Data centers in Nvidia’s hometown stand empty awaiting power

In Santa Clara, California, where the world’s biggest supplier of artificial-intelligence chips is based, Digital Realty Trust Inc. applied in 2019 to build a data center. Roughly six years later, the development remains an empty shell awaiting full energization. Stack Infrastructure, which was acquired earlier this year by Blue Owl Capital Inc., has a nearby 48-megawatt project that’s also vacant, while the city-owned utility, Silicon Valley Power, struggles to upgrade its capacity.

The fate of the two facilities highlights a major challenge for the US tech sector and indeed the wider economy. While demand for data centers has never been greater, driven by the boom in cloud computing and AI, access to electricity is emerging as the biggest constraint. That’s largely because of aging power infrastructure, a slow build-out of new transmission lines and a variety of regulatory and permitting hurdles.

And the pressure on power systems is only going to increase. Electricity requirements from AI computing will likely more than double in the US alone by 2035, based on BloombergNEF projections. Nvidia’s Jensen Huang and OpenAI’s Sam Altman are among corporate leaders that have predicted trillions of dollars will pour into building new AI infrastructure.

“The demand has never been higher, and it’s really a power-supply problem that we have,” Bill Dougherty, executive vice president for data center solutions at real estate brokerage CBRE Group Inc., said in an interview.

The Santa Clara projects are relatively small compared with the massive complexes for large-language model AI developers, which are now being built in Texas, Pennsylvania, Louisiana and New Mexico, where the cost of electricity is lower but the power sources are often still works in progress.  The smaller centers serve local cloud clients who pay a higher price for real estate and power to reduce latency caused by long-distance transmissions — think high-frequency traders or autonomous-vehicle operators who need information in microseconds. 

“There are portions of data-center demand that need to be as close as possible to population centers,” Dougherty said.  “That is the demand that needs to be in California. They can’t bring it online because there’s constraints on power.”

Santa Clara has 57 active or under construction data centers, according to a May city council presentation. Silicon Valley Power has agreements with Stack and Digital Realty that outline the terms and conditions for providing service, and it’s constantly evaluating requests for additional power, said utility spokesperson Janine de la Vega in an email.

“SVP is undertaking a $450 million system upgrade to meet the needs of these and other customers, and the project is currently on schedule to be completed in 2028,” she wrote.

There are other places, of course, facing similar delays due to utility-capacity limits. As the surge in demand outpaces the grid’s available power and transmission infrastructure, utilities across the US have struggled to keep up.

Last year, Dominion Energy Inc. said it expected the time it takes to connect large data centers to the grid to increase by one to three years, with some taking as long as seven years. Dominion serves northern Virginia’s so-called Data Center Alley, the world’s largest concentration of computing facilities. In Oregon, Amazon.com Inc. alleges it’s been denied sufficient power for four data centers by a Berkshire Hathaway Inc.-owned utility, according to a complaint.

A three-year wait for energy is “generally consistent” with the lead time to secure electricity in most of the US, but waiting periods are longer in high-demand areas like Silicon Valley and Northern Virginia, said Jordan Sadler, a spokesman for Digital Realty, which owns more than 300 data centers globally.   

“In Santa Clara, if you find a site today and you’re searching for new power, you’d be many years out,” Sadler said in an interview.  “Sometimes we’re a little early. But we’re typically not late. You don’t want to be late.”

Digital Realty’s Santa Clara project is currently a vacant 430,000-square-foot (40,000 square meter) four-floor building. The company’s fully outfitted US centers average about $13.3 million per megawatt, Sadler said, although prices are higher in Silicon Valley. Digital Realty spends about 20% to 25% of the final construction cost for a shell before a building is prepared for occupancy. The company is working with Silicon Valley Power to get electricity ahead of 2028.  

“Digital Realty continues to collaborate with SVP to obtain the remaining power needed to meet the building’s total critical IT load of 48 megawatts by the end of this year,” Crystal Delany, the company’s vice president of data-center portfolio management, said in an email.

Because of high demand, developers are often able to lease projects years before completion, with 74.3% of the current US construction pipeline already committed to tenants, CBRE reported. Digital Realty has leased about 61% of the $9.7 billion of data centers in its pipeline. The company declined to disclose the leasing status of its Santa Clara project.

Stack Infrastructure’s plant, a 551,000-square-foot building with four floors of now empty data halls, originally sought city planning approval in 2021. “Power will be delivered via a dedicated on-site substation, with 12 megawatts of critical capacity available for immediate lease” and capacity to expand to 48 megawatts, according to a brochure for the property. 

An agreement with Silicon Valley Power “reflects current power and new power coming online through 2027,” according to an emailed Stack statement. Stack declined to discuss the center’s leasing status.

Blue Owl Capital announced more than $50 billion of investment in data centers in September and October, including $30 billion for a Meta Platforms Inc. in Louisiana, and more than $20 billion with Oracle Corp. in New Mexico. The investment firm has 1,000 people at Stack to design, build and operate data centers, co-Chief Executive Officer Marc Lipschultz said on an Oct. 30 call with investors.

“It’s not about what you did today,” Lipschultz said on the call. “It’s about what you did two years ago to position yourself with the right land and the right power and the right understanding of the regulatory frameworks and how to actually get this done. Because getting it done, it matters as much as the capital, and we do both.”