The PUE-capped power clause as a small business inside the lease, and the price at which it starts losing money.
The landlord bills the tenant's IT energy times a contractual PUE cap at a tariff, and pays its supplier for the IT energy times the building's actual PUE. The energy margin is IT MWh × (PUE cap × tariff − actual PUE × supply price). On an illustrative 32 MW lease at 80 per cent load, a 1.30 cap, a 1.40 actual PUE, a $74 tariff and $61 power, that is $2.42 million in year 1: $3.79 million of markup less $1.37 million of energy the cap does not let it bill.
Worked in full in The Digital Infrastructure Investor by Julian R. Sterling, with every figure reproduced in a free workbook.See the book on Amazon →
A wholesale data centre lease usually has two prices. Capacity rent, in dollars per kW per month, pays for the building, the cooling and the power infrastructure. Energy is billed separately. Under a PUE-capped pass-through, the tenant pays for its metered IT consumption multiplied by an agreed PUE, the overhead for cooling and losses, at a tariff set in the lease. If the building runs less efficiently than the cap, the landlord eats the difference; if it buys power for less than the tariff, it keeps the spread. The clause is a small business inside the lease, with its own exposure to power prices, and it is often modelled as a pure pass-through with zero margin.
| Input | Value |
|---|---|
| Contracted IT capacity | 32 MW |
| Average IT load, share of capacity | 80% |
| Hours a year | 8,760 |
| PUE cap in the lease | 1.30 |
| Actual PUE of the building | 1.40 |
| Tariff billed to the tenant, year 1, rising 2.0% a year | $74.00/MWh |
| Landlord's fixed-price supply, years 1 to 4 | $61.00/MWh |
| Assumed market price from year 5, rising 2.5% a year | $67.00/MWh |
| Capacity rent | $138 per kW per month |
IT energy: 32 MW × 80% × 8,760 = 224,256 MWh.
Billed: 224,256 × 1.30 = 291,533 MWh at $74.00 = $21.57m.
Paid: 224,256 × 1.40 = 313,958 MWh at $61.00 = $19.15m.
Energy margin: $21.57m − $19.15m = $2.42m.
Split: markup on billed energy = 291,533 × ($74.00 − $61.00) = $3.79m; less the PUE gap = 224,256 × (1.40 − 1.30) × $61.00 = $1.37m.
In Excel: =MW*Load*8760*(PUEcap*Tariff-PUEactual*Supply)/10^6.
The building consumes 22,426 MWh that the lease does not let it bill. Its effective selling price, revenue over energy actually bought, is $68.71 per MWh, and that is the break-even supply price in year 1: buy power above $68.71 and the clause loses money. Equivalently, at $61.00 power the actual PUE could rise to 1.58 before the margin disappears. The margin is 4.57 per cent of year-1 capacity rent of $52.99m: small, but it sits in NOI and is capitalised with it.
| Year | Tariff, $/MWh | Supply, $/MWh | Margin, $m |
|---|---|---|---|
| 1 | 74.00 | 61.00 | 2.42 |
| 2 | 75.48 | 61.00 | 2.85 |
| 3 | 76.99 | 61.00 | 3.29 |
| 4 | 78.53 | 61.00 | 3.74 |
| 5 | 80.10 | 67.00 | 2.32 |
| 6 | 81.70 | 68.67 | 2.26 |
| 8 | 85.00 | 72.15 | 2.13 |
| 10 | 88.44 | 75.80 | 1.98 |
While the supply contract is fixed, the escalating tariff widens the margin every year, to $3.74m in year 4. When it rolls to market in year 5 the margin falls by more than a third, to $2.32m, and then erodes, because the assumed market price grows at 2.5 per cent while the tariff grows at 2.0. The year-5 break-even supply price is $74.38, only 11.01 per cent above the assumed $67.00. A 40 per cent price shock in year 5, to $93.80, turns the margin to minus $6.10m, a swing of $8.41m against a capacity rent that does not move.
| Actual PUE | Power at $55.00 | $61.00 | $67.00 | $74.00 |
|---|---|---|---|---|
| 1.20 | 6.77 | 5.16 | 3.54 | 1.66 |
| 1.30 | 5.54 | 3.79 | 2.04 | 0.00 |
| 1.40 | 4.31 | 2.42 | 0.54 | -1.66 |
| 1.50 | 3.07 | 1.05 | -0.96 | -3.32 |
Each 0.10 of PUE is worth about $1.37m a year at $61.00 power, and each $6.00 on the supply price about $1.9m at a 1.40 PUE. A liquid-cooled hall running at 1.20 against the same cap earns more than twice the margin of the base case. A flat pass-through fee is the alternative structure: actual energy billed at cost plus $3.0 per MWh earns $0.94m whatever power costs, giving up upside for certainty.
Modelling energy as a pass-through with no margin, or capitalising the year-1 margin as if it were rent. The margin here is real income in a fixed-price year, a fragile one after the supply contract ends, and a liability in a price spike, because the cap fixes the tenant's consumption basis while the landlord's cost floats. Valuing $2.42m at a data centre cap rate as if it were contracted rent overstates the building by the value of an unhedged power position.
Energy margin = IT MWh × (PUE cap × tariff − actual PUE × supply price): $2.42m in year 1 on this lease, rising to $3.74m while power is fixed, then $2.32m and falling once it floats, with a break-even only 11.01 per cent above the assumed market price. The Halvard DC1 workbook, with the power clause, the grid connection and the equity returns under each power scenario, is in the free workbook for this case. For how the same PUE limits leasable capacity, see how much leasable IT capacity a higher PUE costs.
The PUE at which the tenant's metered IT energy is grossed up for billing. With a 1.30 cap and 224,256 MWh of IT load, the tenant pays for 291,533 MWh; if the building actually runs at 1.40 it buys 313,958 MWh, and the 22,426 MWh difference is the landlord's cost.
When the supply price exceeds PUE cap times tariff divided by actual PUE. At a 1.30 cap, a $74.00 tariff and a 1.40 PUE that is $68.71 per MWh in year 1; in year 5, with the tariff at $80.10, it is $74.38.
Under a capped pass-through, each 0.10 of PUE is IT MWh times 0.10 times the supply price: about $1.37 million a year on 224,256 MWh at $61.00. Running at 1.20 instead of 1.40 lifts the illustrative year-1 margin from $2.42 million to $5.16 million.
This article is one calculation from The Digital Infrastructure Investor. The book takes the same case from first principles to the decision, chapter by chapter, and every figure it prints is a live formula in the free companion workbooks.
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