Good afternoon. This is your midday market update from City AM.
The extreme power demands of AI are clashing with the extreme inertia of Britain’s infrastructure development.
Data centres, the nerve centre of AI models, are growing more and more hungry for compute – and power. They currently consume around 2.5 per cent of the UK’s electricity, but this is projected to surge four-fold as soon as 2030.
Britain’s ailing grid is struggling to keep up. In July, energy regulator Ofgem bemoaned the flurry of applications for grid connections it was struggling to triage – which surge from 41 gigawatts worth of connections to 125 gigawatts in under a year – and proposed charging as much as £712,500 per megawatt for each application to sort the serious applicants from the speculators.
The slow pace of data centre growth is also hurting investment. Hyperscalers are being told they may have to wait as much as a decade to secure a grid connection. AI giants cannot afford to wait that long.
Last month, Microsoft pulled out of a tie-up with UK neocloud firm Nscale after the company’s proposed data centre project in Essex was unable to secure a grid connection until at least the 2030s.
In a nod to the struggle, at the Budget last week Chancellor John Healey lent a hand. “Critical data centres will get the grid connections they need, and, where necessary, be allowed to build onsite generation while they wait,” he said.
A nutty solution
Letting data centres generate their own power gets them online much quicker. And it has opened the door to creative ways to keep them running.
One such way was announced today by energy company Drax. It intends to build data centres alongside its North Yorkshire power plant, allowing them to use its surplus capacity.
The site is a biomass facility – meaning it can theoretically run on anything plant-made. For FTSE 250 member Drax that has largely meant burning wood pellets – but the company has also dabbled with straw and peanut shells (which is why visitors to the site are served a nut allergy warning).
Depending on your perspective, using biomass to power data centres is either nuts (geddit), environmentally damaging, or an innovative way to support a burgeoning, high-value industry.
Whatever your view, Drax says this proposal – which comes with the backing of Canadian asset manager Brookfield – could lead to as much as £20bn in investment over the next decade, with the first data centres coming online as soon as 2028.
Shareholders seem pretty happy. The stock has been the best-performing on the FTSE this morning, rocketing nine per cent to 881p.
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