Why data centers aren’t a good use of green hydrogen

When Bloom Energy came out of stealth mode in 2010, it promised a revolutionary new fuel cell to bring “clean, reliable energy” to data centers and other commercial customers. Its solid oxide fuel cells were supposed to be a critical enabler of the hydrogen economy.

Nearly a decade and a half later, data centers remain a key customer segment for Bloom. But even though the technology is designed to utilize hydrogen, most of the company’s solid oxide fuel cells, including those powering data centers, still use natural gas.

With electricity demand from data centers on the rise, however, there is a renewed wave of interest in hydrogen to power them.

In June, infrastructure developer Vertiv joined forces with Ballard Power Systems for a demonstration-scale project using green hydrogen as backup power for data center applications. In August, Equinix said it was temporarily testing out hydrogen fuel cells at a Dublin data center. And Mississippi-based Hy Stor Energy told Latitude Media that it is now “actively pursuing and engaging” in conversations with potential data center customers.

But even with these tests – and the apparent interest from major players like Microsoft – using hydrogen to power data centers still faces fundamental constraints.

Firstly, explained Peter Judge, a senior research analyst at the Uptime Institute, hydrogen just isn’t a great source of electricity. It essentially requires turning clean power into hydrogen and back, losing significant amounts of energy in the process. 

“Hydrogen is like the champagne of renewable energy,” Judge said. “It’s very high quality, it’s quite expensive, and you’ll only use it on special occasions.” 

Then there’s the problem of moving hydrogen around. Compressing or condensing it uses energy, it can leak from pipes (which, for the most part, don’t exist yet) and the trucks needed to cart it around to end use sites also require energy. As Judge put it, “if there’s not a hydrogen source near your data center, forget it.”

And, perhaps the hardest challenge for data centers to overcome, is the reality that there are other sectors that have a better claim on hydrogen, Judge said. “There is already a big hydrogen industry, and before you can do any of the new hydrogen economy stuff, you need to decarbonize the existing industry,” he explained. In general, hydrogen’s highest-value use cases are as feedstock, not as power generation.

Ultimately, Judge said, the pathway for data centers to be sensible use cases for hydrogen is both narrow and finite: as early offtakers for backup power.

Data center use cases

There are two types of cells data centers could use to convert hydrogen into electricity: Proton exchange membrane fuel cells (PEM) and solid oxide fuel cells (like those pioneered by Bloom.)

There are some pilots, like one spearheaded by Vertiv and Ballard in Ohio, that are using PEM cells. But PEM fuel cells have some challenges of their own, including cost, longevity, and efficiency, on top of the broader hydrogen challenges of storage and infrastructure.

Most developers using fuel cells for data centers today, Judge said, are using solid oxide fuel cells, almost exclusively powered with natural gas. One example of this, Judge said, is Intel’s data center in Silicon Valley, which currently runs on natural gas-powered Bloom fuel cells. It’s also something Amazon previously pursued, but has since walked away from.

The key thing to note about those setups, Judge added, is that companies tend to stress that their cells can be powered by hydrogen, but aren’t yet. It’s problematic from an emissions standpoint because in many cases, like in the Bay Area, there’s enough renewable energy that natural gas is higher carbon than getting electricity from the grid, he explained. But it’s a story that has been widely touted by power plant operators as well, who describe plants as “hydrogen ready,” when in reality that transition is years and billions of dollars away.

One exception to the fuel cell landscape is ECL, a data center-as-a-service company in California. In June, ECL announced it had brought an off-grid, hydrogen-powered data center online in Mountain View.

The data center is tiny — one megawatt — but it’s a prototype for larger, modular data centers with the potential for capacity to be added 1 MW at a time.

According to Judge, it’s the location of that data center that makes its existence possible; access to local hydrogen.

“Proximity to a hydrogen hub is basically essential,” he explained.

Despite ECL’s early success, continuous power isn’t the most practical use of hydrogen for a data center. Instead, backup power is a much better application, Judge said, because it would require so much less hydrogen over time.

“Data centers are not price sensitive and don’t need much hydrogen if they’re doing backup, so they’re kind of an ideal first customer for a hydrogen hub,” he added.

Being an early offtaker is really the ideal role for tech companies and their data center growth, Judge said. As early investors, data centers could purchase green hydrogen at higher prices while the U.S. market ramps up production.

It’s a role big tech companies are relatively comfortable with, after doing the same in industries like carbon removal and advanced geothermal. But it should ultimately be a temporary role, Judge said, both because of the impracticalities and the major need from other sectors.

A new hydrogen economy

Laura Luce, founder and CEO of green hydrogen company Hy Stor, has a slightly different take. Hy Stor is “actively pursuing and engaging” in conversations with potential data center customers,” Luce told Latitude Media.

“At the end of the day, our message is: let’s not double the demand and power in the United States, and have it all be methane and CO2 related,” Luce said, pointing to reports of utilities building out new fossil fuel power to meet data center load growth.

Hy Stor is pitching a colocation model to data center developers and to other industrial customers, Luce explained. Doing so significantly reduces the amount of requisite infrastructure, a plan Luce likens to heavy industry cropping up in close proximity to oil and gas pipelines. And it’s not just conversations about building data centers at Hy Stor’s Mississippi hydrogen hub, Luce said. The company also has a portfolio of assets in the West, closer to where many companies already have data centers.

At present though, conversations with data center developers are largely educational, she added. Traditionally developers are just asking utilities whether and where they can provide certain amounts of power, Luce said. “We’re trying to insert ourselves into that process and wave a white flag…and say you do have another choice.”