Energy consumption

One of the most pressing challenges is the amount of power that data centres consume. A single AI data centre can use 50 megawatts or more of power. For data centre developers there are significant questions over where the power will come from, when grid capacity is already stretched in the UK. Solutions can involve on-site generation (either through an existing source or as part of a wider co-location development scheme including power generation) and advanced battery energy storage systems.

Grid connections

Securing an electrical grid connection of sufficient capacity to power a data centre can be a major challenge. Connecting to a power supply shared with other users may not be feasible, while securing a new connection comes with time and cost challenges. Applications for new connections will join a connections queue which is currently oversubscribed. The grid queue is however the subject of detailed proposed reforms with a view to reducing the queue by removing zombie projects. These reforms will introduce a two-step process that aligns with land and planning milestones, integrating them with the power connection process. Developers will need to undertake more upfront work before the connection application process to ensure developments are deliverable. It is hoped that the grid application process will become much more streamlined, speeding up the deployment of developments.

Planning & Infrastructure Consents

Securing necessary planning and other consents is a key challenge for any data centre development project. The UK government has introduced reforms in order to support the development of data centres and other commercial developments to meet the needs of a modern economy.  Such reforms include:

• Amendments to the National Planning Policy Framework to require planning decision-makers to recognise the locational requirements of data centres and to support the growth of related industries, including making provision for “clusters or networks of knowledge and data-driven, creative or high technology industries; and for new, expanded or upgraded facilities and infrastructure that are needed to support the growth of these industries (including data centres and grid connections)“;
• The UK government has committed to introduce reforms in summer 2025 to expressly allow data centres, gigafactories and laboratories to “opt in” to the Development Consent Order process for Nationally Significant Infrastructure Projects. The key advantages of this process for projects of significant scale include:
  • A “one stop shop” for ancillary consents and powers. This includes the ability to include compulsory acquisition powers where necessary for site assembly or grid connection routes;
  • Secretary of State as planning decision-maker who may reasonably be expected to give greater weight to national policy objectives compared to a local authority faced with significant local objections; and
  • Generally, greater predictability in terms of outcomes and timescales.

Access to utilities

Data centres need access to utilities and an uninterrupted supply of energy to run, often comprising multiple electricity import cables. If the site is some distance from the public highway or a point of grid connection, then easements may be required to run services across, over or under third-party land. A strategic approach to obtaining these easements needs to be considered at an early stage in the development lifecycle as this will then need to be factored into the overall development/build programme.  The potential need for compulsory acquisition powers should be considered early as part of a land and consents strategy. Similar considerations will apply to dark fibre and other services.

Water connections

Data centres rank among the top-ten water-consuming commercial industries. They generate high levels of heat and require access to large volume of water for cooling purposes (unless using a ‘closed loop’ system). A small one-megawatt data centre that uses traditional cooling methods, such as direct evaporative cooling, can consume more than 25 million litres of water per year. Water is a localised resource, and in 2024 the Environment Agency said that by 2050 England would need an extra five billion litres of water every day to serve the population. Securing a suitable water supply is a key consideration for any data centre development and in some areas of the UK may be a major challenge.

Location

Data centres are being constructed in various locations, ranging from existing industrial estates, through to co-locating with existing and new energy generation. These are also often included within major cities and built up, congested areas. This may introduce additional development constraints to be addressed as part of the design phase, for example highways, cable corridors in built up areas/highway networks (often busy and congested with other infrastructure), electricity network reinforcement etc.

When constructing data centres in already developed neighbourhoods, consider the potential impact of adjacent land uses on the operation of your data centre and what protections you might need. For example, you might wish to get comfortable that adjacent developments in the future might not change/impact on existing water courses and surrounding drainage.

Technical resource

Access to technical expertise across construction is critical for successful delivery. Traditionally, data centre construction has centred around financial hubs (i.e. London, Frankfurt, Amsterdam, Paris etc) with associated specialist expertise similarly rooted around the traditional data centre markets. Whilst market requirements and thereby opportunity is shifting (allowing new entrants into this specialist market), finding specialist contractors/consultants who are capable of successful delivery of the build within the required programme may be subject to challenges where the sector has been traditionally dominated by a small group of contractors with expertise focused around established geographical hub locations. Developer clients should consider their proposed contractor’s expertise and experience within this specialist sector to ensure confidence of delivery on time and in budget.

Build approach

Data centre build approaches typically follow two different models: traditional/onsite or prefabricated/modular. Developers will need to consider which approach is most suitable accounting for its budgetary constraints, site constraints and team capability and implement an appropriate contractual regime to manage the risks of the chosen approach. By example, build approaches have recently trended towards modular construction methods given the benefits of speed, cost-efficiency and quality control but with that comes risks associated with off-site work fabrication and ownership. Developers should consider their procurement approach carefully and ensure appropriate risk mitigation is built into its contractual arrangements to protect against worst case eventualities.

