The Data Centre Covenant: Further Developments in Strategic Demand

The Data Centre Covenant: Further Developments in Strategic Demand

As the race to power in Great Britain intensifies and Government takes an increasingly interventionist approach with regards Great Britain’s electricity markets and infrastructure, the Data Centre Covenant (the Covenant) announced by John Healey in the 2026 Budget speech reflects a continuation of the ‘new normal’ (please see our previous articles on strategic demand here and here).

The Covenant itself is short and sets out:

• the Government’s belief that the UK will require approximately 6 GW of AI data centre capacity by 2030 and that this can only be achieved if communities see the benefits of data centre developments;
• five new tests that the Government encourages all data centres to meet, and which strategic data centres must meet to qualify for additional Government action (with the tests broadly reflecting previous tests potentially applied by the Connection Accelerator Service); 
• the establishment of a new Ministerial Control Centre for considering supportive action for strategic data centres; and
• some further insight as to what Government action might look like. 

We explore the tests and what Government action might look like in further detail in the rest of this article. 

As an overall comment though, whilst the Covenant provides greater insight as to Government’s current thinking and the probability of beneficial intervention for some data centre projects (which may have material implications for the wider GB data centre market) significant policy development is still required. 

What are the initial Data Centre Covenant tests?

1. Lower electricity bills: Data centre developers / operators will need to pay for their fair share of energy, covering any energy costs they create and support grid resilience, flexibility and clean power. As part of this, developers / operators will be expected to make credible commitments for the grid capacity they request, support security of supply, investment in clean power and net zero, use resources responsibly and support an efficient, flexible, and resilient energy system. 
2. Invest in improving local communities: Data centre developers / operators should agree a Local Benefit Plan that commits to substantial investment, developed with the local community and linked to the development’s size which is designed to result in clear, lasting improvements to the local area. This plan (and related commitments) should go further than planning requirements, such as Section 106 and the Community Infrastructure Levy, and involve relevant communities having a meaningful say in how these benefits are designed and allocated.
3. Adhere to the highest environmental standards: Developers will be expected to protect nature, minimise energy usage (new facilities should be designed to achieve a Power Usage Effectiveness of 1.3 or better) minimise water use by using technologies such as closed loop water systems and publish annual energy and water consumption reports, as well as capture the heat they produce for nearby homes, schools, hospitals or businesses wherever practical, rather than letting it go to waste.
4. Create jobs, apprenticeships, and drive reindustrialisation: Developers should create good, well-paid jobs that last beyond construction and recruit locally where possible and invest in apprenticeships, colleges and universities.  Developers are also expected to help build capability in strategically important supply chains and partner with UK researchers and innovative companies, and provide access to compute where appropriate, to accelerate innovation and strengthen national capability.
5. Strengthen Britain’s security: Developers are expected to provide secure and reliable UK access to compute for critical services and national priorities. As critical national infrastructure, operators should share relevant information with Government and technical agencies, meet current and future cyber resilience standards and work with the relevant national technical authorities to strengthen security and resilience further. They should also plan with critical suppliers for foreseeable disruption and participate in government exercises to test arrangements for prioritising essential services.

The Covenant makes clear however that the tests will be kept under review and updated as necessary to ensure that commitments remain proportionate and deliver clear value to communities and the wider UK. 

What may the benefits be for a data centre project that is determined to have sufficient strategic value?

The Covenant indicates that Government is proposing that selected projects will:

1. benefit from Government and NESO looking to identify locations where electrical import capacity may be available before 2030 and potentially use Planning and Infrastructure Act powers to enable strategically important data centres and other strategically important projects to access this capacity;
2. have electricity import capacity and connections reallocated to them (when other projects leave the demand connection queue) by Government (with this benefit having been alluded to historically in the Department for Energy Security and Net Zero (DESNZ) consultation on Accelerating electricity network connections for strategic demand and Ofgem’s Summary of Call for Input Responses: Demand Connections Reform); 
3. if Government thinks there is a need to go further, potentially receive a direct transfer of pre-2030 data centre grid connection contracts to secure timely access to power (in effect certain projects may get ahead in the demand connection queue by taking someone else’s place and capacity); and 
4. benefit from access to temporary power to bridge the gap to grid connection power on dates, with the Government intending to develop a tightly controlled framework to permit on site generation until a grid connection can be secured, but with this only being available for exceptionally strategic projects, where the measures at 1 to 3 above cannot secure the required capacity in time.

The Covenant also reaffirms the Government’s commitment to key policies that many in the sector want to see implemented including greater choice for developers to self-build connection infrastructure, the development of policies and mechanisms for data centres to connect more flexibly and some form of data-centre commitment fee and queue management measures to deter speculative demand (please find our article on this here).

Wider Observations

The Covenant provides a helpful update for all involved in the GB data centre sector on policy direction and the key interventionist actions that may be taken by Govenrment in due course. 

It leaves a lot unsaid however and raises a large number of questions. These include the application of the tests themselves, how the regime might apply to projects at different stages of development, how the proposals may interact with NESO’s and Ofgem’s policies and what the private wire framework might look like (with this being particularly intriguing for the many parties looking at behind the meter power solutions (noting these are already possible), but with parties grappling with the relevant planning, environmental and licensing implications and timings as against desired power on dates).

The Covenant acknowledges this however by confirming that Government will set out further details in due course on the definition of strategic data centres and the additional criteria such projects will be expected to meet.

As a result, we expect that all interested stakeholders will want to monitor this policy area closely and input into Government policy development where possible.

Burges Salmon has extensive experience advising clients on all aspects of the delivery of GB data centres, as well as on the numerous opportunities that are arising in the GB electricity network and energy sector more widely as a result of regulatory reforms and data centre developments.

If you would like to discuss any of the above, please do get in touch with Alec Whiter.