The government faces a dilemma as it embraces the twin ambitions of delivering 1.5m new homes, and making Britain an AI superpower – a lack of juice needed to make them a reality.
Datacentres are essential for housing the powerful computers needed to drive AI, as well as a host of more conventional cloud operations, but they are also known for their voracious appetite for energy.
However, as demand for both more datacentres rises, this pits them against the long-standing need to deliver more homes – both are effectively competing for available energy.
As a result, according to a new report published today, housing need may effectively end up playing ‘second fiddle’ to the needs of AI – unless something is done about the problem. As it is, datacentre demand is already claimed to be causing delays in new housing delivery.
The report, from the London Assembly’s Planning & Regeneration Committee, naturally focuses its attention on the capital’s fortunes, but nevertheless serves to illustrate the challenges for those wresting with such issues further afield.
Gridlocked: How Planning Can Ease London’s Electricity Constraints highlights the increasing pressure on the capital’s electricity grid, but it also emphasises the need to plan for both digital infrastructure and new homes – particularly in areas like West London, where it says capacity has been stretched to its limits.
Writing in the report’s foreword, the committee’s chair, James Small-Edwards AM, says: “The government wants the UK to lead the way globally in artificial intelligence and digital innovation. Bold goals that, if successful, will drive huge demand for datacentres which are often staggeringly energy intensive. But if we don’t plan ahead, we run the risk of not meeting those ambitions, or realising those ambitions at the expense of urgently needed housing and infrastructure.”
A typical datacentre now requires significant, concentrated power, the report explains – sometimes equivalent to the needs of tens of thousands of homes.
As the sector expands, these large, site-specific demands can add pressure to local parts of the grid and create challenges for connecting new developments. These pressures make it harder and more costly to bring forward new homes, with implications for London’s wider economic growth and its ability to meet housing targets.
Since 2022, parts of the London electricity grid, particularly in Hillingdon, Hounslow, and Ealing, reached full capacity, temporarily halting new housing developments.
As a result, the report explains, the Greater London Authority (GLA) has worked with stakeholders including National Grid and Ofgem to secure short-term fixes, ensuring over 12,000 homes were connected by early 2025.
Despite this progress, the report warns that London’s long-term electricity needs – including from energy-intensive sectors such as datacentres – are forecast to grow by more than 200% to 600%. As such, meeting this demand will require long-term strategic planning to avoid further grid constraints and delays.
Critical moment
“London is at a critical moment, with energy capacity becoming a real constraint on both housing delivery and wider economic growth,” Small-Edwards said.
“Through this investigation we heard from councils, developers and residents about the delays, uncertainty and long-term risks posed by ongoing grid constraints. As demand for power rises, particularly from large energy users like datacentres, we need a clear, strategic and long-term approach.”
The report is calling for a series of policy reforms to better balance London’s long-term energy and development needs.
To support more strategic planning of digital infrastructure, the report recommends that the government introduce a separate use class for data centres, enabling their energy demands to be planned for in a “clearer and more coordinated” way.
The committee also calls for the GLA to include a dedicated data centre policy in the next London Plan to address their significant energy impacts, and ensure more coordinated energy planning across the city.
Other recommendations in the report include:
- The GLA’s Infrastructure Coordination Service (ICS) should publish the results of its data centres forecasting project promptly, without waiting for the London Plan’s evidence pack
- The Mayor should prioritise retrofit funds for social housing and key infrastructure to reduce energy cost burdens on low-income households
Small-Edwards added: “The recommendations we’ve set out are an essential step towards managing these pressures fairly, and ensuring London has the infrastructure it needs to support new homes and a growing economy.”
Image credit: Gualtiero Boffi/Shutterstock
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