The infrastructure challenge behind the UK’s data centre ambition

Power is a key constraint. In our Infrastructure Q1 report, we set out the progress of RIIO-T3, which has now moved into implementation. While the increase in spending commitments for electricity transmission upgrades is positive, RIIO-T3 remains largely reactive, funding upgrades against established network requirements rather than anticipating the full scale and geographic concentration of future data centre demand. Although estimates of consumption are disputed, data centres currently consume around 2.5% of total UK electricity, with this figure expected to rise four-fold by 2030. 

The scale of pipeline projects awaiting grid connection is stark, with quoted connection timelines now routinely running five to ten years. Ofgem is moving through the first phase of its demand connections reform, tightening entry tests to clear speculative projects from the queue and proposing to let developers self-build more of their own grid connections in return for faster access. Some developers aren’t waiting for reform to catch up. More than 100 new UK data centre projects are securing power through on-site gas generation instead, bypassing the connection queue entirely. That solves the immediate problem but creates a different one. NESO has rightly flagged the longer-term climate trade-off against the UK’s Clean Power 2030 target. 

Energy costs are also becoming an increasingly decisive factor. UK industrial electricity prices are among the highest of any major economy - roughly double the European average and around four times those in the US - a gap that hits data centres particularly hard given how much of their operating cost is power. OpenAI paused its Stargate UK project in April, citing energy costs and regulatory uncertainty directly. The pause is less a verdict on the UK’s prospects than a clear, quantifiable signal of exactly where policy needs to move fastest. 

Water compounds the challenge, but it is the more solvable half of the equation. During a period of increasingly frequent heatwaves, when many UK residents are being subjected to hosepipe bans, we are also discussing building data centres at unprecedented scale. 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. 

Unlike grid capacity, water demand can often be reduced materially through design choices, including closed-loop systems, water recycling and careful site selection. Closed-loop cooling and water recycling are increasingly standard in new hyperscale builds, and paired with careful site selection, they turn a hard constraint into a solvable specification. But specifications only get built at scale when design, capital and delivery are aligned from the outset, and that is the real test the UK now faces. 

None of this is a reason for the UK to step back from its data centre ambitions. What it requires is an aligned delivery strategy, coordinating government, network operators, water utilities, developers and the wider supply chain. Designing solutions into projects from the outset will reduce the need for expensive remedial investment later and allow public and private spending to be directed more effectively across the wider infrastructure network. 

For Infrastructure Services, this is already converting into real, near-term demand. OCU Group’s acquisition of Athena PTS this quarter, 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. 

Grid connection is only the first stage of a much longer opportunity: as projects move from planning through construction and into operation, demand broadens from design and civil engineering to MEP, environmental compliance, and long-term facilities and asset management. We expect continued M&A activity as larger contractors and investors move to acquire capability across the full build and operate lifecycle of data centres.

Consolidation of this kind is likely to remain a recurring feature across data centre and wider infrastructure M&A. Heligan's Corporate Finance team works with infrastructure business owners to understand how buyers are likely to value capability, track record and growth potential well ahead of any process. Get in touch to discuss what this could mean for your business.