than the others. It consumed just 21 million KWh in 2013. Apple is building a micro-hydro system to generate power from water flowing through local irrigation canals. By the end of this year, the project is expected to supply most of the power needs of the data center.

Until it is operational, Apple is purchasing wind power via the local Oregon utility company.

Source: Apple's 2014 Environmental Responsibility Report

Helping the Environment, and the Shareholders Too

Thinking of the long term, I believe Apple recognized that the electricity consumption of its data centers would cost the company billions of dollars in the coming years and decades. By building renewable energy projects near those centers, Apple will reduce that cost by a significant amount.

Currently, Apple has 77.5 MW of solar projects, either completed or under construction, near its data centers. I expect that investment to repay itself in about 13 years (that number could come down, but Apple chose to work with the more expensive SunPower (NASDAQ:SPWR) panels).

Taking a 25-year time-frame, those 77.5 MW will save Apple about $150M in electricity bills for the data centers. As they grow to serve the incredible growth in data creation and consumption, I expect Apple to continue to build more solar arrays around its data centers.

Apple's original plans involve two huge 500,000 square foot data centers in Maiden, NC.

Source: Macrumors.com An architectural rendering of the original Maiden, NC blueprints.

I believe that the recent announcement regarding the third 20 MW solar array is part of Apple's move to continue with the construction of the second data center. Ultimately, as Apple expands both the data centers and the solar arrays to support them, I expect Apple's solar arrays to save the company billions of dollars over the next few decades.

Conclusion

Although many Apple shareholders might think that it is from an altruistic driven point of view that Apple is throwing away a pile of cash to save the planet, the numbers show that Apple is getting ready to save hundreds of millions of dollars in the coming years. With each MW of solar array that Apple builds, its electricity bill goes down. The cash investment to do so will repay itself in 10 to 13 years.

Given that, in 25 years, the current data growth and consumption forecasts suggest that Apple might see a 8.6 billion KWh electricity consumption related to its data centers, up from just 300 million in 2013, that electricity bill could amount to $860M per year. The savings will ultimately increase Apple's net income, which will benefit shareholders as well.

I expect that many other data center owners will all pursue the same path, as they too realize that their electricity consumption will be a heavy burden on their business in the near-mid future. Building solar arrays and other renewable projects to support data centers will result both in higher profits and in high IRRs achieved from a project point of view.

So, the next time you take a picture of your cat and upload it to your iCloud account, think of the solar-powered data center that stores it.

Source: Apple Solar Frenzy: Benefiting Shareholders And The World Alike