Powering the Digital Future: Why the UK Must Align Energy Policy with Digital Infrastructure
In the global race for artificial intelligence leadership, digitalising industries has become a forefront ambition, and energy is the engine that keeps it flowing. The UK, with its ambitions of becoming a global leader in AI, cloud computing, and digital services, finds itself at a crossroads. While we boast a thriving digital economy—valued at £99 billion GVA, growing at 9.3% annually, and employing 1.7 million people—energy policy is proving to be a significant challenge.
The success of AI Growth Zones, life sciences, and research and development hinges on a reliable power supply, a stable grid, and competitive energy prices. Yet, delays in grid connections, unpredictable energy costs, and inadequate strategic planning are driving data centre investments away from British shores. At a time when 61% of UK CEOs are betting on AI, cloud computing, and digital transformation to remain competitive, the nation risks falling behind unless energy strategy aligns with core digital ambition.
Energy Infrastructure
Data centres are the physical foundation of the UK’s digital ambitions. They store and process vast amounts of data, power high performance computing (HPC), and support the increasing adoption of AI. Yet, despite their strategic importance, UK energy policy has prioritised generation over demand of digital infrastructure, placing the sector at a severe disadvantage.
Data centres are varied and have different needs, they are the backbone of digitalising our economy and AI driven economies. They are currently contributing £4.7 billion in Gross Value Added (GVA) annually to the UK economy; 43,500 jobs across the UK economy; And £640 million in tax revenue to the exchequer.
One glaring issue is the omission of data centres from the Clean Power 2030 (CP2030) Action Plan as Critical National Infrastructure (CNI). Grid connection reforms, shaped by CP2030 priorities, overemphasise energy generation while neglecting the energy needs of key demand sectors. Without a demand led approach that recognises the economic significance of digital infrastructure, the UK risks further grid bottlenecks and delays that could stifle economic growth.
Another challenge lies in the classification of data centres within the UK’s energy pricing framework. Unlike other high energy consuming industries, data centres are not recognised as Energy Intensive Industries (EII). As a result, they bear the full brunt of transmission, network, and policy costs, making the UK a far less attractive destination for digital investment. Without reform, escalating costs could deter cloud and AI companies from expanding within Britain, shifting economic opportunities to more energy friendly jurisdictions, mostly offering locational signals.
High Energy Costs: A Digital Economy Bottleneck
The rising cost of electricity is already having a cascading effect on digital businesses. With 78% of UK enterprises relying on cloud based services, increased energy costs get passed down the supply chain, raising prices for businesses and consumers alike. AI and HPC workloads—both of which require substantial computational power—are particularly vulnerable. Without energy cost stability, AI development in the UK will struggle to remain competitive, as firms seek cheaper and more predictable energy markets abroad.
For policymakers, the challenge is clear: the UK must develop a long term energy pricing strategy that ensures stability for digital infrastructure investors. Financial incentives to offset prolonged grid connection delays, as well as recognition of digital infrastructure in national energy planning, will be essential to keeping the UK’s AI, cloud services, and other digital economies globally competitive.
The Debate Over Data Centre Siting
The UK’s energy pricing mechanisms are also misaligned with the realities of digital infrastructure development. While location plays a significant role in determining where data centres are built—driven by factors such as latency, fibre connectivity, water access, and skilled workforce availability—the biggest barrier remains high energy costs and grid connection delays.
For AI driven applications such as large language models, priority would be given to low cost energy and high speed fibre connections. Yet, energy intensive industries, including data centres, are often located far from renewable generation sites, leading to inefficiencies and increased transmission costs. Current energy pricing structures fail to incentivise the co-location of energy generation and demand, resulting in additional cost burdens.
A Strategic Energy Policy for the Digital Age
For the UK to maintain its standing as a global leader in AI, cloud computing, and digital services, energy policy must evolve to give as much attention to demand industries, such as the digital economy, to sport a whole system approach.
techUK, the industry body representing UK technology firms, is urging the government to:
- Ensure that future energy planning and prioritisation such as the Strategic Spatial Energy Plan and grid connection reform align with the needs of the digital economy, recognising the critical role of AI, emerging technologies, and the Industrial Strategy in designating capacity to demand industries.
- Prioritise energy access for data centres in grid planning, ensuring infrastructure expansion keeps pace with demand incorporating economic analysis, and work with collaboratively to find innovative ways to free up capacity or investment in the network.
- Prevent unfair cost burdens on digital infrastructure providers, particularly by revising classification policies for energy intensive businesses, provide financial incentives for entities investing in grid reinforcement.
- Ensure Transmission Network Use of System (TNoUs) charges are also designed to support 24/7 industries.
- Develop a stable and transparent energy pricing policy, allowing long-term investments in data centres and AI infrastructure. Work with industry, interdepartmental collaboration, NESO, Ofgem, and Local Authorities.
- Create further understanding of the uniqueness of the sector and promote collaboration.
The UK is at a pivotal moment. As global competitors race to attract AI and digital infrastructure investment, the UK must act swiftly to remove the regulatory and energy-related roadblocks that threaten its technological future. A nation that prides itself on innovation cannot afford to let outdated energy policies stand in the way of progress.
By aligning energy strategy with economic growth, the UK can reinforce its position as a hub for AI, cloud computing, and digital transformation, ensuring that it remains competitive, resilient, and at the forefront of the next technological revolution.
We welcome further collaboration with policymakers to align industry needs with energy policy and ensure that the UK remains a competitive hub for AI and digital transformation.
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