Energy infrastructure

The decarbonisation challenge

Upgrading energy infrastructure and facilitating new renewable energy generation and storage is essential in meeting the UK’s net zero target and unlocking new development. A combination of strong government support, technological advances and the growing demand from data centres (and development more widely) offers potential for significant investment in the year ahead.

As set out in the 'Clear Power 2030 Action Plan', the Labour government has pledged to decarbonise the UK’s electricity grid by 2030, pulling the target forward by five years. Keir Starmer also announced at COP29 in November 2024 that the UK aims to reduce all greenhouse gas emissions by at least 81% compared to 1990 levels by 2035, up from a previous target of 78%. The government has already demonstrated their commitment to renewable energy by promising to double onshore wind (reversing the de facto ban in England), triple solar, and quadruple offshore wind by 2030. They also announced funding for several projects in the Autumn Budget, including £100 million capital funding in 2025-2026 for clean energy project development and financial support for the carbon capture and storage (CCUS) and hydrogen industries.

These changes, coupled with longer-term influences, such as an increased demand for electricity, a societal shift towards renewable energy and geopolitical factors, present opportunities for the sector.

The demand challenge

The shift towards decarbonisation needs to be seen alongside the expected seismic shifts in demand for electricity. This creates the complex challenge of increasing supply whilst decarbonising production, as well as upgrading the capacity of the transmission network.

The expected increase in electricity demand has a number of causes. Electrification of the built environment will accelerate, with owners and occupiers of both residential and commercial buildings looking to make the switch to electricity as generation is decarbonised.

For commercial buildings in particular, this could prove to be a significant a factor in raising EPC ratings to adhere to the proposed tightening of MEES regulations. It is proposed that the current minimum EPC rating for commercial property of E rises to B by 2030 (barring exempted properties). Taking the example of offices, 14% of the buildings are currently below the minimum of E, and are therefore unlettable. However, 88% are below B, and will become unlettable in 2030.

Another source of surging demand for power is data centres. The rapid growth of the artificial intelligence (AI) sector is a major driver of this increased demand which, as AI models become more complex and sophisticated, will see energy requirements escalate further. In addition, demand growth will be driven by increased use of cloud-based storage, online streaming services, and 5G technology.

There are planning applications either submitted or approved for the commencement of 43 new data centre projects (including four changes of use) over the next two years, representing almost 25 million sq ft of floor space. This is over three times the amount that started construction in 2023 and 2024, illustrating the potential scale of the pipeline. Some of these incorporate on-site renewables to generate their own power, at least in part.

The growth in energy infrastructure will also be essential to the success of the government’s target to build 1.5 million homes over the next five years. Although newer homes and commercial buildings are typically more energy efficient, electricity demand will increase. In line with the UK’s commitments to net zero, this will need to be led by an increase in renewable energy sources alongside grid upgrades. And while we are unlikely to see housebuilding at greater scale in the next couple of years, the additional demand needs to be planned for now.

The supply challenge – jumping the queue

The National Grid’s ongoing Great Grid Upgrade provides a combination of new infrastructure and modernisation of existing grid components. The projects aim to improve efficiency, increase capacity and handle increased renewable energy, especially given that much of the grid was built around the now decommissioned coal fire power stations. The Eastern Green Links are key projects and comprise interconnectors that run between the east coast of Scotland and the coast of northeast England, bypassing the current grid bottleneck at the Scottish Border. Eastern Green Links 1 and 2 are due to start construction in 2025.

The UK is currently undergoing grid connection reform that should streamline the process for connecting renewable energy projects. Plans look to facilitate the move away from the current “first come, first served” approach, where speculative developments are securing queue positions but with no plans to start, to a “first ready, first connected” system. Currently, the backlog of projects means that some developers are being offered connection dates in the late 2030s (Ofgem). The government has formed the National Energy System Operator to produce a strategic plan and accelerate the connection of generation projects to the grid. The latter facilitates the leapfrogging of “project ready” energy projects over others in the queue. Connection offers are intended to start in 2025.

Both the public and private sectors are looking to new and innovative technologies to accelerate the shift to clean power. Green hydrogen, with its high energy density and versatility, is attracting growing interest. The government’s confirmation of funding for 11 green hydrogen projects in the Autumn Budget marks a significant step towards commercialising this technology at scale. Private investment is also gaining pace, with a number of projects with private funding now breaking ground and a strong pipeline of applications either submitted or being prepared.

Private companies are increasingly looking to Small Modular Reactors (SMRs) for on-site power supply, to both support energy-intensive operations and mitigate grid risks. Google, Oracle and Amazon all announced plans in the second half of 2024 to invest in SMR for powering their data centres and AI operations in the United States. In November 2024, Great British Nuclear started negotiations with four shortlisted bidders for the UK’s SMR programme for a contract to design, develop and construct, aligning with global nuclear energy ambitions.