From grid risk to green light: structuring data centre investments in 2026

Challenges in the market

Rising data centre construction costs, uncertainty around power availability and increasing competition are combining to create significant challenges for investors and developers.

Escalating build costs, driven by materials, labour shortages and complex technical specifications for AI‑ready facilities, are placing pressure on project viability assumptions. At the same time, power sources are increasingly challenging to secure, with constrained grid capacity, extended connection lead times and evolving energy strategies introducing material timing and cost risks.

These challenges are intensified by fierce competition for viable sites, grid connections and capital, particularly where there are established or proposed UK data centre clusters. Investors and developers are therefore being forced to commit capital earlier in the development lifecycle, often before power solutions or planning outcomes are fully certain. As a consequence, traditional development models are more challenged, as developers must take earlier risks and may need to seek flexible funding structures to maintain stability.

No power, no deal?

Extended grid connection timelines and capacity constraints in certain areas are becoming key determinants of the success of a project. As reported in the JLL 2026 Global Data Center Outlook (2026 Global Data Center Outlook), the average grid connection lead time for a new 50 MW data centre in the UK is seven years. Power is no longer a technical workstream but a central investment risk that must be addressed at the outset.

These constraints mean that investors are increasingly looking to combine data centre assets with energy infrastructure, such as on-site generation, long‑term PPAs or co‑located renewables projects. Renewable energy generation and integrated battery storage systems offer some solutions, and there is increasing attention being given to the potential for nuclear power sources, such as small modular reactors, to provide long-term solutions.

Structuring data centre deals when power is a critical risk

The scale, power requirements and delivery risk of hyperscale and AI-ready data centres have created increasing challenges for developers who require access to capital managed by institutional investors, such as pension funds and specialist infrastructure funds, at an ever-earlier stage.

These constraints are driving a shift in how data centre investments are legally structured. Capital is being deployed earlier in the project lifecycle, often ahead of secured grid connections or final planning outcomes, requiring structures that can absorb prolonged uncertainty.

One key solution is the establishment of joint ventures between developers and institutional investors, allowing both parties to benefit from development expertise and long-term capital. We are well versed in supporting clients to put contracts in place that clearly apportion power, planning and cost overrun risks between parties and reflect parties’ rights and responsibilities in light of prolonged grid lead times and bespoke funding mechanics. We are also able to include extended long-stop dates, enhanced information rights and carefully calibrated exit and dilution provisions designed to reflect the current complexities of the grid connection landscape and parties’ evolving energy strategies.

Bankability and lender expectations

In practice, developers are being required to lock in grid connection milestones and power procurement strategies far earlier than they might have previously envisaged, with transaction documentation increasingly sensitive to delay risks and termination scenarios. This shift is pulling financing discussions earlier, often before traditional construction or Notice to Proceed milestones are reached.

Regulatory clearance and funding alignment

Investors must also factor in the potential application of the National Security and Investment Act 2021, which can introduce additional timing and conditionality risk for acquisitions involving specified data infrastructure activities, particularly where overseas capital is involved. Where applicable, this risk needs to be managed alongside financing and completion mechanics to avoid misalignment between regulatory clearance and funding availability.