Microsoft wants to use LDES for data center backup — but not quite yet

Despite major investments from both the public and private sectors, and dire warnings about the immense storage needs of the U.S. grid, the long-duration energy storage market is still struggling to gain momentum.

But certain stakeholders, including Mirosoft’s energy strategy lead, now say the stark energy needs of the artificial intelligence boom have the potential to push LDES to cost parity — and ultimately commercial scale.

• The top line: Microsoft has a goal to cut fossil fuels from its data center backup generators by 2030. And while the company is interested in replacing those generators with LDES, the risks of relying on a mostly-untested technology are too high for Microsoft itself to pioneer it.
• The current take: Behind-the-meter resilience is an ongoing challenge for Microsoft because of its data center reliability needs, director of energy strategy Audrey Lee explained on a panel at the Wood Mackenzie Solar and Storage conference in San Francisco. “We would love to replace [backup generators] with long duration energy storage,” said Lee. “But because we run our data centers with 99.999% reliability, we’re not able to go first when it comes to deployment of a new technology and that technology risk.”

Microsoft is potentially more willing to accept LDES technology risks in front of the meter and on the grid, Lee said. And more broadly, she maintained that the company is “still very interested in investing in the technology and seeing it come to maturity, so we can deploy it eventually.”

While the acute need for clean data center backup power is one potential tailwind for LDES, there are others. For instance, power from extremely low-cost wind and solar will need to be stored to avoid curtailment, and a budding domestic battery industry provides more structure to produce LDES in the U.S. Venture investors in the space are anticipating market liftoff in the next two to five years, thanks in part to incentives from the Inflation Reduction Act.

But there are also headwinds, especially for front-of-meter projects like the ones that appeal to Microsoft. Perhaps the steepest challenge is the fact that the current structure of energy markets doesn’t always recognize the benefits LDES provides to the grid. 

“We’ve got to change the criteria to really value LDES and also just improve the [internal rate of return],” said Julia Souder, CEO of the Long Duration Energy Storage Council, on the same panel.

However, she added, there’s still a role for corporations to play in getting LDES off the ground. “We’ve got to ask these companies to take the initial jump,” she said, adding that if they do, “soon there’s not going to be a green premium.”

Breaking down the data center challenge

It’s no secret that Microsoft is struggling to balance its clean energy goals with its lofty AI ambitions. In its latest corporate sustainability report, the tech giant documented a steep rise in its energy intensity — a 50% increase in the amount of electricity consumed per dollar of revenue over just three years, thanks in large part to data center growth.

The company’s clean energy goals are also being tested by the chosen energy procurement strategies playing out around the country as utilities decide how to meet staggering load growth predictions. In Georgia, for example, where Microsoft owns and operates three data center campuses (with others in the pipeline), the company pushed back against Georgia Power’s loan growth projections, and the utility’s to meet those new numbers with additional gas power.

In particular, Microsoft took issue with Georgia Power’s consideration of battery energy storage systems, which did not include long-duration storage as a generation candidate for its plan.

“This leaves a crucial operational gap in the ability of intermittent renewables to provide firm capacity and likely contributes to further limiting the buildout of clean resources,” Microsoft said in a filing to the Georgia Public Service Commission.

Lee, for her part, is “optimistic” that the data center challenge will serve to boost LDES into commercialization more quickly.

“We will be forced in the markets to create them, to make the products that value [LDES] because the energy system will need that,” she said. “There’s a lot happening, a lot of work to do, it’s a little scary. But this will force us to make that energy transition.”