San Jose data center boom tests California power prices, grid

from Alejandro LazoCalMatters

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San Jose, the symbolic capital of Silicon Valley, is now ground zero in California’s battle over how to manage the rise of data centers used to power artificial intelligence.

The Santa Clara County Center touts its partnership with Pacific Gas & Electric, claiming the city is “the West Coast’s premier destination for data center development.” The investor-owned company now estimates it has enough capacity in its planning project to increase the city’s electricity use to almost three times its current peak.

Those plans require major improvements to the grid, PG&E and city officials say, while raising questions about who pays for them and whether the state can keep the power clean.

Panelists at a CalMatters event in downtown San Jose clashed over key issues. They included a local official working with PG&E to build a city data center, a tech advocate urging California to take advantage of the economic moment, a Stanford energy expert pushing for a more modernized grid, and a utility watchdog skeptical of the promised benefits of AI.

Their discussion centered on how quickly California needs to move to accommodate new demand, what information the public should be entitled to and how to ensure customers don’t shoulder the costs of infrastructure that may never be fully utilized.

Proposals to more tightly regulate data center development died in the Legislature this year. In the future, several state agencies and commissions are expected to begin additional discussions, including the California Energy Commission, the Little Hoover Commission and the California Public Utilities Commission.

How Much Power Will California’s New Data Centers Really Need?

Growth in AI is complicating efforts by regulators and utilities to predict how fast data centers will grow and how much power they will need. Companies can propose large facilities without committing to build them, the computing requirements behind AI change rapidly, and cooling needs vary from state to state. These factors make it difficult to determine long-term energy needs.

According to the state electricity demand forecastthe utility reported that data centers in planning documents requested 18.7 gigawatts of service capacity. That’s enough to power roughly 18 million homes, compared to an estimated 14 to 15 million in California. Regulators don’t expect all of these projects to be built, and assume that those that do will be phased in and operate at less than claimed capacity, creating a forecast of between 4 and 6 gigawatts by 2040.

Liang Min, who directs Stanford’s Bits & Watts Initiative and was a speaker on the CalMatters panel, said forecasting is especially difficult because companies are rolling out new AI applications — or “layers of applications,” as he put it — at breakneck speed. These include products like ChatGPT that use large language models. No one knows which applications will hit the market, and these uncertain bets place huge demands on the power grid.

“We’re really struggling right now,” Min said. “The risk is extremely high in the application layers.”

The Office of Public Advocates, an independent consumer watchdog within the California Public Utilities Commission, recently warned that rapid data center growth could leave Californians paying for billions of dollars in grid upgrades if the projects never materialize or use far less energy than promised.

“Ratepayers may end up paying for expensive infrastructure upgrades that may not be needed for many years — or at all,” the service said in its comment.

Min said data center load forecasting is a national challenge, but California will need better tools to keep prices under control, meet its clean energy goals and stay competitive with states racing to attract data centers and high-paying tech jobs.

Local governments have also begun to grapple with the uncertainty. In San Jose, city energy officials say they are reluctant to commit to additional power until they know which projects will actually be built. “We don’t want to buy more energy than we need,” said panelist Laurie Mitchell, director of San Jose Clean Energy, the city’s public utility. “It’s job number 1.”

What are the environmental concerns surrounding the data center boom?

California’s data center boom is bringing a wave of environmental concerns that state officials are only beginning to understand. These concerns center on water use, carbon emissions associated with increasing energy demand, and air pollution from backup diesel generators.

Air quality is particularly dangerous. While backup generators operate only intermittently, their presence is concentrated in a handful of regions. In Santa Clara County, where many facilities are located close together in dense industrial areas, local impacts can be greater simply because so much equipment is packed into a small space.

Yet the state still has limited visibility into what data centers are doing. Attempts to demand more transparency stopped this year amid opposition in the tech industry. The only measure that became law gives regulators the power to determine whether data centers are increasing costs — but does not require environmental reporting.

Ahmad Thomas, CEO of the Silicon Valley Leadership Group, and another panelist, said his group opposes the electricity and water disclosure measures because they would make California less competitive.

“It’s very hard to see a world where California is at the top of the AI ​​heap if we don’t have an approach to data centers that is — at the very least — mildly competitive with other states,” he added.

Consumer advocates say the lack of information leaves communities unprotected. “We certainly think there should be more transparency — that’s a good thing,” said expert Mark Tawney, executive director of The Utility Reform Network, a payer advocacy group.

Will data centers slow California’s transition to clean energy?

Rapid data center growth could slow California’s transition to clean energy if it keeps the state tied to natural gas. And some of the carbon-free alternative energy sources that could meet their energy needs are deeply controversial among environmentalists.

The state has pledged to reach 100 percent carbon-free electricity by 2045, but still depends heavily on natural gas plants during hot summer days. A recent report from environmental think tank Next 10 and UC Riverside estimated that data center carbon emissions almost doubled from 2019 to 2023 – mainly from gas generation – highlighting how even a relatively clean grid can struggle to absorb AI-driven workloads without higher emissions.

State leaders are making policy changes as demand for AI grows. California this year approved joining a wider Western energy marketa move driven in part by new demands on the network, including data centers. Critics warn the change could expose the state to dirtier electricity than other states and weaken its control over clean energy rules.

Stanford’s Min argues that California will have to rely on options that some conservationists would prefer to avoid. This includes retaining existing resources such as the Diablo Canyon Nuclear Power Plant. In a recent reportMin argued that the state will also need more “clean, stable” energy — resources that can run around the clock — such as geothermal or natural gas plants with carbon capture.

PG&E agrees. Spokeswoman Stephanie Magallon told CalMatters in an email that nuclear power, carbon capture systems and large solar and battery projects are all options being considered to power data centers in the region. But environmental justice critics in California have oppose carbon capture technology calling it an unproven technology that risks expanding the use of fossil fuels.

Mitchell said community-choice aggregators can handle new data center load while keeping power clean and available. San Jose’s mix is ​​already 60 percent renewable, and she said the biggest opportunity is flexibility — for data centers to shift their use away from the hottest afternoons so the city avoids buying extra power.

Will data centers increase your electric bill?

California’s data center boom is changing the battle over electric bills, revealing a divide over whether those new customers will lower costs — or raise them for everyone else.

PG&E argues that adding large users such as data centers can lower rates because fixed network costs will be spread among more customers. It also claims the grid is underutilized on average – operating at around 45% of capacity – although the grid faces real strain during the hottest hours and in parts of the system that routinely operate close to their limits. If data centers could be connected to locations with available capacity, PG&E argued, they could help spread costs without worsening congestion.

Toney, another panelist, urged the state to slow down, warning that California is planning major infrastructure without knowing which data centers are real or how their costs will affect customers’ bills.

“I am concerned that we are engaged in what I call faith-based politics,” he said. “The benefits are very speculative, but the costs are very real.”

Some states, Toney said, have begun tightening rules on data center growth. One law in Oregon will require data center network costs to stay out of household bills. And Minnesota law will give very large data centers their own billing category so regulators can keep their costs separate from other customers’ electricity bills.

“This issue of data centers and the connection between affordability and clean energy is of national importance, and California is actually lagging behind on this,” Tony said. “There’s this mythology about California being the leader all along.”

This article was originally published on CalMatters and is republished under Creative Commons Attribution-NonCommercial-No Derivatives license.