In brief
As AI adoption accelerates globally, demand for data centres is increasing at an unprecedented pace. Industry forecasts indicate that data centre capacity will grow at a compound rate of 22% per year, reaching approximately 220 GWs by 2030, which is nearly six times the capacity in 2020. This surge is driven primarily by AI workloads and significant investment from hyperscale providers. Furthermore, McKinsey estimates that meeting this demand will require cumulative capital expenditures of almost USD 7 trillion worldwide by 2030 to sustain the necessary computing infrastructure. The UK government intends to capitalise on this opportunity and attract investment with the "AI Growth Zones" policy.
On 13 November 2025, the UK Government published a policy paper outlining the "AI Growth Zones" policy. For prospective data centre projects, the key aspects of the policy are:
- Bringing down energy prices
- Accelerating grid connections
- Reducing planning barriers
- Creating the best business environment
Bringing down energy prices
The UK Government acknowledges there is often a misalignment between the amount of electricity generated in a certain region and the electricity grid's ability to transmit that electricity to other regions, notably with respect to wind generation in Northern England and Scotland. As a result, data centres located in AI Growth Zones in these areas will receive commensurate discounts on electricity costs, so that a 500MW data centre will be discounted by:
- GBP 24/MWh in Scotland
- GBP 16/MWh in Cumbria
- GBP 14/MWh in the North-East
Accelerating grid connections
The UK Government accepts that the current grid connection system is vastly oversubscribed and does not reflect national demand priorities. The policy paper sets out the strategies to prioritise AI Growth Zones:
- Creating two new connection mechanisms that (i) reallocate freed-up capacity to priority projects; and (ii) reserve capacity at specific physical connection points for strategically important projects.
- Applying new powers contemplated in the Planning and Infrastructure Bill to prioritise strategically important projects for grid connections.
- Setting out a plan to remove speculative demand projects in the connections queue.
- Exploring models whereby developers could construct and connect their own high-voltage lines and substations.
- All data centre projects in AI Growth Zones will quality for the new Connections Accelerator Service, part of the Industrial Strategy, which offers creative solutions for connection delays.
Reducing planning barriers
Delays and uncertainty create challenges for building large-scale AI infrastructure. Whilst the Planning and Infrastructure Bill is expected to improve planning considerations when it becomes law, the UK Government intends to further streamline the planning process.
Currently, there is a grey area where AI data centres are not treated as Nationally Significant Infrastructure Projects (NSIPs), for which the planning regime is overseen by central government. This is separate to the local planning process (Town and Country Planning Act), which is controlled by the Local Planning Authorities (LPAs). To fix this discrepancy, the government is:
- In the next three months:
- Consulting on changes to the National Planning Policy Framework to add explicit references for the benefit of AI Growth Zones; and
- Releasing a National Policy Statement for Data Centres to provide clarity for developers, NSIP parameters/thresholds and whether Critical National Priority status should be applied to data centres in line with the approach to low carbon energy projects.
- Assisting LPAs by providing a national team of AI data centre planning experts.
- Protecting sites for future expansion by allowing central government to take over the final planning decision from LPAs where necessary.
- Redesigning the fast-track consent process for NSIPs, exploring whether consent timelines can be cut from 18 months to 12 months.
Creating the best business environment
The AI Growth Zone policy will be coordinated by two core teams: (i) a pipeline team who will work closely with the Office for Investment to identify suitable sites and engage with investors; and (ii) a delivery team that is responsible for delivering the AI Growth Zone. In addition, the government will engage with the National Wealth Fund and UK Export Finance to explore how to leverage public sector financing to facilitate private investment.
Considerations
The AI Growth Zones policy marks a clear shift from aspiration to execution in the UK’s approach to AI-led infrastructure. By explicitly tackling power pricing, grid access and planning friction in a coordinated way, the government is signalling that large-scale data centres are now viewed as strategical and critical national assets, rather than peripheral real estate or energy loads. If delivered as intended, the package will improve materially the UK's competitiveness relative to other European data-centre hubs, particularly for hyperscale and AI-driven workloads with high, inflexible power demands. That said, much will turn on implementation detail: the speed at which grid-connection reforms translate into usable capacity, the scope of any future National Policy Statement for data centres, and how effectively central government intervenes where local planning constraints persist. For sponsors and investors, early engagement will be key, both to secure a place in the priority pipeline and to structure projects that are sufficiently advanced to benefit from these accelerated regimes as they come online.
Next steps
At Baker McKenzie we can advise on the full end-to-end of your data centre project lifecycle – from knotty leases or complex financing arrangements through to those key contractor agreements and intricate power purchasing mechanisms. Furthermore, in this fast-changing landscape, we can ensure you access the correct incentive regime at the time to enable you to fully capitalise on this vast investment opportunity.
Please do not hesitate to get in touch with us with any questions.
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Jack Horrobin, Associate, and Elliot Mack, Trainee, have contributed to this legal update.