It’s no secret that in today’s digital age, defined by exponential growth in artificial intelligence, cloud computing, and other data-driven services, the major constraint on data centres is not computing capacity or network bandwidth, but the availability and cost of electricity. Global data centre power consumption is rising to unprecedented levels: the International Energy Agency anticipates that such consumption may double to around 945 TWh by 2030, surpassing the current electricity use of many nations. Energy strategy has emerged as a crucial driver of asset value, operational resilience, and investment performance.

How Energy Strategy Redefines Asset Value

For data centre investors and operators, energy now defines the economics of digital infrastructure assets. The electricity consumption of a single hyperscale facility’s servers and cooling systems may amount to over 100MW, which is equivalent to hundreds of thousands of homes, placing immense pressure on ageing and constrained power grids.

Projections estimate that UK data centre power consumption may double within a decade to comprise 14% of total national electricity demand. In the US, some industry forecasts anticipate that electricity demand will grow at between 2% and 3% annually, with data centres responsible for a significant proportion of new demand.

Access to Power as a Scarce Resource

Grid constraints are evolving into fundamental barriers for value creation in the data centre sector. Lengthy delays in securing grid connections have grown ten-fold in the UK over the last 5 years, now reaching up to 15 years. Industry groups across the EU are observing seven to ten-year connection queues in legacy hubs, with some projects facing queues of up to 13 years. The IEA now estimates that approximately 20% of planned data centre capacity additions through to 2030 are at risk of delay due to grid connection constraints.

These multi-year delays pose material threats to project timelines and operational cost structures, deferring revenue streams and amplifying financing costs, ultimately eroding risk-adjusted returns and causing institutional investors to reconsider exposure. As a result, governments across the world are initiating grid connection reforms designed explicitly to attract and retain investment, while deterring speculative projects.

Grid Reforms

In Great Britain, for example, delays have prompted regulatory reforms aimed at removing so-called “zombie” projects that occupy connection queue positions without demonstrable development progress. Simultaneously, the regulators propose to implement a “first ready, first needed, first connected” prioritisation framework which will reward project readiness and strategic importance, including data centres and renewable electricity generation projects, by the end of 2025.

In locational pricing markets, including parts of the US, wholesale prices in grid-constrained zones already reflect transmission congestion and local supply-demand imbalances. Consequently, data centres in grid-constrained areas can be subject to elevated spot prices and capacity premiums, which may prompt investment in nearby alternative generation or storage.

Forthcoming reforms to electricity market design in several jurisdictions, including Great Britain, Australia, and Canada, may likewise support valuation premiums for co-locating generation and load, reinforcing the principle that capacity should follow demand.

Reforms like this will afford competitive advantages to investors with sophisticated development capabilities and established regulatory relationships who may be well placed to navigate the transition to the new rules. Regardless, land with existing grid access is becoming a premium resource, meaning established data centres or development sites with secured grid connections may yield enhanced asset values, while new facilities may face intensified competition for connection capacity.

Other Grid and Resilience Considerations

Grid connections are often sized to provide additional capacity during peak demand periods, ensuring operational continuity during periods of usage, while also maintaining resilience during force majeure events or other unforeseen disruptions to onsite or private wire generation. Power outages can disrupt connectivity, and trigger potential liabilities, including compensation for affected customers, fines from regulators, and reputational damage.

Given that electricity costs tend to comprise a significant proportion of data centre operational expenditure, investors will also want to also evaluate the regulatory frameworks governing availability and redress in the event of network disruption in each relevant jurisdiction, as well as consider the ability of operators to pass though costs associated with any outages onto tenants or customers.

For new or redeveloped assets, investors may also wish to evaluate the resilience of grid connection arrangements under future expansion scenarios, regulatory changes, and technology upgrades.

This may require rigorous analysis of existing connection agreements, capacity allocation rights, curtailment risk, as well as any embedded obligations or restrictions that may limit future value creation (for example, grid connection clauses that fix initial capacity and require reapplication before expanding). For data centre assets in planning or redevelopment phases, early engagement with network operators and regulatory authorities may be needed.

