Industry Spotlight: Aligned Energy CEO, Andrew Schaap

February 11th, 2019 by · Leave a Comment

The data center space is a hotbed of investment in the hyperscale / cloud era, but sometimes we think it is just space and power.  Ok, maybe it mostly is, but there is also plenty of room to innovate around how you deliver those to customers whose sophistication is rapidly evolving.  Newer entrants like Aligned Energy are bringing new approaches that challenge the status quo. With us today is the CEO, Andrew Schaap, to talk about the company’s unique approach.  Andrew joined the company in 2015 after over a decade at Digital Realty Trust.

TR: Where did Aligned Energy’s business plan come from?  What problem were you looking to solve?

AS: The founders, and I frankly, saw a significant amount of waste in the industry in the way that things were being built as well as how they were being delivered to clients.  It was due to traditional real estate thinking and older school construction methodologies.  Due to the expectations of Wall Street, publicly traded data center REITs were held to a standard in metrics that is similar to office buildings and retail and storage REITs. Those metrics don’t always jive with the needs of technology customers in a perfect way, and it goes back to the evolution of the data center over the last two decades. Way back in 1999 and 2000, your options were to buy some colocation space from someone like Qwest Cyber Center, AT&T, et cetera, or to build it in the basement of your hospital or bank. 15 years ago, in every single meeting we would be breaking out blueprints and we would meet with the heads of real estate, finance, accounting, and compliance.  Then Digital Realty, where I came from, and some of the other wholesale players started coming out with good products. But now, we're looking at a second revolution which is the cloud and the scalability, flexibility, and velocity that come with it. It’s much more nimble, the cycle has shrunk dramatically, and the level of intellect and understanding of the clients has grown dramatically.  Those discussions now have turned into, “What do you have and how fast can we have it?”

TR: So how do you approach the modern data center business?

AS: We call our new framework VSASTM, which stands for the four key pillars of velocity, scalability, adaptability, and sustainability. How can I build faster for velocity? How can I be scalable in place? How can I be adaptable to the clients' requirements? And how can we make sure we're deploying the right capital on the right infrastructure and not have anything stranded: square footage, white space, MEP, or capacity. Our solution is really the culmination of the 35+ patents that we have and the 350 dependent claims that sit underneath those patents.  The basis of our name is that we are aligning the energy infrastructure with our clients' requirements and needs.

TR: How does that translate into the way you build out your infrastructure?

AS: One of the things has to do with a trend we saw happening: production versus construction.  Construction is when everyone shows up and they build everything onsite; it is a lot of hardhats and a lot of labor. We’re moving much more toward production where most of our kit is built in a factory, and we hold it in reserve.  Then, when a deal strikes and I want another five or 10 megawatts in Phoenix or Salt Lake City or Dallas or Ashburn, I literally just call my supplier partner and have that kit shipped there. We just did a joint venture with a large publicly traded group that is manufacturing some of these components for us, and they've delivered 50+ megawatts for us already and we have 50+ more in the pipeline with them that's on their factory floor.  Because we don’t have hundreds of megawatts of legacy capacity that our larger competitors have and we don't have a flywheel of suppliers embedded, we have a lot more flexibility to build exactly what's required by customers and the industry, and turn things around very, very quickly.

TR: What does shifting from construction to production enable you to do for your customers?

AS: Clients have the ability to come in and take what they need today and then they have the true future-proofing capability of being able to expand in place. Pretty much everybody else is scaling horizontally: first, you take a megawatt and 5- 10K square feet, and then if you need another megawatt, they’ll sell you a pod nearby or perhaps in a building next door.  We can do that too, but we also have the ability to double or triple the amount of kW that goes into the footprint you already have. Future- proofing is a nomenclature that a lot of folks use.  Every client is looking for that future-proofing partner that they can land and expand with because they want to make a 5, 10, or 15-year commitment.  But they don't have a perfect crystal ball on what's going to happen with their technology or with Big Data, AR, VR or AI. The reality is that our competitors can't achieve that future-proofing without using exotic in-row cooling, back of rack cooling, water cooling, and other fantastic technologies that have been around for a long time, but are very expensive on a CapEx basis.  Someone has to pick up that CapEx and most of the time, that cost is borne by the client.  We are really giving clients latitude to come back to us and change it up.

