Why data center provider Digital Realty is offering green leases to customers
Green leases, sometimes referred to as "energy-aligned" leases, create mutually beneficial arrangements for building owners and tenants by aligning the costs and benefits of energy and resource efficiency investments by both parties.
The Institute of Market Transformation (IMT), in partnership with the U.S. Department of Energy's Better Buildings Alliance, tracks portfolios that use green lease standards. By their count, more than 1.3 billion square feet of cumulative floor area in the commercial, industrial and retail sectors has been adapted to green leasing best practices.
Last year, Digital Realty launched an effort that seeks to bring green leases — and their related benefits — to the wholesale data center industry for the first time in a formal way. The goal is to drive greater adoption of energy efficiency, renewable energy and green building best practices across the company’s portfolio of more than 200 data center properties. (Editor's note: Digital Realty already ranks as one of the industry's greenest operators. Its facilities are home to cloud infrastructure for many big-name companies, including AT&T and IBM.)
If you work in an office building in a major city, there's a good chance your landlord has adopted at least some green lease provisions. Typical elements include:
- Communications: Customers have a point of contact for sustainability and energy-related inquiries and that information is shared on a regular basis. This includes power use, sustainable best practice standards and energy performance labeling such as Energy Star scores. This extends to brokers that play a role in communicating the value of the property to tenants.
- Data: It's cliché at this point but it’s also true that "what gets measured gets managed." Separately metering and tracking energy and water consumption provides a starting point for improving efficiency, with municipal energy benchmarking regulations being adopted in more markets. According to the IMT, as of 2017, 25 of the largest cities in the United States, plus the entire state of California, had adopted building energy benchmarking policies.
- Cost-sharing: A mechanism that ensures both landlord and tenant are incentivized to support energy and water efficiency projects that deliver measurable savings during the tenant’s lease term.
- Minimum design standards: A baseline expectation for tenant fit-outs that are consistent with the standards to which the shell building was designed and is being operated. An energy-efficient shell building will not perform to its capability if tenants are not using consistent energy efficiency standards.
- Clean energy access: A mechanism to allow the landlord of a multi-tenant building to procure cost-effective renewable energy to meet the renewable energy needs of one or more customers.
When Digital Realty set out to develop green lease standards for its data centers, the company looked for ways to port commercial office sector-focused green leasing standards to data centers, a property type with a markedly different operating profile, energy needs and sustainability opportunities.
- Sharing energy data: We created a mechanism where data could be shared on a two-way basis between tenants and landlord to support energy benchmarking as well as tenant requests. This also allows for additional sub-metering to be installed should the existing configuration need updates to address any gaps in data. This could be the case if a new sub-meter was required to provide accurate measurement and verification of a planned efficiency project.
- Enabling certification in accordance with green building standards: This principle enables both parties to pursue green building standards that improve building performance and the indoor environment. This involves removing traditional barriers to using common standards, enforcing certain requirements and collaborating on measures that impact both tenant spaces and common areas.
- Aligning incentives to reduce energy use: This principle aligns the incentives, in terms of capital investments and savings, of both the landlord and tenants when considering projects that improve the efficiency of the facility. This is particularly relevant for improvements that affect an entire data hall that contains more than one customer and where no individual customer can make the improvements to the entire data hall. For example, installing hot or cold-aisle containment in a multi-tenant data hall would need to be led by the landlord to ensure it can be deployed effectively across multiple customer cages, but the energy savings benefit would benefit customers. This provision provides a mechanism to appropriately allocate the capital investments in proportion to those who benefit from the savings.
- Support demand for renewable energy: An increasing number of customers are looking for ways to power their data centers with cost-effective renewable energy. In a multi-tenant data center, the landlord usually controls the utility meter, which limits customers’ ability to procure clean power on their own. The landlord may have several customers that want renewable energy and several that are indifferent. This principle enables the landlord to procure cost-effective renewables on behalf of customers or the entire facility.
- Advance best practices in data center energy management: Best practices in data center energy management can be difficult to maintain in multi-tenant data centers. Each customer's leased premises are a "walled garden," and customers have a great deal of autonomy within that space. This principle provides a mechanism for the landlord to share and enforce energy efficient best practices, such as the use of blanking plates in server racks or perforated floor tile optimization, to minimize wasted cooling energy throughout the data center.
These principles typically have no upfront costs or ongoing fees, and they are designed to benefit tenants primarily through lower operating costs and expanded access to renewable energy. Our green lease provisions provide a pathway for Digital Realty’s experienced data center operators to implement the best practices we have adopted elsewhere in our portfolio.
Our green leasing principles bring to our customers the benefits of Digital Realty’s leading sustainability programs, which optimize facility efficiency, reduce operating costs and advance best practices for environmental stewardship.