The US Department of Energy (DOE) will offer Californian utility Pacific Gas & Electric Company (PG&E) a conditional commitment for a loan of $15 billion to finance a grid and power generation modernization project.
PG&E will use the loan to fund Project Polaris, a large infrastructure development that aims to expand hydropower and battery energy storage capacity, upgrade transmission capacity through reconductoring and grid-enhancing technologies, and enable virtual power plants throughout its service area. PG&E will draw from the fund up to 2032.
The loan “will help meet forecasted electricity demand growth, ensure system reliability, and dramatically reduce costs for its customers,” according to Chris Creed, chief investment officer of the Loan Programs Office.
The US DOE’s Loan Programs Office (LPO) issued the loan, the second from its Energy Infrastructure Reinvestment (EIR) project. The EIR deploys a flexible loan facility and disbursement approach tailored for regulated investment-grade utility borrowers. It focuses on supporting utility infrastructure plans that include multiple project sites with geographic and technological diversity.
When underwriting the agreement, the LPO works directly with the potential borrower to determine a tailored loan amount. The loan amount reflects the maximum amount the utility may borrow. To draw down the LPO financing, the borrower must submit information and invoices at the individual project component level for validation and reimbursement.
The loan follows PG&E’s estimation that more than 3.5GW of data center capacity will come online in California between now and 2029.
From 2025 to 2029, data center operators have requested more than 1.6GW of capacity in San Jose from 11 different customers, with individual demands ranging from 10 MW to 600 MW.
Notably, around 100 MW of this total is slated for 2025. In November, PG&E announced it would develop three data centers with real estate developer Westbank in San Jose totaling 200MW.
In Hayward, four customers have submitted requests totaling 975MW, with 800MW accounted for by a single client scheduled for 2028.
Other cities also saw significant demand, including Fremont with 230MW, Gilroy, and Milpitas each with 210MW, and San Francisco at 70MW. Sunnyvale and Santa Clara both have 100MW each, while Richmond has requested 35MW.
The utility added that between $500 million and $1.6 billion in capital is needed to support the data center load increases.
However, there are major concerns over whether the transmission infrastructure needed to energize these projects will be online to meet the data centers' schedules. Nonprofit GridClue ranked California 49th out of 50 states in grid resilience, fanning the flames that the state will be unable to cope with the extensive new data center capacity expected to come online over the next five years.
CBRE has previously said many substation sites around Silicon Valley will not be energized until 2028-2029, and their coming online may be delayed due to the grid capacity being maxed out in Santa Clara.
PG&E has previously found itself in hot water over systemic issues with its grid infrastructure.
In 2019, the company filed for bankruptcy following a November 2018 Camp Fire in Northern California, which killed 85 people and destroyed thousands of structures. Inadequate inspections and maintenance of the utility’s transmission line towers were pinpointed as the cause of the deadly fire.
Since then, the utility has invested heavily in its transmission system and expects to spend $9.1 billion on FERC-related transmission projects from 2024 through 2028.