Aligned Energy’s square footage is typically smaller than that of its competitors. For example, we acquired the building in Salt Lake City in January of last year.  In June / July, we delivered for the first client a very dense footprint of several hundred watts per square foot. The very next plant was for 150-175 watts per square foot, and we did that in the same buildings without ever stranding any of the white space. The client pulled us out to Salt Lake City because they love what we're doing for them and they recognize that we're not providing them infrastructure and white space and making them pay for what they're not going to use.

TR: What kind of customers are you focusing on? 

AS: We are equal opportunity data center providers. We are primarily focused on the large-scale, wholesale-based deals.  However, because of the way we're deploying and the way we're delivering, we are doing the whole spectrum of transactions. The rationale around smaller transactions is the complexity of what our customers are trying to solve.  Sometimes they're trying to solve multi-megawatt requirements for a large-scale deployment. But other times, it's a big marquee name trying to solve an application-specific problem of several hundred kilowatts, and because of our adaptability, we're able to right-size the footprint yet not strand capacity or white space. Many of our competitive peers would build them a closely coupled mechanical-electrical plant with white space. Because we've de-coupled those via technology that we've put on the mechanical side, we are able to scale small to large within a facility, so we don’t really have to concern ourselves with that when building the building.  Somebody has to carry that burden, but in our model, none of that gets passed through to the client.

TR: What does your current footprint look like, and where have you been seeing the most success lately?

AS: In Phoenix and Ashburn, our end-state design capacity is 180 MW each, in Salt Lake City it’s 130 MW, and in Dallas it’s 60MW.  We can absolutely get there with the density and the utility and everything that's happening in the marketplace today.  Phoenix is actually three buildings joined together for 550,000 square feet.  One of the buildings is already fully leased, and in the second building, 30 MW is under construction right now to fulfill a contract and to provide inventory that we need for deals that we’re in the process of negotiating. We have had really good uptake in Dallas as well, winning both of the last two significant enterprise transactions that we participated in. We’ve got a handful of clients already moved into Salt Lake City, and Ashburn is under construction right now.  It's a great industry with lots of tailwind, but we are winning more than our fair share.

TR: Does the uniqueness of your approach stem from design or new technologies?  How easy would it be to duplicate?

AS: The design and technology are two sides to the same coin. Other people couldn't do it the way we're doing it because of the technology that we have in our mechanical and electrical plants and the patents that we have around it. They would struggle with right-sizing for the plant. You can't physically do it without having challenges when it comes to cooling effectively, due simply to what traditional CRAC units can deliver. We are doing more heat rejection in four feet than two CRAC units side-by-side in 25 feet, and our cost for that is less than one traditional CRAC unit. We don't have to put 50 CRAC units in for a customer that might only need 20. We deploy the right amount to support that customer on day one, and we can expand at a later date. There's a lot of interesting technology and patents on how we've done it.

TR: Do you have plans to expand into new markets?  If so, what geographies look good?

AS: We are absolutely looking at expanding into new markets; that's part of my mandate.  As for which ones, Aligned employs an advanced site selection process through which we vet locations around the globe. We’re currently looking at upwards of 20 target markets with multiple site options, both in the U.S. and abroad.

TR: Consolidation has been a fixture in the data center business for a long time, how do you view M&A as a way to expand? 

AS: M&A is something that we're absolutely looking at and exploring.  The reason we like it is because we can take our capabilities and skill sets and really take our DNA into a group that might be more traditional. We are exploring every option and every opportunity to take some of our capabilities to someone else’s platform and expand it fast.  M&A is definitely a way to put more dots on a map very, very quickly.

TR: How will you fund your expansion, whether organic or inorganic?

AS: This a capital-intensive business.  Having the right capital is critically important to how you can grow the platform; and in the world of capitalization, there's a few major buckets.  Publicly-traded REITs issue bonds and shares to achieve capitalization.  Then you have private equity folks, and pension funds who each think in a certain way. But along with our original investors at BlueMountain Capital, we are now part of an infrastructure fund, Macquarie Infrastructure Partners, and I think that the industry is starting to see more of this. Infrastructure funds are very long-term, they are massive, and their assets under management (AUM) is one of the largest in the world.

I couldn't be more pleased with Macquarie as a capital partner because they are long-term thinkers. They are the biggest infrastructure fund in the world, and also the largest green energy investor in the world. There's a really nice marriage between our capital partner, what we're trying to accomplish, and, quite frankly, what our customers are thinking about.

TR: Thank you for talking with Telecom Ramblings!

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Categories: Datacenter · Energy · Industry Spotlight

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