Data centres and the challenge of access to affordable and sustainable power

Even before recent geopolitical events caused electricity prices to spike, non-commodity charges have been steadily increasing. Recent research by Cornwall Insight notes that electricity transmission network spending is expected to rise nearly fourfold in the period between 2026 to 2031, with a corresponding increase in Transmission Network Use of System charges and Distribution Use of System charges. 

At the same time, the demand connections' queue has increased exponentially between December 2024 and June 2025 (based on the latest available data from NESO), which means that well-progressed data centre projects are at risk of not connecting for decades to come.

Grid access

In the UK, the biggest challenge that data centre developers face is access to the grid. This is what the Government is seeking to resolve through the demands' connection reform. 

The reform is structured around three pillars: "Curate, Connect and Plan", with Government and Ofgem working together and with transmission network operators and distribution network operators to bring forward measures that are intended to: sanitise the existing data centre queue, increase barriers to queue entry for new data centre developments and ensure that strategically important projects are prioritised. 

Under the Curate pillar, NESO has already started collating information about existing contracted capacity, through a Request for Information. Measures proposed include new data-centre specific financial instruments (potentially including a non-refundable deposit) and more strict 'readiness' criteria (like those that applied to generation projects under the Gate 2 to Whole Queue process). 

Under the Connect pillar, NESO is exploring the possibility of relaxing the 'self-built' rules for sole-use transmission connecting assets and the potential of creating a new 'independent transmission network operator licence'. Data centres may also be mandated to provide a minimum percentage of flexibility, as a condition to connection.

Finally, under the Plan pillar, the Government intends to identify strategically important projects (expected to be located in AI Growth Zones), which will be prioritised for connection. This will be facilitated through changes to the existing Connections' Design Methodology. 

Importantly, the measures under the Curate and Plan pillar are intended to be in place before the next Gated application window opens. There is an indication that this will occur in Q3 2026.

Affordable and sustainable power 

In the U.S. where similar grid access issues are prevalent, data centre developers are asked by network companies to 'Bring their Own Power'. This often takes the form of combined cycle gas turbines, allowing for a bridging solution, until a full connection to the grid is possible. This raises important questions around the compatibility of rapid data centre development with the Net Zero agenda, with commentators arguing that the climate emergency is becoming an afterthought; a problem to be resolved after the data centre is operational. 

In the UK, in an effort to address this issue, we are seeing a rising interest in private electricity networks. Pure Data Centre Group switched on what is hailed as Europe's first islanded data centre-microgrid in March 2026. The data centre is located outside Dublin and the microgrid operates independently from the grid, combining dual fuel gas turbines with battery storage and the possibility to add hydrogen. Data centre–backed microgrids are becoming the norm in the US and we anticipate that we will see this trend carry across to the UK. 

Setting up and operating a microgrid comes with important regulatory considerations. The Electricity Act 1989 provides that the generation, supply and distribution of electricity are licensable activities unless an exemption applies. Microgrid operators seek to rely on such exemptions to supply and distribute electricity through the network. Whether a particular exemption applies is fact-sensitive and requires careful legal and technical consideration at the outset. 

Where grid access is available, power purchase agreements ("PPAs") (either sleeved or private wire arrangements) remain the backbone of renewable energy procurement for data centres in the UK. Kao Data has entered into a private wire power purchase agreement with Downing Renewable Developments to provide 40MW of direct solar power to the data centre. 

With the next CfD auction (AR8) being brought forward to June 2026, we anticipate that the PPA market will, once again, contract. From a renewable energy developer's perspective, the ability to conclude a 25 year agreement with a Government-backed counterparty (the Low Carbon Contracts Company) on standard terms is a more attractive option than entering into lengthy negotiations with third-party offtakers. Recognising these tensions, the Government launched a call for evidence in January 2026 seeking the industry's view on standardising the terms of corporate PPAs. Whilst there is merit in advocating for standardised terms, the reality is that each renewable energy project has its own unique characteristics which, combined with differing risk appetites from both the developer and the offtaker, would make creating a standardised approach rather difficult. 

Concluding remarks

On-site generation (as part of an islanded microgrid solution) could result in significant benefits for data centre developers, for instance in the form of avoided non-commodity charges and the ability to appeal to customers with sustainability commitments where the electricity is generated by renewable energy sources. It may also result in the data centre becoming operational quicker than it would have been otherwise. 

Where on-site generation is not feasible due to locational constraints or cost, a private wire PPA could be a suitable solution. A purpose-built asset (for instance a ground-mounted solar pv farm) could be located in close proximity to the data centre. A co-located battery energy storage system ('BESS') would allow for excess electricity to be stored and discharged at times of peak demand. 

Depending on the technical configuration of the connection of solar pv farm and the BESS to the data centre, as well as the data centre’s sizing and demand profile, back-up generation may also be needed to provide a 'buffer' in the event of downtime or where performance related issues were to materialise. This could take the form of a combined gas cycle wind turbine or a diesel generator.

As the industry matures, we expect to see more innovative solutions coming to the fore. These present a unique opportunity for renewable energy developers to work with data centre developers to create blueprints for the future.