• The UK remains an attractive market for data centre investment despite existing challenges
• Energy pricing is a key limiting factor that needs to be address
• Industry is shifting in location and scale as it meets the power challenge

Demand from hyperscalers and AI operators is on the rise but is this resulting in more data centre projects successfully coming to fruition in the UK, panellists at NPM’s UK Development and Finance Forum explored.

They discussed whether the UK government’s ambitions are translating into deliverable projects, the challenges that industry is meeting as it looks to invest in the country, and the impacts of policy changes.

Asked if there is any chance that the coming wave of demand might be overestimated, head of M&A at Stellanor Datacenters Bora Heperler said: “What we are seeing is AI demand across the board. It’s not just the Nscale‘s or the big GPU names you’re hearing about, there is a lot of breadth and types of customers that are seeking GPU deployments…So, in terms of demand I don’t think there’s any underestimation I can attest to.”

But amidst this increasing demand, does the UK serve as an attractive country for investment?

David Ring, co-founder and managing director of Greenfield, offered insight from the perspective of an inference focussed developer looking to deliver projects in London, an area which remains a prevalent FLAP-D market.

“We’re still seeing the London market [as] very, very prevalent, hence why we moved very early to look into the co-location side, [and] also GPU-driven identity,” Ring said. “We saw that huge market, and we’ve seen no slowdown in investment and operators are really keen to enter this market.”

More widely, CEO and founder of Telis Energy Group Adrien Pinsard said that he sees the UK as an attractive market alongside other European markets, highlighting that each comes with pros and cons.

“[The UK] certainly has a reputation for being a place friendly for business, where a lot of neocloud companies and hyperscalers are located,” Pinsard said. “It would be first choice for most players if the sites were available, and it has a fairly favourable planning regime.”

According to Pinsard, the UK has historically been a market where it is relatively easy to secure planning. However, this reputation has taken a hit due to grid reform.

While the reform process is good overall – reducing speculation and promoting serious projects – Pinsard noted that it has slowed the planning process.

Nevertheless, he expects the UK to bounce back in the coming years and through the reform process benefit from a steady and efficient planning regime.

A key con that Pinsard highlighted is the high cost of power, contrasting the UK with the Nordics, which has taken off as a location for data centres due to its low power prices.

The UK is also seeing the impact of limits on availability of power with Gowling WLG partner Jocelyn Paulley noting that a lack of availability in London and abundant availability of renewable power in Scotland is changing where investors are considering delivering projects.

“To the point that one of the UK’s challenges is that power is so expensive, that clearly gives a point of differentiation and a new point of interest for development,” she said.

Pinsard added to this point saying that he sees a future in which data centres move to where the power is facilitating successful rollout, pointing to Drax’s recent announcement that it has partnered to develop an up to 1 GW data centre at the Drax Power Station in North Yorkshire.

Developing on-site renewables is another strategy in this vein, with Ring noting that for its energy parks outside of Greater London, Greenfield is focussed on securing land parcels that enable it to augment data centre sites with solar farms and battery storage.

At the same time, Ring highlighted that the opportunity of renewables presents a challenge for the UK which is currently about a year behind on delivering Gate 2 offers. He encouraged the grid to work more closely with the data centre industry to enable delivery of power where and when its needed, particularly to support hyperscale developments.

Dmitry Golubikhin, managing director of Nomura Greentech, discussed other creative solutions that investors are pursuing. For example, in Europe, developers are looking to the struggling green ammonia market to convert existing projects into data centres.

“In the UK, it’s…not necessarily from green ammonia, but from some other situations,” Golubikhin said. “People now value quite a lot brownfield [sites]… land, which maybe was purposed before for something different.”

He pointed to Telehouse’s recent acquisition of a mixed-use campus in London’s East India Dock from LaSalle Investment Management and Trilogy Real Estate, where the former intends to deliver a 65 MW data centre expansion.

Meanwhile, data centres also offer the potential to revive stranded power projects by offering a source of demand, Pinsard highlighted.

“It’s complex because those are very large infrastructure assets and they are geographic or constrained [in where] they are located,” Pinsard said. “But I think trying to bring the data centre world closer to the power world is happening.”

Heperler anticipates that in the coming years there will be a trend towards distributed supply and repurposing of spaces.

Alongside the challenges that come with delivery, those considering investment in the UK must also contend with the changing policy landscape.

At the end of October, the UK introduced the Data Centre Covenant and simultaneously launched a consultation on the draft National Policy Statement for Data Centres.

Paulley acknowledged that the moves – alongside others such as the establishment of AI growth zones and Ofgem’s consultation on proposed data centre reforms – reflect the UK government’s serious interest in the data centre sector, and its promotion and development.

But while government intentions are good, Paulley believes that there remains a struggle to align competing interests such as high-power demand from data centres and DESNZ’s sustainability target.

“Government will have…to show that there is interest in furthering the development that can take place [and]…making the power available, because that’s the limiting factor,” Paulley said.

Golubikhin added that the UK government needs to ensure that it remains balanced. He pointed to Germany as an example highlighting regulation that gradually set targets for PUE and heat reuse which stimulated the data centre industry but did not make it prohibitive.

Meanwhile he stressed that the currently policy environment in Spain has jeopardised the market and investor appetite. He noted that it is currently very difficult to market Spanish projects, and many investors are delaying development decisions while they await a potentially more favourable government regime.

“In the UK, if policymakers [are] wise, and so far I think they [have been balanced], that [is] also poised to stimulate the industry rather than create constraints,” Golubikhin said.

However, in certain areas of policy panellists also expressed concern. In particular this was regarding Ofgem’s data centre commitment fee proposed for projects of more than 40 MW, with a planned value of between 2.4% and 7.5% of data centre capex.

Pinsard said: “It will reduce speculation and therefore promote well-capitalised players, which could be positive. But the bar is quite high, so I think that’s not [positive] for everyone.”

Paulley agreed with Pinsard but also speculated that the fee could encourage investors to be more thoughtful about projects. Because there is a cut-off for smaller projects, Paulley expects that operators will be encouraged to more carefully consider the use cases for their facilities, and therefore the power requirements.

The impact of local opposition was also discussed briefly. Greenfield’s Ring, with experience at a company delivering in well-populated Central London acknowledged that its greatly important to engage with the public early in the development process and discussed incentives to garner support such as renewables focus and local programmes.