Energy UK response to Risks and opportunities to the sustainability of data centres in the UK

Executive Summary

Data centres have been earmarked as a key growth sector by the Government, yet their sustainability profile demands careful consideration and strategic planning. With projections suggesting that, by 2050, data centres could account for 12% of all GB electricity demand, they must be treated as major players in the energy system, and not peripheral actors.

It is the decisions made today regarding design, siting and operational infrastructure which will have a profound impact on the rollout of data centres for decades to come. Therefore, it is right that the Environmental Audit Committee is addressing these questions now, so that we can best better prepared for the future.

The sector faces significant near-term challenges. Grid connection constraints are acute, and while proposed reforms may expedite data centre connections, there is real risk that prioritising their access to a limited network capacity could divert resources away from the essential reinforcement needed to connect renewable generation projects and other demand customers from critical parts of the economy. This tension is one which must be carefully managed to avoid undermining broader decarbonisation goals.

Increased electricity demand from data centres could present an opportunity for both electricity and wider energy system decarbonisation. Data centres can act as flexible assets through demand-side response (DSR) and energy storage co-location, unlock waste heat recovery value and fund expansion of low-carbon generation. It could also help reduce cost for other energy systems users by spreading costs across a wider consumer base.

However, the speed at which we expect the data centre sector to scale may create sudden and intense pressure on the electricity system, whereby under the current policy framework much of the opportunities will be missed.

In the short term, the priority will be to secure timely grid connections without compromising connections for other demand customers or renewable generators. It will be important to ensure minimum standards are built into data centres designs and they are carefully monitored to minimise their environmental impacts and future proof their operation. Over the medium term, the focus should be on deeper policy reform and positioning data centres as significant funders of low-carbon infrastructure expansion and active participants in a flexible low carbon energy system. Equally, data centres will have a role to play in connecting with heat networks, making them more cost-competitive and offering clean heat solutions to households in more urban and densely populated areas. And finally, in the longer term, the sector has the potential to become a catalyst for the commercialisation of next-generation nuclear technologies such as SMRs and MMRs that could play a defining role in the 2030s energy landscape.

The opportunities that lie ahead are vast, but the energy system is complex and already undergoing significant changes at pace. The Government needs to set out a bold vision for how data centres can contribute to sustainable growth and ensure different policy levers and mechanisms across multiple Departments (including DSIT, DBT, DESNZ, MHCLG and Defra), NESO and Ofgem align with this approach. It is only through close cooperation and active engagement across sectors of the economy that we will successfully capitalise on these opportunities – and, critically, avoid the risk of treating data centres as peripheral players in the system, rather than the active players they must become in the energy landscape of the future.