The UK’s high energy prices will stop the hyperscalers from setting up data centers in the country unless significant government subsidies are on offer, the CEO of Pure Data Centers has said.

Dame Dawn Childs said availability and cost of power means building a hyperscale facility in the UK is “untenable” for many large companies.

Though the data center industry is experiencing unprecedented growth in the UK and beyond, it faces a complex web of challenges that could threaten its sustainability, Childs added.

Speaking at a seminar hosted by insurance firm Lockton, she suggested that power constraints are among the largest issues, with issues around cost and regulation compounding operator concerns.

The CEO told attendees that cycles around Ofgem’s RIIO regulatory framework covering energy network price controls move too slowly for the AI sector’s rapid deployment schedule.

While network upgrades are already committed through 2031, in contrast, she outlined that some hyperscalers are moving, considering “months to megawatts.”

“Grid build-out doesn’t work in weeks or months. It works in decades,” Childs said. “And so if there’s already a constrained location that won’t be remedied for over a decade.”

Ofgem’s framework is linked to the National Energy System Operator (NESO)’s Strategic Spatial Energy Plan (SSEP), a nationwide blueprint mapping quantities and types of electricity, as well as zoning applications.

Despite suggesting the plan would help to accelerate and optimize the transition to clean, affordable energy across the UK, Dame Childs suggested the draft SSEP, “has assumed that data center locations could be flexible, and sought to identify the best locations for one to two gigawatts of data center capacity, rather than understanding where the data center demand actually is.”

Further compounding her argument that the business case simply doesn’t stack up for hyperscalers to want to set up shop in the UK was the sheer cost of power in the country.

Citing Department for Energy Security and Net Zero figures, Childs warned that power in the UK costs approximately four times more than it does in the US – this equates to an additional £226 million ($302m) annually for a 100MW facility.

“There will definitely not be any hyperscalers choosing to place any large language models here, because the piece that, unfortunately, we seem to have overlooked is that our energy prices make it untenable to build any large-scale AI data centers that are not incentivized or shored up by government funding,” Childs said.

The UK government has been pitching Britain as an ideal destination for data center operators, and is creating AI Growth Zones, areas where incentives will be offered to those who build digital infrastructure.

Recently Google inaugurated a data center in Waltham Cross, Hertfordshire, while Microsoft announced it was building a supercomputer in the UK at a data center in Essex that will be operated by Nscale.

Wicked problems and bursting bubbles

Childs also raised concerns about market sustainability, pointing to historical patterns that suggest danger zones for bubble bursts occur when expenditure reaches closer to two percent of global GDP.

She cited McKinsey’s latest forecast that suggests demand for data center capacity could triple by 2030, reaching 171-290GW, translating to a projected investment of nearly £7 trillion ($9.38trn) – approximately one percent of global GDP.

However, the Pure DC CEO warned that the risk increases significantly when funding becomes highly leveraged, with internal cash flows covering less than 25 percent of deployed capital.

She referred to Meta’s reported $29 billion data financing raise as evidence that hyperscalers were moving away from internal cash balance funding toward more leveraged structures in order to fuel expansion.

According to Childs, much of the capital expenditure being spent on data centers is allocated to GPUs and CPUs rather than long-lasting data center infrastructure. Servers represent short-life assets, with GPUs used in AI model training having a useful life before quickly being relegated to lower-intensity tasks or superseded by newer technology, in components’ age she likened to “dog years rather than normal years.”

Combined with short GPU lifespans and high interest rates, this funding model, the CEO argued, could prove destabilizing.

Childs highlighted concerning circular funding patterns in recent major announcements, describing the interconnectivity between major players as “frankly scary.”

“Whilst we all do need to be wary of any bubble,” Childs said. “The inextricable link between energy use, sovereign data and AI in a nation’s wealth underscores the importance of developing a sustainable approach to these key pieces of critical national infrastructure.”

Impending Reform?

For all the CEO’s points around pushing the UK government to support renewable energy and revise its grid plans, there’s a potential spanner in the works in the form of the Reform Party.

Reform is projected to comfortably win the next Election based on recent polling. However, the Nigel Farage-led party wants to impose taxes on the renewable energy sector while also scrapping the country’s net zero target. Farage himself previously described the Labour government’s net zero efforts as “lunacy.”

When DCD quizzed Dame Childs on how the industry should approach a potential UK government that wouldn’t support renewable energy in any revised grid, the Pure DC CEO said the amount of renewable generation wasn’t the issue, but the ability to use it.

“There’s a sort of slightly different problem to fix first, and we can help with that, by using some of our power assets and enabling some of those constraint costs not to happen because the wind power could stay off if would could better stabilize the grid.”