Neuwing, IBM to Quantify and Monetize IT Energy Savings

November 5, 2007 Timothy Prickett Morgan

Server and storage maker IBM has partnered with New York-based Neuwing Energy Ventures, a specialist in renewable energy and related energy certifications that is owned by a large private equity firm with holdings in real estate and energy companies, to come up with a scheme that will allow companies to document and benefit from increasing the energy efficiency of their data centers.

As we all know by now, chief information officers and facilities managers at large companies that have data centers hogging a lot of electricity to process transactions and cool machinery are under increasing pressure from two ends. One is to provide more computing power in the same or a smaller physical data center and the other is to consume a lot less power by moving to newer, power-efficient server and storage technologies. With the data center often being the low-hanging fruit a company in terms of saving energy, companies that are trying to be socially and ecologically responsible are also keen on making data centers more efficient, which meets the goals of the IT people and the bean counters.

Some companies that are going green also want to be able to brag about how much energy they are saving, or to figure out how to assess the carbon they have prevented from being released into the atmosphere by a data center maker over (thereby gaining carbon credits, which can be traded with other companies). Another approach–and one put forth by Neuwing Energy Ventures, is to certify how many megawatt-hours a company saves in a project and then giving a company what is called an energy efficiency certificate. Just like you can brag about how much you have reduced your carbon footprint, you can brag about how many kilowatt-hours you didn’t use, and the latter approach has the virtue of being directly measurable before and after a project–say overhauling a data center–is completed. There is a bit of a black art in calculating carbon credits, since you have to make assumptions about how the electricity used was generated and how much carbon was not pumped into the air.

Rich Lechner, vice president of IT optimization and systems software at IBM, says that IBM has already had engagements with thousands of customers since launching its “Big Green” energy efficiency initiative in May, and he cites figures from analysts at Gartner to show the magnitude of power consumption globally among the data centers and data closets of the world. According to Gartner, the world’s servers and storage will consume roughly 180 billion kilowatt-hours in 2007, which is about as much energy (converted to electricity, presumably) as the entire aviation transportation industry uses in a year. Moreover, if present trends persist, the amount of electricity used by IT organizations aggregated on a global basis will double in four years. That is not, according to many experts, a sustainable option, and even if this burden could be born by corporations, it is not desirable.

Neuwing and IBM are working together to help companies reduce their energy consumption by offering energy efficiency certificates for Big Blue’s servers and storage. The System z mainframes get certified now, followed by System p AIX servers this year and IBM’s System i proprietary machines, System x X64-based machines, and storage arrays in 2008. The certifications are available in the United States now, but will be available in Europe next year as well, and presumably throughout the rest of the world at some point. To get certified, Neuwing comes in and sees how much juice you are burning. Then IBM comes in and consolidates servers and storage to reduce the physical and energy footprint, followed by a new assessment from Neuwing. The amount of kilowatt-hours saved goes on a certificate, which you can brag about in your annual report and elsewhere to show your green cred, or you can trade those certificates for money with state or national governments or with other companies for cash who are trying to buy up green cred that they cannot deliver with their own operations.

Lechner says that in the United States, the states of Pennsylvania, Nevada, and Connecticut have mandated that a certain percentage of the electricity capacity “generated” by utilities has to come through efficiency gains. (Generated is in quotes because it is really a decrease in demand, not an increase in juice.) To make it worth it for companies, Connecticut has a floor of $10 per megawatt-hour and a ceiling of $31 per megawatt hours, and for a company that might consolidate 100 X64 servers onto a mainframe and thereby eliminate 9,000 megawatt-hours of juice, that works out to $90,000 to $279,000 in cash. The United Kingdom, Belgium, and Italy have similar certificates-for-cash schemes, and others will clearly follow suit. The other option, says Lechner, is the open market, where companies are paying anywhere from $2 to $10 per megawatt-hour for energy efficiency certificates.

The important thing about certificates is that they are perpetual; you get to claim the same benefits next year, and the year after. Moreover, they are also cumulative; if you start with a data center with 100 X64 servers and move to a mainframe, and then double the processing capacity of the mainframe, you get credit for not having 200 X64 servers. When you do the math this way, the certificates can start to really add up.

Obviously, such certificates are not the main driver of changes in the data center with regard to power and cooling. Cutting operational costs is a much bigger deal for most companies, first and foremost actually cutting back on the 10 cents to 14 cents per kilowatt-hour that most companies pay for electricity. (Residential rates are as much as twice that high after all the fees and nonsense the power companies add, in my experience on the East coast.) “For every dollar in energy savings companies see in such projects, they are seeing another $9 to $10 in other operational costs in their data centers relating to reduced labor, software, hardware, and facilities costs,” says Lechner. Such savings will be a big deal at companies that are heavy with computers, such as financial services firms, and less so at companies with less IT cost relative to other costs, say at manufacturers.

Finding out information about Neuwing Global, the parent company of the energy subsidiary IBM has partnered with, turns out to be a bit tricky. I searched the databases of the New York Times back through 1981 and there is not one single citation for the private equity firm; ditto for The Wall Street Journal. When the company says on its Web site that it is “operating ‘under the radar screen’ of the global and transnational competitors,” it ain’t kidding. The Neuwing Real Estate division of Neuwing Global is, nonetheless, behind a very large number of key real estate players, some of which I recognize from the local New York City news. The company’s top executives started a company called Longwing Real Estate Partners in 2003 with the financial backing of Dubai Investment Group, which is just one piece of the Dubai Holding company that invests wealth of the families who control that oil producing country. Neuwing Real Estate is a big investor in another release estate investment company called Forest City Ratner, which is trying to rebuild the Brooklyn Atlantic Navy Yards and move the New Jersey Nets basketball team to the area. Like other private equity firms, Neuwing is hooked into so many other equity firms (usually in some kind of real estate) that it is hard to determine who owns what.

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