The economic pros and cons of building more and more data centres in the UK

About 100 new data centres, the large anonymous-looking buildings containing the complex computer systems which power the online world, are to be built in the UK^[1]. Vital for all of your digital needs – from Netflix and banking, to AI and social media – they are the heart of the modern digital economy.

They are also very expensive to build and operate, using up enormous amounts of energy and water (as a coolant). Ten years ago, a centre consuming 30 megawatts (MW) of power (enough to power 30,000 houses^[2]) was considered large. Today 200 MW is normal.

And the tech world is hungry for more capacity more quickly^[3]. It is expected that almost US$7 trillion (£5.2 trillion) will be spent^[4] on global data centre infrastructure by 2030.

The British government appears to see this kind of investment as a key part of the country’s economic future. As a result, the number of data centres in the UK looks likely to increase by one-fifth, from around 479^[5] to around 580^[6] within the next five years.

More than half of the new centres will be in the London area, including Google’s £740 million project^[7] in Hertfordshire. Others will be developed in South Wales, Greater Manchester and the north-east of England. All will require new infrastructure, including large amounts of cooling and power equipment^[8].

But what are the economic benefits to being the home of so many data centres?

One clear advantage is for other tech companies operating in the UK. Being geographically close to a data centre improves digital performance. This is vital for British AI companies^[9], which require^[10] rapid and reliable data processing, as well as sectors such as advanced manufacturing^[11] and financial services technology (fintech).

Having data centres in the UK also strengthens cyber resilience^[12], supporting the country’s position as a secure hub for multinational operations.

More direct economic benefits from data centre construction include the thousands of contractors required to build them – as well as opportunities for local regeneration^[13] and subsidised skills training^[14].

Operators will also pay business rates, corporation tax and energy levies which all contribute to government revenues. So overall, data centres can certainly do their bit to support the government’s industrial strategy^[15] and aims for economic growth.

Power to the processors

But data centres are by no means^[16] a golden ticket to prosperity – especially after they’ve been built. The permanent workforce at most data centres is small, with many able to operate with around 20 full-time staff^[17].

Even Blackstone’s massive £10 billion project^[18] in Blyth, Northumberland, promises only hundreds of long-term jobs (compared to the 1,200 construction roles).

Data centres also bring considerable environmental costs. Concentrated data centre clusters, such as Slough in Berkshire, which has 14 new sites planned^[19], risk overloading electricity grids^[20]. And data centres have so far been major users^[21] of non-renewable energy.

Cooling requirements can also be substantial, with some facilities using millions of litres^[23] of water every year.

Other environmental concerns include the production and disposal of servers and other IT equipment, the extraction of rare minerals and the generation of electronic waste. These are all factors which may undermine the UK’s ability to implement its net zero policies^[24].

Public investment^[25] is likely to be required to reinforce grid capacity and water systems. Such costs will ultimately be paid^[26] from tax revenue as well as household utility bills, highlighting one of the economic difficulties that data centres represent – the complex knotting together of public and private investment.

So data centres pose plenty of tricky political and economic questions. How many should there be? What size and where? Who will pay for them?

For now though, the UK government appears to be largely in favour of welcoming more, classifying data centres as “critical national infrastructure”^[27]. But it cannot ignore concerns over their environmental impact.

To this end, some cities including London, Leeds and Bristol have begun to pilot schemes to recycle waste heat from data centres^[28] to warm homes, which is a promising development.

International intelligence

The UK can also learn from the experience of other countries. In 2022, for example, Ireland’s data centres were consuming 18% of the country’s electricity^[29] – a proportion forecast to rise to almost one-third by 2026.

As a result, Ireland has effectively imposed a moratorium on new data centres^[30]. The Netherlands now links new data centre approvals^[31] directly to clean energy generation.

But data centres have to be build somewhere to meet ever increasing demand. The question is whether the UK can build them fast enough, and on terms that serve its own interests for maximum economic benefit.

Moving too slowly also creates national security risks^[32] including a dependency on foreign AI infrastructure and the potential loss of control over sensitive data processing. Jensen Huang, the boss of Nvidia recently described^[33] the UK as having “the largest AI ecosystem in the world without its own infrastructure”.

The British government certainly seems keen to develop that infrastructure to strength the country’s digital ecosystem. But it needs to do so in a way which champions a sustainable approach that other nations will follow – and reduces its technological dependence on other countries.

References

1. ^{^} to be built in the UK (www.bbc.co.uk)
2. ^{^} power 30,000 houses (eng.ox.ac.uk)
3. ^{^} more capacity more quickly (www.mckinsey.com)
4. ^{^} US$7 trillion (£5.2 trillion) will be spent (www.mckinsey.com)
5. ^{^} 479 (www.datacentermap.com)
6. ^{^} to around 580 (www.bbc.co.uk)
7. ^{^} £740 million project (www.bbc.co.uk)
8. ^{^} cooling and power equipment (ig.ft.com)
9. ^{^} companies (wayve.ai)
10. ^{^} require (aws.amazon.com)
11. ^{^} advanced manufacturing (www.twi-global.com)
12. ^{^} cyber resilience (www.ibm.com)
13. ^{^} local regeneration (www.bbc.co.uk)
14. ^{^} subsidised skills training (www.russell-cooke.co.uk)
15. ^{^} industrial strategy (theconversation.com)
16. ^{^} by no means (www.techrepublic.com)
17. ^{^} 20 full-time staff (www.jll.com)
18. ^{^} £10 billion project (www.bbc.co.uk)
19. ^{^} 14 new sites planned (www.bbc.co.uk)
20. ^{^} overloading electricity grids (www.iea.org)
21. ^{^} major users (evoscien.com)
22. ^{^} IM Imagery (www.shutterstock.com)
23. ^{^} using millions of litres (www.eesi.org)
24. ^{^} net zero policies (commonslibrary.parliament.uk)
25. ^{^} Public investment (www.intelligentdatacentres.com)
26. ^{^} ultimately be paid (www.lbc.co.uk)
27. ^{^} “critical national infrastructure” (www.gov.uk)
28. ^{^} recycle waste heat from data centres (www.constructionenquirer.com)
29. ^{^} 18% of the country’s electricity (www.cso.ie)
30. ^{^} moratorium on new data centres (www.independent.ie)
31. ^{^} new data centre approvals (www.haskoning.com)
32. ^{^} national security risks (papers.ssrn.com)
33. ^{^} Nvidia recently described (sifted.eu)