Why Santa Clara is the Focus for Silicon Valley Data Center Activity

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Electricity pricing is a meaningful competitive factor in Silicon Valley, where the average power costs range from 9 to 15 cents per kilowatt hour (kWh), significantly higher than competing data center markets.

Within the Silicon Valley market, Santa Clara has emerged as the prime location due to power pricing from the municipal utility, Silicon Valley Power, whose rates average 25 to 40 percent lower than the cost of power from PG&E in surrounding towns.

Silicon Valley Power’s base rate for large industrial customers is about 22 percent lower than the average for PG&E in surrounding towns. Santa Clara does not have a city user tax, which means another 5 percent savings for customers compared to San Jose or 3 percent compared to Sunnyvale. In addition, Silicon Valley Power negotiates volume discounts with customers that use a large amount of power, but those rates are kept confidential.

One exception to the broader pricing trends is the INFOMART data center in San Jose, which qualifies for PG&E’s Direct Access program. The program allows it to competitively source power directly from other electricity providers. INFOMART says it can offer power rates around 9 cents per kilowatt hour, compared to about 10 cents in Santa Clara and 13 to 15 cents per kWh in other PG&E service areas. The INFOMART San Jose facility was recently acquired by IPI Partners.

These costs often factor into the decisions for Northern California-based companies to locate in the Pacific Northwest, where the power cost for data center users is considerably cheaper, with markets like Quincy, Washington offering power for as little as 3 cents per kWh.

Northern California has a reliable and extensive electrical grid. Both Pacific Gas & Electric and Silicon Valley Power encourage using renewable power such as solar, wind and the more exotic biomass solutions. However, these “green” power sources can often increase a data center’s total cost of ownership.

The DCF report also looks at various factors that define the business environment for data centers. Here’s an excerpt:

Disaster Risk Profile

The largest natural hazard threat in the Northern California market is earthquakes. According to the United States Geological Survey’s 2014 findings, the Northern California market is in one of the areas most likely to be impacted by an earthquake. Because of this, data center users and providers have invested significant capital in building facilities designed to handle these seismic events.

Another challenge for Silicon Valley data centers is the availability of water. Many data centers need large amounts of water to cool their facilities, and the multi-year drought in California creates challenges for data center operators.

Newer Silicon Valley data centers now use free-air cooling and rooftop DX cooling technologies. Although some media coverage has created a perception that data centers abuse Northern California’s limited resources, the data center industry as a whole worked hard even before California’s provincial water crisis to conserve and use water in environmentally-friendly ways. As far back as 2005, numerous data centers (including many in Northern California) received Leadership in Energy and Environmental Design (LEED) certifications designed to conserve both water and electricity

A current concern is the risk from wildfires, which have destroyed property in Sonoma and Napa counties to the north and around Los Angeles in Southern California. The only recent incidence of wildfires in the region has occurred in the Santa Cruz mountains, south of the developed property in San Jose and Los Gatos.

The State of Connectivity

Legacy carriers AT&T, Sprint and Verizon all run long-haul fiber connections on the west side of San Francisco Bay. These fast connections to the Internet backbone link tech businesses from San Francisco in the north to the concentrations of data centers south of the Bay in Santa Clara and San Jose.

Fiber from newer carriers CenturyLink, Cogent, Electric Lightwave, Integra, Level3, M Power, Paxio, Telepacific, XO Communications and Zayo all follow similar paths but also add connections to east Bay Area-suburbs of Berkeley and Oakland in the north, out to the growing eastern suburbs of Dublin, Pleasanton and Livermore, and circle back southwest to link up to San Jose/Santa Clara. Northern California also has a half-dozen localized fiber providers servicing specific areas.

Municipal fiber is available in Palo Alto, Sun Bruno (just south of San Francisco proper) and San Leandro, while Wilcon and Northern California Fiber serve the data center-heavy areas in Santa Clara and San Jose.

The Region’s Economic Development & Incentives

Tax abatement opportunities are not currently available through the State of California. Brook Taylor, a spokesman for the California Governor’s Office of Business and Economic Development, told the Associated Press in 2015 that: “If anything, (data centers) are being built in spite of the fact that we don’t have specific tax credits or incentives for them.” Local tax abatement opportunities do exist in certain markets in Northern California.

To see an overview of Silicon Valley data centers and colocation providers, including names like Digital Realty, Cyxtera Technologies, INFOMART Data Centers and many more — as well as a Northern California Market Pricing Overview — see the full report. 

This Data Center Frontier Special Report series also explored the following topics:

• Silicon Valley Data Center Market Faces Shortage of Finished Data Center Space
• Silicon Valley Data Center Market Demand Remains High as Space Remains Limited
• Silicon Valley Data Center Market Supply Low with Vacancy Rate at 7.8%

For full details on the Silicon Valley data center market, we invite you to download the Data Center Frontier Special Report: The Silicon Valley Data Center Market.