Data center-powered housing: Getting everyone on board

As AI projects proliferate, the demand for data centers is surging. But who would want to live near one? As it turns out, thousands in San Jose, California may jump at the chance, thanks to a setup in which the data center’s waste heat provides low-cost residential heating and hot water. Still, getting all the stakeholders to warm to the idea requires some marketing finesse.

As a marketing agency working in the heart of Silicon Valley, we’re used to riffing on the latest technology-related trends. Cloud computing, sustainable energy, cybersecurity, and AI are all in a day’s work here at NAVAJO Company. And yet, something is happening in our own backyard that we find quite remarkable.

Back in November 2024, Fast Company reported on a proposed housing project in downtown San Jose. Now, there’s nothing eye-opening about the prospect of thousands of new apartments, especially given the dearth of supply in this most expensive housing market in the country. However, one of the problems with increasing housing density is adding the necessary infrastructure.

Here in California, we’re phasing out natural gas. This means amenities such as heating and hot water now need to be powered by electricity. Although improving, grid electricity supply is still tight in the Golden State, especially during peak usage times of day. Increasing housing density, therefore, means tightening the screw on that supply even more.

More sustainable district energy

That is why we find this new development so interesting. The 4,000 apartments are slated to get their heat and hot water from waste heat produced by one of several nearby data centers. The data centers, the apartment building, and other public and private users will be connected through a network called a district energy system (or a district heating system more specifically in this case). Not only will the reuse of the waste heat reduce new emissions, but it will also be less costly for the apartment tenants than powering their furnaces and boilers with newly generated electricity.

District energy is also a win for the data center. By serving as a source of low-cost heat to city residents, it can be seen as a benefactor to the community, offsetting potential resistance to its exceptionally large energy and space requirements. A recent report by the U.S. Department of Energy and the Lawrence Berkeley National Laboratory predicts that data centers in the U.S. will consume as much as 12% of electricity in the country—nearly 580 terawatt-hours (TWh) by 2028.

For the electric utility (in this case: PG&E), data centers offer a welcome sink for transient excess capacity. This is especially important during the middle of the day, when renewable energy generation sources, such as solar PV, are working full blast and exporting what they don’t use to the grid.

A legacy idea gaining new momentum

District energy isn’t a new concept. One history cites references to district heating in France as early as 1332. District heating took off in the U.S in the 19th century. The first U.S. system patented in 1881 by inventor Birdsill Holly was deployed in 19 U.S. cities by 1881.

Today some 660 district energy systems deliver heating and cooling across cities and various campus environments, such as those of universities, healthcare facilities, airports, government buildings, military bases, and large corporations. Most systems are still powered by fossil fuels, primarily natural gas. But we are starting to see the use of more sustainable sources, such as biomass, geothermal energy, and waste heat. Drawing on these sources is not only more environmentally friendly, but also more beneficial to the surrounding communities, as the fuel sources can be locally or regionally sourced. One of our clients, a major energy services company, partners with organizations across the country to modernize and expand their district energy systems, often incorporating these more sustainable inputs.

Waste heat in particular may become significantly more available thanks to the rapid expansion of data center footprints. Greater availability may lower the cost of this input, helping more facilities with legacy district energy systems justify upgrading their systems to take advantage of cost-efficiency and sustainability benefits.

Benefits to whom?

Building or expanding a district energy system is a major capital undertaking. Energy services providers like our clients help organizations navigate the complexities of planning, financing, building and operating these projects. It is the job of marketing professionals such as NAVAJO to articulate in a compelling way the financial and environmental benefits.

This requires an understanding of the diverse stakeholders involved. In the case of the San Jose project, the developer, Westbank, wants to attract tenants to its residential and corporate buildings. PG&E wants to be able to deliver reliable power that the data centers need without compromising its residential and other commercial ratepayers. And San Jose leaders seek to lure leading AI developers and other innovative businesses to the city, while showcasing its leadership in decarbonization.

For each of these stakeholders, it is important to position the district energy project and communicate benefits in a way that demonstrates a recognition of their unique needs. Project developers that partner with diversified B2B and B2G marketing experts can tap into a wealth of insight into the most effective and cost-efficient ways to address each stakeholder audience.