The generative A.I. boom is fueling a surge in data center construction as companies scramble to meet the skyrocketing demand for compute power. But data centers are notoriously energy-hungry, straining the electric grid and raising concerns about rising electricity costs. In their search for alternative energy sources, data center operators are exploring green hydrogen as a renewable energy source to help keep servers running in an environmentally-friendly way.
Green hydrogen is produced through electrolysis, a process that slices water molecules using electricity from solar or wind power, making it a carbon-free fuel. Unlike traditional hydrogen production, which relies on fossil fuels, green hydrogen emits only oxygen as a byproduct. That makes it an attractive option for data centers, which require a steady and scalable energy source to operate their power-hungry servers. Tech giants like Microsoft (MSFT) are already testing hydrogen fuel cells in their data centers, while others are exploring hydrogen as part of their long-term clean energy strategies.
Green hydrogen joins a growing list of alternative energy sources that data centers are turning to. Some companies are reopening nuclear plants to generate the vast amounts of energy required to power A.I. workloads, while others are scaling up investments in solar and wind. Unlike these intermittent sources, green hydrogen can provide off-grid, on-demand power, potentially offering a more reliable solution. But expensive costs and a shifting political landscape stand in the way of widespread adoption.
Hydrogen producers are seeing an uptick in demand
Green hydrogen makers are seeing an increasing appetite for their services as A.I. models continue to advance. Q Hydrogen, a green hydrogen producer founded in 1997, claims it’s receiving an “extreme uptick in interest” from data centers lately as A.I. demands more computing capacity, according to CEO Whitaker Irvin Jr. Q Hydrogen has been in discussions with developers that want to build data centers in states like its home base of Utah, Arizona, New Mexico and Nevada, including early conversations with tech giants like Microsoft. “It’s a very different world in data centers now than it was two to three years ago,” the CEO told Observer.
Later this year, Q Hydrogen plans to open its first commercial renewable hydrogen power plant in New Hampshire, which it claims produces up to 100,000 kilograms of hydrogen fuel a day. That amount can fuel roughly 20,000 Toyota Mirai, one of the few hydrogen-powered passenger cars in the market, daily.
If true, Q Hydrogen’s power capacity could be a major source of energy for data centers. As a proof of concept, Q Hydrogen will begin powering mobile data centers, portable units of IT infrastructure that can be deployed in remote areas, using on-site, clean hydrogen-powered generators. The generators will keep the data centers running 24/7, requiring a much smaller amount of power compared to the hundreds of megawatts of power large data centers need. Still, a successful pilot project means that, in theory, the company would be able to produce significant amounts of fuel that can be distributed to centers off-site. The potential for the energy, Irvin Jr. claims, is “virtually limitless.”
Plug Power, a hydrogen fuel cell developer, is also in early talks with data centers about its technology, according to Luke Wentlent, senior director of product management. Since it was founded in 1997, Plug Power has deployed 60,000 fuel cell systems and more than 180 fueling stations across the world with the goal of producing 500 tons of green hydrogen a day by the end of this year, according to the company.
Plug Power transports green hydrogen to customers, including Amazon and Walmart (WMT) that use it to power forklifts in their distribution centers, using a proprietary technology that converts hydrogen gas into a liquid form moved by trucks. With that transport system in place, Plug Power sees a new opportunity to deliver hydrogen to off-site data centers to meet their skyrocketing energy demands. In fact, commercialization is starting to become a reality. In a 2022 pilot project, Plug Power successfully built a 3 megawatt hydrogen fuel cell backup power plant for Microsoft in a quest to replace its backup diesel-powered generators.
“Data centers are trying to understand everything they can do to enable a surety of power supply and how much they can decarbonize,” Wentlent told Observer.
Clean hydrogen faces an uphill battle
At the energy’s current stage, some experts see green hydrogen as a reliable source of energy for backup generators for data centers in cases where extreme weather conditions like a thunderstorm or a polar vortex disrupts the energy grid. Still, some energy suppliers aren’t seeing immediate buy-in.
Enchanted Rock, a developer of so-called microgrids that provide backup power to infrastructure like data centers against outages, isn’t seeing demand for hydrogen fuel at the moment, according to Chief Commercial Officer Allan Schurr. Enchanted Rock has tested blends of natural gas with up to 25 percent of green hydrogen to power its microgrids in an effort to lower the energy’s carbon footprint. While its tests have been successful, green hydrogen is “extremely expensive” to transport and store on-site, Schurr says, meaning scaling it might just not be feasible when data center operators can tap into cheaper sources of energy like natural gas.
“All 350 of our micro grids could use those blends today, but no one has elected to pay the price premium for the fuel to do that yet,” Schurr told Observer.
The price of green hydrogen could pose a major challenge to widespread adoption. In the past, green hydrogen prices were expected to drop significantly in response to increased demand and U.S. subsidies, according to BloombergNEF. But with changes to the U.S. federal landscape, BNEF’s most recent forecast found that green hydrogen will cost between $1.60 and $5.09 per kilogram by 2050, more than triple its previous estimates. Traditional, more carbon-intensive forms of hydrogen fuel made with natural gas, in comparison, are expected to remain between $1.11 to $2.35 per kilogram for the foreseeable future.
Transportation infrastructure adds an additional cost. For clean hydrogen to power data centers without interruption at-scale, transmission pipelines need to be built to connect them, which is capital-intensive and time-consuming, according to Plug Power’s Wentlent. Current transmission lines can transfer natural gas with a small percentage of green hydrogen blended, but transporting consistent flows of green hydrogen on its own requires a different architecture, materials and safety adaptations.
Political bottlenecks make the road to adoption even harder. The Trump administration has indefinitely frozen funding for the Inflation Reduction Act, a major source of funding for U.S. clean energy projects that president Donald Trump called the “Green New Scam.” Under the federal program is the Clean Hydrogen Production Tax Credit, providing billions of dollars worth of subsidies of up to $3 per kilogram of hydrogen to producers. Without the funds, hydrogen producers may not be able to scale their fuel, which could hike up their costs even more.
Despite rising prices and political uncertainty, Irvin Jr. remains optimistic that green hydrogen will continue to catch on as a promising source of clean energy. Data centers, he claims, seem willing to pay premiums for alternative energy sources as demand for additional power only continues to explode. Funding challenges, he says, spurs opportunities for “creativity” and “innovation” to develop new solutions within their budgetary constraints. As for the IRA, the CEO bets that the hydrogen component will “still exist,” anticipating support from large power companies in “conservative states” and “pragmatists in the administration.”
All the hydrogen experts that spoke to Observer agree that while the road to widespread data center adoption faces challenges, green hydrogen has the potential to scale up if and when the market and production technology matures – though it won’t happen overnight.
As for Irvin Jr. prediction, “Hydrogen will be a massive player in the energy space in 10 years or less.”
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