Infrastructure constraints could limit the UK’s ability to capitalise on growing demand for data centres.
The UK has made a clear commitment to becoming a global leader in data centres and, in some measures, already leads the European market. With AI adoption continuing to drive demand for compute capacity and digital infrastructure, the challenge is now whether the UK can address the infrastructure constraints required to support that growth.
According to Heligan Group, power is a key constraint, with data centre projects facing grid connection timelines of five to ten years. While Ofgem is progressing reforms to clear speculative projects from the connection queue and allow developers to self-build some grid connections, more than 100 new UK data centre projects are already securing power through on-site gas generation instead.
“That solves the immediate problem but creates a different one”, said Andrew Dickinson, Director, Corporate Finance at Heligan Group. “NESO has rightly flagged the longer-term climate trade-off against the UK’s Clean Power 2030 target.”
“Energy costs are adding to the pressure and UK industrial electricity prices are among the highest of any major economy, at roughly double the European average and around four times those in the US. Data centres are particularly exposed given how much of their operating cost is power. OpenAI’s decision to pause its Stargate UK project in April, citing energy costs and regulatory uncertainty, provides a clear signal of where policy needs to move fastest.”
Water is another challenge, particularly as the UK faces increasingly frequent heatwaves. Hyperscale facilities, particularly those built for AI workloads, can require vast volumes of water for cooling, with a single facility consuming as much as a small town.
However, water demand is more solvable through design choices including closed-loop systems, water recycling and careful site selection.
“The UK does not need to step back from its data centre ambitions, but it does require an aligned delivery strategy”, added Dickinson. “Coordinating government, network operators, water utilities, developers and the wider supply chain will be important to reduce the need for expensive remedial investment later and allow public and private spending to be directed more effectively across the wider infrastructure network.”
“The infrastructure challenge is already creating demand across the sector. OCU Group’s acquisition of Athena PTS, an Independent Connection Provider helping developers accelerate the design and delivery of complex grid connections, is a clear example of the market building its way through this constraint.
“As projects move from planning through construction and into operation, demand may broaden across design and civil engineering, MEP, environmental compliance, and long-term facilities and asset management.
“Continued M&A activity is expected as larger contractors and investors move to acquire capability across the full build and operate lifecycle of data centres”, concluded Dickinson.
Andrew Dickinson is a director of Corporate Finance at Heligan Group
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