Data Center Boom Heads for Silicon Valley’s Backyard

Key Concepts

• New Load Capacity: The ability of the power grid to handle increased electricity demand.
• Community Choice Aggregator (CCA): A local government entity that purchases electricity on behalf of its residents and businesses.
• Power Purchase Agreements (PPAs): Contracts between electricity generators and buyers that guarantee the sale and purchase of electricity at a set price for a specified period.
• Solar and Wind Paired with Storage: Renewable energy sources (solar and wind) combined with battery storage systems to ensure a consistent power supply, mitigating intermittency.
• Grid-Scale Storage: Large-scale battery storage systems designed to stabilize the electricity grid.
• Hyperscalers: Large technology companies that operate massive data centers.
• Cluster Study: A study conducted by utility companies to assess the electricity demand and infrastructure needs of a specific area or project.

San Jose's Strategic Advantage for Data Centers

San Jose is positioned as an ideal location for data center development due to significant new power infrastructure coming online. Despite being in an area with high real estate and housing costs, the city is uniquely equipped to handle increased energy demand.

Power Availability and Infrastructure

• Two Gigawatts (GW) of New Power: San Jose will have 2 GW of new power capacity available over the next four years. This is a substantial increase, allowing the city to potentially triple its current energy consumption, which is approximately 1.1 GW for a city of one million people.
• Unique Load Capacity: San Jose is the only city in California with this level of new load capacity.
• Strategic Location: The specific site discussed is in North San Jose, adjacent to Highway 237. This location offers:
  • Ample Recycled Water: Proximity to a wastewater treatment facility provides access to recycled water at a reasonable cost.
  • New Transmission Lines: The site is near one of the new transmission lines entering the city.
• Contrast with Rest of Silicon Valley: While other parts of Silicon Valley are built out and turning away data center projects, San Jose is actively enabling them. Prologis, for instance, has a proposal for 400 MW of data centers in the heart of Silicon Valley.
• Economic Benefits: This development is expected to boost economic competitiveness, job growth, and the tax base.

Power Generation and Clean Energy Initiatives

• Source of New Power: The new power capacity is a result of decisions made by the California Independent System Operator (ISO) years ago, anticipating economic growth. Two new transmission lines, each with 1,000 MW capacity, are being brought into San Jose, one from the south and one from the north.
• Community Choice Aggregator (CCA): San Jose established a CCA a few years ago. This entity purchases power on behalf of city users and has used this tool to sign 20-year Power Purchase Agreements (PPAs).
• Investment in Clean Energy: These PPAs are funding new generation capacity, with a focus on cleaner energy. San Jose is investing in solar and wind paired with storage.
• Addressing Intermittency: The key to making renewables reliable is sufficient storage capacity, which smooths out the intermittent nature of solar and wind power.
• Clean Renewable Mix: San Jose already boasts one of the cleanest renewable energy mixes in the country, largely due to its collective purchasing power and investment in cleaner power and energy sector innovation.
• Grid-Scale Storage: The strategy emphasizes that grid-scale storage is the pathway to cleaning up the grid.
• Role of Other Energy Sources: While San Jose is proud of its renewable efforts, the transcript acknowledges that natural gas and nuclear power (like Diablo Canyon) are still part of California's energy foundation. Geothermal is also growing. The primary growth areas are solar and storage.
• Impact on the Grid: The new power purchase agreements are designed to be mostly, if not entirely, "clean." This clean power is added to the grid, increasing the overall renewable mix for the benefit of San Jose and the entire state. It's acknowledged that electrons from other sources (natural gas, nuclear) will still be part of the grid supply.

Site Suitability and Zoning

• Not Zoned for Housing: The specific site is not zoned for affordable housing, mixed-use development, retail, or transit-oriented development. This is seen as a benefit, allowing the city to focus those efforts elsewhere.
• Ideal for Data Centers: The site's characteristics make it perfect for data centers:
  • Proximity to Wastewater Treatment: Access to recycled water.
  • Landfill Nearby: Servers are unaffected by odors.
  • Underutilized Land: It's not displacing other valuable land uses.
  • Power and Water Access: Crucial infrastructure is readily available.

Demand and Interest from Tech Companies

• Robust Pipeline: There is significant interest from major technology companies (hyperscalers) and large data center developers.
• Outdated Cluster Studies: PG&E's cluster study from last year is already outdated due to the high demand.
• Projected Demand: Last year's study indicated over 800 MW of demand, and it's expected to be significantly higher this year, especially with the news of new power capacity.
• Prologis's Role: Prologis builds for the world's largest and most innovative companies, indicating the caliber of interest in this San Jose location.
• Timeline for Power Allocation: It's anticipated that most of the 2 GW of new power will be spoken for within the next 18 months.

Conclusion

San Jose's strategic investment in power infrastructure, particularly its commitment to renewable energy paired with storage, has created a unique opportunity for data center development. The city's proactive approach, facilitated by its CCA and PPAs, is not only attracting major tech players but also contributing to a cleaner energy grid for the entire state. The specific site in North San Jose exemplifies a "win-win" scenario, leveraging underutilized land and essential infrastructure to meet the growing demand for data center capacity without compromising other urban development goals.