'Good Luck Trying To Develop Anything Here': Bay Area Power Crunch Pushing Data Centers Away

Power problems are stalling data center development in the Bay Area, with little relief on the horizon.

While power constraints facing the Northern Virginia data center market have generated headlines, it is in Northern California where dwindling access to electricity has had the most debilitating impact on the industry’s growth. Data center developers looking for utilities to provide them power in Silicon Valley and other regional hubs now say they are routinely being told it could take as long as a decade, blocking new development as demand soars.

The situation may not improve anytime soon. Desperately needed improvements to transmission infrastructure and power generation projects needed to alleviate these constraints are years away from completion and face uncertain timelines, and power consumption from data centers is set to double by 2035. In a sector where speed to market is everything, developers are pushing into surrounding markets to steer clear of the Bay Area’s energy headaches. 

“Good luck trying to develop anything here,” Arman Khalili, founder of data center provider Evocative, said at Bisnow’s DICE West event last week. “We've tried, and the answer we were getting from the utility was that they’d talk to us in five years just to let us know when they could serve us. We’re talking the seven-to-10-year range.”

Data center tenants still want to be near Silicon Valley. Customers with a range of use cases want their IT infrastructure close to tech campuses, major population centers like San Francisco and San Jose, and the enormous existing inventory of data centers in what is still the country’s fifth-largest market, according to JLL. 

Vacancy rates across Northern California sit below 4%, according to JLL, and tenants have been willing to pay ever-higher rents for any existing capacity in the area. Because of the demand and pricing dynamic, developers able to find buildable land and available power have had success financing projects to bring some new capacity to the market, even if they are smaller facilities.

This week, Novva Data Centers announced plans for a 28-megawatt data center in South San Francisco. DigitalBridge-backed Vantage Data Centers has embarked on brownfield developments in Santa Clara and San Jose over the past year.

But accessing the hundreds of megawatts of power needed for the hyperscale campuses that are driving demand across the industry has become all but impossible to find throughout the Bay Area, industry leaders said at DICE West, which was held Nov. 29 at the San Jose Marriott. 

Big Tech tenants like Microsoft, Google and Amazon Web Services are looking for massive facilities to be built fast, and that isn't possible in a market where just acquiring power can take 10 years. 

The data center industry’s growth in the Bay Area has slowed as a result. Over the past two years, the region has fallen behind Dallas, Chicago and Phoenix in overall capacity, according to JLL, even as those markets have experienced power constraints of their own. 

“We're looking for hundreds of megawatts of campuses, and frankly, Silicon Valley's just not on that list right now because of the power constraints,” said Charley Daitch, chief commercial officer at Rowan Digital Infrastructure. 

Northern California’s power problems may get worse before they get better, according to a study published last month by utility Silicon Valley Power. The report says power use from data centers in the area will nearly double by 2035 and paints an uncertain picture about the utility’s ability to build out new infrastructure fast enough to meet that demand. 

While the study outlines a number of new power-generation projects that are in the works, it questions SVP’s ability to deliver those projects in time to meet expected demand. The utility attributes this uncertainty largely to California’s unusually lengthy permitting processes for construction and to what it portrays as an overly complicated state regulatory process required to connect new projects to the grid. 

“To build and begin utilizing new resources, the cost and schedule uncertainty of a complex, multi‐step, multi‐year interconnection process can significantly complicate other parts of the development process, including financing and project costs,” the report says. 

But even if utilities can bring new generation online quickly, there may not be sufficient transmission infrastructure to deliver that power to data center customers.

Transmission has been the main power pinch point impeding data center development in Northern California, industry executives said at DICE West. And while some infrastructure improvements are underway, the report from Silicon Valley Power indicates that even that planned transmission capacity may not be enough to handle the forecast power load. 

“The power companies have the power. They just can't get it to where you need it because their distribution loops are maxed,” DigitalBridge Managing Partner Peter Hopper said. “That’s a harder problem to fix because you're talking about developing new high-tension distribution lines that go through developed neighborhoods, and there's permitting, rights of way and things like that that make it a longer-term problem to solve.”

Many of the same issues standing in the way of new generation in the Bay Area are hindering the development of desperately needed transmission infrastructure, especially difficult permitting and approval processes that extend development timelines beyond the norm for other major data center markets, Daitch said. 

“Regulation gets thrown around sometimes as a boogeyman, but when it's going to take seven years to build a transmission line in Silicon Valley, that's a bad place to be for any data center developer or any business,” Daitch said. “When it's hard to get infrastructure sited and permitted, that’s a huge issue.”

With no clear solution to these infrastructure woes on the horizon, developers are increasingly looking outside the Bay Area’s traditional data center hubs to locations where power is more readily available. Reno, Nevada, is experiencing a data center development boom driven in part by spillover demand from Northern California, as is Hillsboro, Oregon. 

Within the Bay Area, developers are pursuing projects away from data center clusters, finding locations with access to power but lacking the robust fiber and network infrastructure data center developers have traditionally required. AWS is building a data center 30 miles south of San Jose in the town of Gilroy, while Avaio Digital Partners is developing a campus in the East Bay town of Pittsburg. 

Avaio Chief Commercial Officer Laurance Lewis said at DICE West that developers are increasingly willing to build out the fiber needed to make data centers possible in locations like the East Bay. At the same time, tenants have become more willing to relax latency requirements, broadening their geographic options to secure increasingly rare chunks of capacity in the Bay Area.

“The thesis for our company is: Let's develop where the power is and bring the network to the power rather than the other way around,” Lewis said. “In the past, cloud providers were beholden to their network requirements and the latencies, which kept all the data center development within a 60-kilometer radius of core markets. Now, we're seeing those latency envelopes push out to five times those distances, allowing development to actually go to where the power is.”