Northern California’s dominant power supplier, Pacific Gas & Electric, is scrambling to keep up with the explosion of data centers in and around the San Francisco Bay Area.
The investor-owned utility has announced a slate of upgrades and initiatives to its power infrastructure in Silicon Valley’s largest city, as utilities race to meet the growing energy demands required to support the artificial intelligence boom across the nation. The utility's upgrades include boosting capacity and adding new technology at several power substations in San Jose to support added data centers, as well as thousands of planned homes and commercial development in the city.
PG&E said the massive surge in the amount of electricity needed merely to run new data centers, which in turn power technologies like cloud storage and artificial intelligence, will require an additional 8.7 gigawatts of electricity over the next decade.
“To give an idea of how much power that is, just 1 gigawatt can power around 750,000 homes at the same time,” said Stephanie Magallon, a spokesperson for the Oakland-based utility.
PG&E is currently working on meeting the electricity needs of 18 data center projects in the final engineering phase and projected to begin operations between 2026 and 2030. Most are in Silicon Valley and the greater San Francisco Bay Area, with a few in California’s Central Valley and the Sacramento area. Silicon Valley is the third-largest data center hub in the United States, after Northern Virginia and the Dallas region.
Electricity demand from data centers worldwide is set to more than double in the coming five years, according to a report released this year by the International Energy Agency, with electricity demand from AI-optimized data centers projected to more than quadruple by 2030. The group predicted these global data centers would by then consume slightly more than the current electricity consumption of Japan.
“Countries that want to benefit from the potential of AI need to quickly accelerate new investments in electricity generation and grids,” the agency said in a summary of the report’s findings.
Plans include a new 'net zero' community in San Jose
PG&E appears to be trying to act on that message, with plans to revamp two important electricity substations in downtown San Jose.
It is rebuilding Substation A near the downtown San Jose market center and upgrading Substation B on Coleman Avenue in order to increase capacity and prepare for the construction of two major high-voltage transmission lines that LS Power, a New York-based company, is constructing over the next few years to improve electrical capacity and reliability in the region.
PG&E is also partnering with Durham, North Carolina-based Smart Wires, a company that makes technologies to help utilities expand the amount of electricity that can be carried on their grids, to boost capacity at the Los Esteros substation, which serves San Jose's Alviso neighborhood, by more than 100 megawatts.
PG&E says these improvements will help power new rail service at the Diridon train station and ambitious real estate projects in the area. Such proposals include Google’s $1 billion, 80-acre Downtown West proposal, a stalled development promising some 4,000 housing units as well as office, retail and hospitality properties situated around the station. Jay Paul Co. has outlined plans to transform an entire downtown city block into nearly 700 new apartments plus commercial space via its City View Plaza redevelopment project. And the Santa Clara Valley Transportation Authority, a public transit agency that runs bus and light rail service in much of Silicon Valley, plans to move its headquarters into a 17-story office tower it purchased recently at 488 Almaden Blvd.
PG&E is also working with global real estate player Westbank on a new “net zero community” in San Jose. The developer plans to build housing sustainably powered by the excess heat from several planned data centers.
“This innovative partnership will allow us to harness data center demand to build much-needed workforce housing and ensure it is powered by excess heat from the data centers,” said San Jose Mayor Matt Mahan in a press release issued by PG&E in April.
Mahan's comments reflect a shift in the city’s stance toward PG&E since late 2023, when San Jose officials voted to look into creating a municipal power utility to meet rising demand for reliable, reasonably priced electricity. Specifically, officials wanted to know whether San Jose Power, as they dubbed it, could offer cheaper power than PG&E, which faced criticism for slow hookups, aging equipment and rising rates. The utility also faced questions about its financial future after it filed for bankruptcy protection in 2019 from liability claims stemming from California wildfires.
Power shift seen in San Jose's deal with PG&E
PG&E has since made an effort to repair its relationship with the city, promising upgrades with enforceable milestones to meet San Jose’s growing power needs and helping provide incentives for new development. Like other cities, San Jose officials have stressed the need to bring in alternative sources of revenue, including data centers, to compensate for declining sales tax dollars due to remote work and other factors.
“San Jose is a really important customer, and we know that we have to earn their service,” said Magallon, the PG&E spokesperson. “We’re doing everything we can to provide a reliable and affordable energy system to help bring more customers to the area.”
San Jose officials decided this year to temporarily pause their quest for a municipal utility, opting to move forward with a deal with PG&E that promises infrastructure and speed improvements to meet growth.
So far, many data centers in the AI industry’s home region of Silicon Valley have been clustered in San Jose and especially Santa Clara, which has more data centers than any other city in California with some 55 in operation and three in the pipeline in the less than 20-square-mile enclave, according to the city. That's largely because its not-for-profit utility company, Silicon Valley Power, offers cheaper electricity rates than PG&E.
But Santa Clara, a town of about 130,000 people, is beginning to feel a strain on its power grid. Officials say these centers now consume about 60% of Santa Clara’s power. Manuel Pineda, Silicon Valley Power’s chief electric utility officer, warned the City Council at a meeting in 2024 that the utility would not be able to deliver power to every data center currently applying to set up shop within the city limits.
“We’re getting close to reaching our system operating limit,” Pineda said.