Datacentres need to consider alternatives to grid connection

With more than 500 datacentres currently active in the UK, and approximately another 100 in the planning system or under construction, it seems the government is set to fulfil its promise of making the UK an AI superpower. 

Despite this momentum, the infrastructure is still not in place to support the amount of power needed for the proposed wave of hyperscale datacentres if the country is to continue to lead the sector forwards. The electrical grid is already strained, and this is only going to worsen if the necessary infrastructure isn’t developed quickly and at scale. 

Datacentre operators are following an increasing trend to look for innovative ways of shoring up power, whether this be permanent baseload power or as an interim measure, by striking private deals with energy sources, such as solar farms or gas turbines, to ensure a direct, off-grid connection.  

Currently more than 125GW of planned energy and datacentre projects are stuck waiting for a connection to the National Grid, and this problem is only expected to worsen, with the amount of power used by datacentres expected to increase six-fold by 2035. 

While the government is currently funding the Great Grid Upgrade, an overhaul worth £28 billion, which aims to, in part, strengthen and expand the network so it can accommodate the increasing demand, this complex process takes time. In the meantime, the tech industry is stagnating. 

To understand the scale of the issues, it’s important to understand the order in which grid connections are managed, the reforms which have already taken place and what further reforms are proposed. 

For example, grid connections were previously ordered on a “first come, first connected” model, which led to many speculative projects being added to the queue, and resulted in viable projects being unable to source a realistic connection date. 

As part of grid connections reform and the Great Grid Upgrade, connections will no longer be offered on a “first come, first connected” basis. Instead, the system will become “first ready and needed, first connected”. 

The National Energy System Operator (NESO) has implemented a gated framework which requires developers to have the necessary land rights, planning approval and financing. The project must also meet the government’s Clean Power 2030 Action Plan requirements to be eligible.  

Those reforms took longer than anticipated to take effect but, critically, only addressed half of the issue. The reform to date has only applied to projects that export or generate power, such as solar or wind farms, while projects that demand power, like datacentres, are still evaluated on a “first come, first served” basis. 

This had led to an unmanageable queue for projects with a high demand for power, with uncertainty whether or not a grid connection will be available for a viable project. While reform is expected in 2027, it has been delayed multiple times, meaning the demand for power is rapidly increasing with no meaningful way of deciding which projects are and are not viable.  

In the interim, datacentre operators that wish to progress more quickly have been starting to make private deals, also known as “behind-the-meter” deals, with energy generators to get a power connection. This not only helps to speed up project timelines but can contribute to sustainability credentials as well. 

The biggest driver, however, which sits alongside speed of connection, is the potential for fixed tariffs from a private supplier that are often at a vastly reduced rate when compared withpower from the grid. This is possible because so much of an electricity bill is made up of “use of system” or “balancing” charges, which help to fund the investment and upgrading of grid infrastructure. These charges can make up approximately 40% of electricity bills, so striking a deal with a private operator who can avoid these grid costs can be hugely cost effective.  

It’s vital that hyperscaler datacentres begin reaching out and exploring partnerships with off-grid energy sources early in the planning and construction process. These deals can take time to finalise, and organising the deal alongside the construction will help ensure it can be functional as soon as possible. 

When structuring a deal, there’s a number of considerations that are critical to ensuring efficient service. Many renewable generators will have requirements under government-backed contracts, meaning their services could be required by the grid at short notice. It’s critical, therefore, that before entering into a partnership, datacentre operators are fully aware of the generator’s obligations and whether, if they are called upon, the datacentre’s source will be affected. 

Although these deals aren’t widely utilised, there is already conversation in the industry about using them as more than just a stopgap. “Behind the meter” deals are increasingly being considered to be the permanent primary or backup power source even after a datacentre is connected to the National Grid. This will also have the benefit of relieving some pressure on the grid while still supplying demand.  

A consistent power supply is vital for datacentres, so securing a reliable connection to a power supply needs to be top priority. With the current delays in the National Grid system, and the lengthy modernisation process still ongoing, datacentre operators are being forced to turn to other energy sources. 

While striking a private deal is a solution to getting the datacentre operational quickly, currently it is also likely to be a method of futureproofing long-term. Although behind-the-meter deals aren’t common, they are vital for datacentre operators who are looking to build reputations for providing a resilient and reliable service.  

Peter Dilks is energy and real estate partner at law firm Shakespeare Martineau.