The Overlooked Benefits of Colocation: Efficiency and Sustainability

It’s no secret that data centers are important. They play an essential role in the digital economy and our modern society. We can see this illustrated by the fact that companies around the world are investing millions to get the data center capacity they need. But it’s also clear that not all data centers were created equally. Businesses choose different kinds of data centers for different purposes, and get different results.

Many companies are choosing colocation data centers, forgoing a do-it-yourself approach that can be difficult and costly. When they choose colocation, they typically do so to avoid downtime, make it easier to connect with partners and service providers, or simply remove the burden of having to manage a data center themselves. It’s true that colocation can help do all these things, but customers are missing out if they only focus on these traditional benefits.

There’s much more that colocation can do for modern businesses, and helping them pursue their sustainability goals is one powerful example. One survey found that only 10% of colocation customers consider efficiency and sustainability benefits among their top reasons for choosing colocation.[1] However, as enterprises face increasing pressure from all sides to operate responsibly, these overlooked benefits are becoming more important than ever.

Improving efficiency and power savings

To enable the AI opportunity, data centers are increasingly hosting high-density workloads like model training. This means that newer facilities often consume more energy than legacy data centers in the same physical footprint. Thus, it’s no surprise that the issue of data center energy—both how to ensure a reliable supply and how to use it efficiently—is top of mind for many enterprise IT leaders.

Leading colocation providers have consistently implemented efficiency improvements inside their facilities that can help their customers optimize their energy consumption, even for their most demanding workloads. These improvements include things like optimizing airflow using hot/cold containment aisles and operating across wider temperature ranges to better balance cooling requirements against hardware performance requirements. These and other similar initiatives require a lot of time and resources to implement, and colocation providers are better positioned to shoulder that burden than individual enterprises would be.

The impact of these improvements is measured using power usage effectiveness (PUE), a metric that compares the amount of energy used to power IT equipment with the total energy used throughout the data center. A lower PUE represents better efficiency, because it means that a data center is using less energy for non-IT systems like cooling. Let’s consider an example:

• A data center with a PUE of exactly 2 would have a 2:1 ratio of total energy to IT energy.
• If this data center’s total energy consumption is 20 MW, then its IT load would be 10 MW.
• In turn, this would mean it’s also using 10 MW of energy for non-IT purposes.
• If the data center reduces its total energy consumption to 19 MW while supporting the same IT load, then its new PUE would be 1.9.
• Similarly, it would improve its PUE by .1 for every 1 MW of non-IT energy consumption it avoids.

For each .1 improvement in PUE, this data center would reduce 3,723 tons per year of CO2 emissions.[2] However, lowering PUE isn’t just good for the planet: It also has a real impact on the bottom line. Based on U.S. national averages for energy costs, our example data center would save about $640,000 annually for every .1 improvement in PUE.

While PUE is not a perfect metric, it can still be useful to track efficiency trendlines over time. For instance, the annualized average PUE results across Equinix’s global data center portfolio went from 1.54 in 2019 to 1.39 in 2024. This means we improved our data center efficiency by about 28% over a five-year period. These are benefits that we can pass on to our customers.

Simplifying clean energy procurement

In addition to using less energy, colocation customers may find it easier to ensure that the emissions resulting from the energy they do use are addressed by clean and renewable energy purchases. In a survey conducted by S&P Global Market Intelligence, 67% of the colocation customers surveyed said that working with a colocation provider that prioritizes carbon-free energy sourcing reduces the administrative burden on their internal teams.

There are many different mechanisms organizations use to procure clean energy, which vary in their impact and practicality. For instance, leading colocation providers often sign power purchase agreements (PPAs) with renewable energy developers. A PPA is a long-term agreement to acquire electricity from a new renewable energy project at predetermined rates. They are highly impactful because they help developers manage financial risk and make renewable energy projects viable where they might not be otherwise. They also provide additionality, meaning that they directly contribute to adding new renewable energy to the grid.

Leading colocation providers like Equinix are able to leverage economies of scale to procure renewable energy at more favorable rates than our individual customers could. One study found that a colocation customer with an IT load of 10 MW could save $1.3 million a year compared to procuring renewable energy on their own.[3]

Equinix PPAs under contract

At Equinix, we use a multifaceted approach to guide our energy strategy, which includes prioritizing PPAs for their additionality. As the map above shows, we have signed 32 PPAs in locations throughout the world. These PPAs will eventually lead to 32 wind and solar energy projects that did not exist before. Looking beyond renewables, we’re also exploring next-generation alternative clean energy sources including nuclear small modular reactors (SMRs) and on-site fuel cells. We believe these technologies will enable innovative approaches to generating reliable and sustainable electricity for Equinix data centers worldwide.

Place your workloads in the right data centers

While they are certainly important, the efficiency and sustainability issues discussed above are just some of the many factors that businesses have to consider when deciding where to place their strategic IT workloads: on-premises, in a colocation data center or in the cloud. In order to make informed decisions about what’s best for your business, you also need to think about your requirements for performance, reliability, cost-efficiency and more.

To make this process easier, access our data center decision tree today. This will guide you through a series of questions to help you identify the best path forward for your business.

[1] Leveraging colocation for improved sustainability, an S&P Global Market Intelligence report commissioned by Equinix, May 2025.

[2] Leveraging colocation for improved sustainability, an S&P Global Market Intelligence report commissioned by Equinix, May 2025.

[3] Leveraging colocation for improved sustainability, an S&P Global Market Intelligence report commissioned by Equinix, May 2025.