Santa Clara’s Data Drain

Santa Clara has a power problem.

During the Oct. 26, 2022 Planning Commission meeting, Electric Utility Chief Operating Officer Kevin Kolnowski outlined a grim picture for Planning Commissioners.

Kolnowski told commissioners power usage peaked at 704 megawatts (MW) on Sept. 6, 2022. That was 54 MW more than the peak reported to the City Council just a few months prior. While Silicon Valley Power (SVP) is in the process of increasing its load to 1100 MW, it’s a 10-year plan to get there and what happens after that is going to be difficult.

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“We’re doubling right now, but to have to double again, that’s a huge undertaking that is unprecedented to do for an electric utility in today’s market,” said Kolnowski.

SVP Director Manuel Pineda told the City Council something similar on Aug. 16.

“The load growth is happening now,” Pineda told the Council.

Pineda tied the surge in power use to the increased development of mixed-use and commercial projects as well as more data centers coming online.

Both executives have sent the same message. While the drain on the City’s power resources is not here yet, if something is not done soon, the “Center of What’s Possible” may soon become the center of the impossible.

Santa Clara: Silicon Valley’s Data Hub

It’s no secret that Santa Clara is a paradise for data centers.

The lower electricity rates offered by SVP, easy access to fiber optic communication networks, energy reliability and a moderate climate all make Santa Clara an ideal home for an energy-draining industry like data storage. Developers are well aware of this fact.

When Santa Clara is compared to other cities in the South Bay, it is the leader in data centers by a large margin.

According to the City, there are approximately 50 data centers currently operating in Santa Clara with 7 more approved in the past 2 years. The City has also received plans for three more data centers, though those plans are still going through the approval process.

Santa Clara’s biggest neighbor, San Jose, is a minor player in data centers by comparison. While San Jose does not track the number of data centers currently operating in the city, the information is easily found on sites DataCenters.com and Cloud and Colocation. According to DataCenters.com, there are 24 data center sites in San Jose. Cloud and Colocation reports a slightly lower number at 21.

According to city officials in San Jose, as of March 2022, there are four more data center sites that have received approval but are not up and running yet.

Sunnyvale reports 13 data centers operating within the city limits with no new plans in the pipeline at this time.

According to a spokesperson for the City of Mountain View, there are two data centers operating within city limits, with no data centers in the planning stages.

Ultimately, there are more data centers in Santa Clara, than there are in San Jose, Sunnyvale and Mountain View combined.

Benefits of Data Centers

While data centers can place a massive strain on city resources, they are not without benefits.

Only a handful of employees are required to run a large data center facility, adding little to no impact on local traffic flow.

Data centers are a huge source of property tax revenue for a city and they can be more recession-proof than many other industries.

“Data centers are in demand as the world has embraced remote work and digital retail. This revenue source for the City has been reliable and growing even during the pandemic-induced recession,” said City of Santa Clara Assistant Director of Community Development Reena Brilliot.

Too Much of a Good Thing?

But how much is too much, even if it’s a recession proof commodity like data storage?

Financially, it’s hard to tell if data centers are paying their fair share. City officials say there are two main sources of revenue that the City receives from data centers.

The first is property tax revenue, but the age of a data center plays a part in how much the City makes.

“Property taxes are paid based on the County’s assessed value,” said City spokesperson Michelle Templeton. “The value will depend primarily on when the construction and equipment of the data center are complete. Because we have had data centers in the City for some decades, the ranges vary from $150,000 to over $1 million paid for each data center.”

The other revenue comes from electricity fees. 5% of the revenue SVP receives goes into the City’s general fund.

Drain on City Resources

But in order to reap the benefit of those electric fees, the City must provide the energy. Is there enough energy to go around?

When asked about how much of the City’s power data centers consume, City officials told The Weekly that in 2021, data centers made up just over 56% of SVP’s total energy load.

By comparison, the residential load in 2021 for the entire City totaled approximately 6%.

However, information provided at the Oct. 26, 2022 Planning Commission meeting showed that 91.4% of the City’s power is provided to industrially zoned parts of the City. While City staff could not officially confirm, one Planning Commissioner correctly guessed that 90% of that industrial power was provided to data centers.

“I feel like we are just being looted…because we have this incredibly robust, very robust, very reliable and very cheap source of power in our City,” said Planning Commission Chair Priya Cherukuru on Oct. 26.

While City staff says it is comfortable with where the City is currently in terms of electricity, some commissioners think more needs to be done.

“We’re not being aggressive enough on planning for our load increasing in the next 10 or 15 years,” said Commissioner Lance Saleme on Oct. 26. “As we continue to approve more and more data centers, they’re going to flood in. This is a Nirvana for power. Our City is the Holy Grail. You come to Santa Clara if you have big data.”

Who Pays the Price?

The City may be able to manage that load disparity now, but what happens when demand outstrips supply?

One thing Santa Clara residents have going for them is that SVP is a nonprofit, meaning it operates by different rules than for profit entities. City officials say because SVP is a nonprofit, “rates are set to recover the cost to serve each specific customer class.” Meaning there are different rates for households than there are for commercial/industrial buildings like data centers.

But that won’t protect residents from outside forces like inflation, rising transmission costs, supply chain issues and the higher cost to produce environmentally sound electricity. Those increases will be felt across the board and they were recently when Santa Clara approved an 8% rate increase for January 2023.

The Future of Data Centers in Santa Clara

As of now, Santa Clara does not have a cap on how many data centers it will allow to operate within the City. It’s something Planning Commissioners have called for more and more frequently in recent meetings, but the City Council has not addressed the issue to date.

The City Council must provide policy direction to City staff if it wants to limit the number of data centers within the City.

Until then, SVP is doing what it can to manage the expectations of data centers.

“We’ve been explaining to the data centers the challenge that we’re having,” said Kolnowski. “As we have presentations with them, we go through a system impact study and explain to them at what point we could connect them and to go beyond much more it’s dependent on the CAISO* and how they can get the power to us. We’re explaining to them and I don’t believe their entitlements will be granted until we’re capable of getting that to them.”

*CAISO also known as California Independent System Operator is the nonprofit that oversees California’s bulk electric power system including the transmission lines and electricity generated and transmitted by its members.

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