Data Center Boom Heads for Silicon Valley's Backyard

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Watch Data Center Boom Heads for Silicon Valley's Backyard - Bloomberg on Dailymotion

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00:00Matt, good to have you on the program today. The first question I have is really about why San

00:04Jose is a good place for a facility like this. This is some of the most expensive real estate,

00:10some of the most expensive housing in the entire United States. Why San Jose?

00:15Well, we're in a really fortunate position in San Jose to have two gigawatts of new power coming

00:21online over the next four years. We're the only city in California with that kind of

00:26new load capacity. And this particular location is really unique. It's up in North San Jose next

00:34to 237, a large freeway here, right next to our wastewater treatment facility, which means access

00:41to ample recycled water at a reasonable rate, as well as one of those new transmission lines coming

00:48into the city of San Jose. So as you mentioned, while the rest of Silicon Valley, which is largely

00:53built out, is having to turn data center projects away. We've just said yes to Prologis in his

00:59proposal to put 400 megawatts worth of data centers right here in the heart of Silicon Valley. We think

01:05it's a really exciting opportunity in terms of economic competitiveness, job growth, tax base,

01:11and those infrastructure pieces are right there in place to facilitate it. You mentioned it's right by

01:17a wastewater treatment facility. It makes me think that perhaps this wouldn't be the best place to

01:20build affordable housing. Is it fair to say that this is not a site that is zoned for that?

01:25That's part of the benefit here is that in much of the city, we're trying to enable housing, mixed

01:31use development, retail, more transit oriented development. This particular site is up next to

01:37the bay. You've got wastewater treatment. There's a landfill nearby. Fortunately, servers don't complain

01:43about odors. And so we think it's the perfect location. There's also just nowhere else in Silicon

01:50Valley with access to recycled water that's so easy, plus the availability of power. That's the

01:57biggest barrier, as you know. We've got a thousand megawatts of new power coming online over the next

02:03four years in this exact location. Yeah, explain where that power is coming from, where it's coming

02:08online. As I mentioned, one of the most read stories on the Bloomberg terminal today is about data

02:13centers that are just sitting there idle because they cannot get capacity actually hooked up to them

02:17to energize them. That's right. And sometimes it's better to be lucky than good. San Jose is a

02:24beneficiary of a decision made by CAISO, the independent system operator here in California.

02:30Many years ago, before we were talking much about AI, they were just looking at general economic growth

02:36trends and decided that San Jose had some of the highest growth potential in the entire state,

02:42and they approved new transmission lines. There's one line coming up from the south, one from the north,

02:48but they both come into San Jose, each is a thousand megawatts. So here's a city that has a million

02:54people, 12th largest city in the country, already consumes about 1.1 gigawatts of power. We have two

03:01gigawatts coming online over the next four years. That means we can triple our energy use in the city of

03:08San Jose. There's no other city in California, maybe the country that is set up to triple its energy

03:14consumption over the next four to five years. That's a really unique position to be in. We're just

03:19blessed with this infrastructure coming online. We've, of course, said yes to it, helped facilitate

03:24it, been very supportive of it. But we're really optimistic that this means more jobs, not just data

03:31centers, advanced manufacturing, R&D labs. We're in a really strong position to capture this

03:37technological wave that we're in. The power that will be used by these data centers, the power

03:43that's coming online, how is it being generated? I know you have that one nuclear power plant down

03:48south, Diablo Canyon on the central coast, and some renewables certainly too, wind and solar. How's this

03:55energy going to be generated? So the city of San Jose a few years ago set up something called a

04:02community choice aggregator. Essentially, that's a mouthful, but essentially the city purchases power

04:07on behalf of the users within our city limits. We have used this policy tool to sign 20-year power

04:14purchase agreements that enable us to fund new generation capacity. And because we have a commitment

04:21to cleaner energy, what we're essentially doing is buying solar and wind paired with storage. And

04:30that's the key. The intermittency issue is real. But when you build enough storage capacity, you can

04:36smooth that curve out and actually make it work. And so San Jose already has one of the cleanest renewable

04:42mixes in the country. But it's largely because we're using that collective purchasing power to invest in

04:51cleaner power, invest in innovation in the energy sector. And it's taken us a long way. And we're

04:56going to continue to go down that path because grid scale storage is the way to clean up the grid.

05:03You mentioned nuclear. I think that also has to be part of the mix here if we want to really get down

05:08our emissions. But I'm proud of the work we've done in San Jose, and there's a lot of runway left.

05:13So is it fair to say that none of the power that will be used to energize these data centers will

05:19be, you know, quote, unquote, dirty, non-renewable power, carbon-based stuff?

05:26Well, I can't guarantee none of it will because the power is coming off the grid. And so what we're

05:30doing is using this projected increase in demand to sign new power purchase agreements that are

05:37mostly, if not entirely, quote, unquote, clean. But then that gets added to the grid and moves up the

05:44overall mix of renewable on the grid. So I can't promise you that there aren't electrons coming off

05:49the grid that are coming from nuclear or a gas plant somewhere. Certainly natural gas, nuclear are still

05:57very much part of the foundation. California isn't really isn't using coal. We're using geothermal is

06:04growing, but it's really been solar paired with storage. That's where most of the growth is coming

06:09from. And the great thing about growth is you can invest in an innovation. And that's what we're

06:14doing is we're explicitly purchasing solar paired with storage so that we can increase the renewable

06:21mix on the grid overall. That benefits us and the entire state. Mayor Mahan, any interest yet from

06:27some of the large hyperscalers or large tech companies in Silicon Valley for using this capacity? What can you

06:33tell us? We have a very robust pipeline. PG&E did a cluster study last year that's already outdated

06:40because there's so much more demand. I suspect most of those two gigawatts of new power coming online

06:47will be spoken for over the next 18 months. We've got a long pipeline of interested parties, the usual

06:54suspects, the hyperscalers and the big data center developers, some advanced manufacturing uses.

07:00So PG&E will be updating their cluster study. We'll get a better look at how much demand there is in

07:06the city of San Jose. But last year showed over 800 megawatts worth of demand. I suspect it's quite a

07:12bit higher now this year, especially with this news. As you know, for this particular site, Prologis builds

07:17for the world's largest companies, the hyperscalers, the most innovative companies on earth. And this

07:23particular location is a real win-win because it doesn't displace housing or retail or any other uses. It's

07:30underutilized land next to a wastewater treatment facility that just happens to have a lot of new power

07:35capacity and recycled water just adjacent to the site. So it's kind of the perfect place to do this.

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