Ed Philips is construction partner at Wedlake Bell
The UK data centre industry boom – fuelled by the unprecedented adoption of AI, the further proliferation of connected devices, and interest in the sector from major financial players – shows no signs of slowing down. However, as demand (whether that be for land, critical equipment, skills, or, most importantly, power) outstrips supply, what are the challenges facing those in the sector; and are there opportunities for those involved in meeting this demand?
Challenges:
Power Availability: The data centre industry has traditionally faced several competing issues in respect of power: First, data centres are energy intensive and the use of high-density server racks (particularly those required in AI data centres, which separately require advanced cooling technologies) even more so. Second, the National Grid requires significant upgrades (such as that recently announced in respect of the Uxbridge Moor substation) to be able to respond to the growth of the data centre sector. Third, sourcing land, particularly around London, which has a viable grid, connection is extremely difficult. Fourth, the data centre industry (and those who regulate) are under mounting pressure to move away from traditional (oil and gas) power generation, towards renewable and alternative energy sources.
Regulation and Public Opinion: The approach to granting planning for the development of a data centre has traditionally been inconsistent between areas, and dependant on the appetite and understanding of the relevant local authority – something that has not been helped by the politicisation of the sector in recent times. The speed at which data centre developers are having to respond to industry pressures can also create a bottleneck, where a revised / alternative consent is required (for example, in respect of design changes to accommodate alternative power solutions).
Skills: The skills shortage faced by the UK construction industry is particularly acute in the data centre sector, which requires specialist skills in electrical engineering, security, and commissioning. In the short term the lack of skilled labour in the sector may result in increased project costs (because of rising wage demands) and delays (due to general labour shortages).
Supply Chain Availability: The scale of demand for highly specialist systems and equipment has increased the risk of delays and cost increases within the sector. This issue has been amplified by geopolitical events – including the recent uncertainty caused by the US tariffs system – inflationary pressures and significant insolvencies in the sector.
Opportunities:
Government Strategy / Regional Growth: The UK government’s AI Growth Zones (“AIGZs”) initiative and its classification of data centres as Critical National Infrastructure has placed data centres at the forefront of the UK government’s plan to become a global AI leader. It is expected that AIGZs will create regional zones, moving the focus away from London, with enhanced planning powers to fast track development, and which, as set out in the government’s AI Opportunities Action Plan, will “accelerate the provisioning of clean power” and “drive local rejuvenation, channelling investment into areas with existing energy capacity such as post-industrial towns”. The suggestion of using existing government sites as pilots, such as the Culham Science Centre (which is the first AIGZ to be announced), will present interesting opportunities, particularly for those experienced in working within private/public partnership models.
Technological Innovation / Industry Collaboration: The rise in demand for AI infrastructure and critical components, such as cooling systems and backup power generation will see opportunities for innovation within manufacturing and energy efficiency. Key areas for growth are likely to be seen in the use of waste heat from data centre cooling systems within district heating networks, offsite and modular manufacture and in greater use of “digital twins” within the construction and design process. More broadly, partnerships between local authorities, data centre developers, lenders, industrial / logistics developers, technology providers, energy companies and district heat suppliers will be crucial to meeting the challenges ahead. Enhanced collaboration across the supply chain is also needed, along with contractual structures / approaches which promote collaboration and early supply chain engagement.
Sustainability: The data centre industry is undergoing a significant shift in how it sources and manages energy. Some of the key developments likely to be seen in the industry include the development of off-grid or hybrid power generation options (including significant use of battery energy storage systems (BESS)); a continued push towards the sourcing of clean energy – directly and through power purchase agreements; the greater use of AI and machine learning to understand and optimise energy use (and peak loads) within data centre facilities; and the development of alternative energy sources, particularly nuclear energy (where Rolls-Royce has recently been selected as preferred bidder to construct the UK’s first small modular reactors).