Data Centres – The Heat Is Rising: Why investors are tapping into waste heat as the next Infrastructure opportunity

Data centres are a booming asset class. Global demand for AI and cloud services is driving unprecedented growth. But continued growth in this area is predicated on a sustainable energy supply and as such, there is also pressure to decarbonise and consider longer term ESG implications. In September 2024, the UK Government designated data centres as part of the country’s critical national infrastructure.

As the UK’s infrastructure evolves to meet net zero targets, the convergence of data centres and heat networks presents a unique opportunity for investors.  With over £14 billion in UK infrastructure investment backing data centres and heat networks, the opportunity to monetise waste heat is no longer theoretical - it’s investable.

The current legal and regulatory landscape 

• The UK’s Energy Act 2023 introduces heat network zoning, requiring certain buildings to connect to local heat networks. Investors should be aware that data centres located within these zones may be incentivised or mandated to supply heat in the future. Key considerations are therefore zoning risk, heat offtake agreements and compliance with emerging standards.
• Ofgem will require all heat network operators and suppliers to be authorised from 27 January 2026. For investors, this means that seeking authorisation must be factored into due diligence, risk assessments, and development timelines - especially where heat reuse from data centres is part of the business model.
• In 2021, the Climate Neutral Data Centre Pact was launched by data centre operators and trade associations. The Pact supports the EU’s Green Deal and includes various sustainability targets. Signatories also agreed to “explore the recovery and reuse of heat from new data centres”.

The technology

At present, district heating systems are the main technology used to utilise waste heat from data centres. These systems are well established across Europe, and in the Nordics in particular. For example, Stockholm Data Parks will use data centre waste heat to supply 35,000 apartments in Stockholm. 

In London’s Old Oak and Park Royal regeneration area, Hemiko has been selected to develop the UK’s first data centre waste heat network, expected to heat over 9,000 homes. The project has received £36 million from the Green Heat Network Fund, alongside support from the Mayor of London’s Local Energy Accelerator and Green Finance programmes.

Paddington Village District Energy Network in Liverpool is working with data centre provider Deep Green to decabornise its heating network. Deep Green operate Modular Centres. These are prefabricated, scalable facilities that are in compact self contained units. The advantage of modular data centres is that they can be rapidly deployed, expanded or relocated as needed. In December 2023, Octopus Energy Transition Fund made a £200 million investment in Deep Green, which is reflective of the potential they see in this emerging technology. Infrastructure investors and developers may find them particularly attractive as they look to future proof digital infrastructure and navigate planning constraints and grid limitations. 

In October 2025, UK Power Networks announced it is trialling a novel heating solution using modular data centres - immersion-cooled Raspberry Pi clusters installed in homes — to reduce energy bills for low-income tenants. UKPN’s SHIELD system combines solar, battery storage, and Thermify’s HeatHub to deliver low-cost, decentralised heating. Backed by Ofgem’s Strategic Innovation Fund, the initiative aims to scale to 100,000 units annually by 2030. Modular, distributed computer infrastructure is emerging as a viable route to decarbonised heat delivery.

Rice University in Houston, Texas recently published a study in the journal Solar Energy, which looks at the potential of converting waste heat from data centres into a dispatchable power source. Researchers have developed a compact power system - a solar-boosted organic Rankine cycle (ORC) - that generates electricity from heat using a safe working fluid. The innovation lies in using low-cost rooftop solar collectors to preheat the coolant from data centres before it enters the ORC. This “solar bump” raises the temperature enough to overcome a key technical hurdle: data centre waste heat alone is typically too cool for efficient power generation. Their research was supported by the Alliance for Sustainable Energy LLC, the National Renewable Energy Laboratory and the U.S. Department of Energy.

Key considerations for infrastructure developers and investors

• Assess heat potential early – Include heat reuse in feasibility studies and ESG assessments as it may influence site selection, planning outcomes, and long-term asset value.
• Structure contracts carefully – heat supply agreements are still evolving. Key provisions should cover:
  • Continuity of supply
  • Pricing mechanisms
  • Risk allocation for outages or underperformance
• Align investment with ESG considerations -  Sustainability-linked loans and green bonds increasingly require measurable KPIs. Heat reuse supports metrics around carbon intensity and energy efficiency.

Infrastructure investors should now be asking: is our data centre strategy heat-enabled? The regulatory tailwinds, funding landscape, and ESG imperatives make this a timely pivot.                                                                                                                                                         

This article was written by Alex Harkness, Alison Logan and Victoria Allsopp. If you would like to discuss any of the issues highlighted above, please do get in touch with a member of our Energy and Infrastructure Finance team.