The strategic importance afforded to data centres, shown by their designation as critical national infrastructure across the UK and EU, further underscores the imperative for sophisticated energy procurement, integration, and management strategies. These strategies increasingly define data centre asset viability, operational resilience, and ultimately, investment returns.

Investors are well advised, therefore, to evaluate not only current grid arrangements, but also anticipate potential delays and reforms, thereby integrating comprehensive energy assessments into their strategic planning to protect and enhance asset value.

Energy Procurement and Risk-Return Dynamics

Data centre owners and their customers are increasingly seeking to secure access to stable, long-term, and potentially lower-cost electricity through corporate Power Purchase Agreements. PPAs can provide certainty as to price, volume, carbon intensity of the electricity, or other factors, depending on their chosen features. The types of PPA on offer have also increased rapidly.

Electricity cost pass-through arrangements do not diminish the value of PPAs, as tenants evaluate total occupancy costs, which include electricity expenses. By securing fixed, low-emissions energy pricing through PPAs, data centre operators can deliver predictable and competitive power costs to tenants, directly reducing operational risk exposure while strengthening negotiating positions in lease arrangements.

This cost certainty may allow data centre operators to command premium rental rates, reduce vacancy risk, and ultimately enhance underlying asset valuations through improved tenant retention and superior lease economics. Consequently, data centres are now among the most active corporate buyers of PPAs worldwide.

Physical PPAs: Direct Ownership, Maximum Transparency

Physical (or direct) PPAs involve typically 10 to 15-year contracts through which a data centre takes delivery of electricity—and associated Renewable Energy Guarantees of Origin, or equivalent renewable energy certificates—from a specific generator through the grid. These arrangements offer price stability, traceability, and provide some protection against market or policy shifts.

However, under such PPAs, data centre operators (or tenants, depending on who takes responsibility for power procurement) may be required to assume responsibility for grid balancing obligations, transmission arrangements, and supply-demand matching across variable renewable generation profiles.

This operational complexity typically requires engagement with electricity traders or the development of internal capabilities, which introduces the need for specialised personnel and systems infrastructure that extend beyond traditional data centre operations. Regardless, the precision and durability of such arrangements, which increasingly translate into superior financing terms and enhanced asset liquidity, often appeal to institutional investors. Physical PPAs typically assume one of two forms: sleeved PPAs and onsite (or private-wire) PPAs.

Sleeved PPAs: Grid-Delivered with Managed Risk

This type of physical PPA is frequently used in the British market due to regulatory restrictions. Here, a licensed utility intermediates between an electricity generator and a data centre to wrap the supply of electricity, and manage balancing requirements to deliver electricity through the public grid, in exchange for sleeving fees. In some jurisdictions, the utility may also bear wholesale price and volume risks, thereby shielding the data centre operator from market fluctuations and any balancing responsibilities.

As such, sleeved PPAs involve tripartite contractual arrangements between a generator, buyer, and utility intermediary. Properly structured sleeved PPA arrangements can offer a secure route to long-term value and investment certainty, delivering renewable electricity without the capital and regulatory demands of private-wire infrastructure. The challenge with this, though, is the limited direct contractual protection obtained — with recipients more reliant on regulatory enforcement action as a remedy (which is out of their control and can often have significant public policy drivers).

Onsite or Private-Wire PPAs: Enhanced Energy Security at a Cost

Onsite or private-wire PPAs are becoming increasingly common. They involve supplying electricity directly through onsite or dedicated, off-grid lines, which may enable partial or full bypassing of the public grid infrastructure. That dedicated transmission infrastructure can insulate data centres from some grid charges, whilst delivering enhanced price and supply certainty.

Beyond the substantial capital commitments (typically ranging from £2 million to £ 5 million per MW, depending on proximity to the generating site and terrain), private-wire arrangements may involve complex planning consents, grid connection agreements, or environmental impact assessments.

However, those arrangements can afford end-users greater control, including over contractual pricing, generation source, performance accountability, step-in rights, operational oversight, and the delivery of RECs. Ownership of the private wire network is typically transferred to the power company providing and managing the electricity, but there is clearly much more scope for bespoke arrangements here, given it is a private contractual matter.