Design requirements

Predominantly, data centre construction is M&E led. Given the volume of data and power usage, appropriate considerations need to be given to catering for both the input (i.e. continual servicing of the data infrastructure) and output (i.e. suitable heat removal). Whilst complex in isolation, with ever evolving changes in computer infrastructure technology (including Artificial Intelligence), appetite of new and existing entrants to the data centre market are now also requiring greater flexibility in the design of their systems to allow for innovation and adaptation of the system in the future.  Accordingly, developer clients need to actively consider future proofing their construction design at the build stage to facilitate likely adjustments to the existing build to cater for ever evolving (and greater) data requirements in the future.

ESG

With high levels of energy and water consumption, a range of environmental, social, and governance (ESG) considerations come into play for data centres. Sustainability reporting requirements may apply, along with voluntary initiatives to support their green credentials. For example, the Climate Neutral Data Centre Pact, signed by leading data centre operators, promotes specific measures and targets to achieve climate neutrality in the sector by 2030.

ESG Opportunities

Opportunities to improve sustainability and ESG performance may include the purchase of renewable power and the supply of waste heat. For example, one very small data centre is being used to heat a local authority swimming pool in Devon and, in some instances, waste heat from data centres is being used to heat homes.  Another example is Google’s plan to use small nuclear reactors to support its data centres, while Microsoft has agreed an estimated $10 billion deal to finance new large wind and solar farms in the US and Europe to enhance energy generating capacity in existing networks.

After care/ maintenance

Construction consideration of data centres does not end at practical completion of the build. To ensure all systems and equipment remain in working order and will perform as designed in both normal operating conditions and an emergency, planned preventative maintenance and reactive maintenance operations will be needed on a regular basis. This extends not just to the systems themselves, but the build as a whole to ensure optimum efficiency of the centre. Consideration needs to be given to engagement of appropriate specialists for subsequent maintenance care following completion of the works.

Security; physical and IT-centric

Any data centre operator will be familiar with the day-to-day critical security requirements of a data centre. The implementation of ‘layered’ security will often involve the outsourcing of critical security services to third parties. Security requirements are varied,  ranging from the physical protection of the asset (for example, the provisions of specialised staff to control ingress/egress points, video surveillance, or rapid response teams to respond to emergencies), to IT-security solutions (including the appointment of a third party cybersecurity intelligence team or procurement of cybersecurity IT solutions). The underpinning services contracts must contain robust service levels, performance warranties and contractual remedies for a supplier’s failure to adequately provide these services.

Commercial and IT contracts

There will inevitably be a number of commercial contracts that are required for the smooth operation of the data centre (including during fit-out). These can range from hardware providers (including racking-providers) to FM contractors (including those providing PPM). Again, to ensure the ongoing integrity, continuity and availability of the data centre it is important to ensure the underpinning commercial contracts provide for robust contractual positions.

New data centres are kitted with advanced IT solutions focused on increasing performance and efficiency including those relating to intelligent real time monitoring, AI, and edge computing. Thought should be given to the resiliency and security of these solutions so as to not jeopardise or compromise the overall integrity and security of the data centre.

In structuring these agreements some thought needs to be given to the potential uses of the data centre- it might be that some of these underlying commercial and IT contracts will be used to service customers of the data occupier, in which case provision for this use will need to be included in those contracts.

Acquisitions/Disposals

Anyone looking to buy or sell shares in an entity which owns or operates a data centre should note that such transactions may require notification to the Secretary of State under the National Security and Investment Act 2021 (NSIA) prior to completion.

A mandatory notification under the NSIA is triggered where there is a change of control in an entity which is active in the UK in one or more of 17 key sectors, one of which is “data infrastructure”. This applies regardless of the nationality of the acquirer and the value of the transaction.

Where a notification is made, the Secretary of State has 30 working days from acceptance of the notification to decide whether the transaction may give rise to a risk to national security and the vast majority of transactions are cleared unconditionally at this point. However, completion of a notifiable transaction without prior clearance will render it void and may result in significant fines and/or imprisonment for the acquirer and its officers. Potential buyers of these businesses and those owners thinking of selling all or part of them should consider how the NSIA regime may affect their plans.

As the demand for digital services continues to grow, the number of data centres is expected to rise accordingly. However, investors, developers and operators face a number of challenges throughout all stages of a data centre’s lifecycle. Ongoing issues related to energy supply, logistics and ESG considerations are likely to persist, and regulatory changes appear unavoidable – driven by geopolitical tensions, environmental concerns, and increasing scrutiny around cybersecurity and the resilience of data centre infrastructure.

How we can support you

In this dynamic and shifting landscape, it is crucial for companies involved in data centre development and operation to implement procurement strategies that are both flexible and supported by contractual mechanisms capable of addressing unforeseen risks as they emerge.

Adopting a sector-focussed approach, our lawyers from across the firm (including planning, infrastructure and energy, real estate, construction, technology, commercial and regulatory) adopt a one team approach, working seamlessly to solve problems and navigate clients through the issues as quickly and efficiently as possible.