NEWPORT, Wales — Road signs around Newport still refer to this sprawling former industrial site as a radiator factory. But soon, it will generate a different kind of heat.

Microsoft has chosen this area of South Wales — once the world’s steel capital — to build hulking new data centers. Five buildings, covering an area larger than three football pitches, are springing up to meet what the company describes as “exploding demand” for artificial intelligence compute power. 

For Microsoft, the area’s industrial heritage is precisely why it’s investing. Newport’s legacy of heavy-duty factories means it has the infrastructure needed for energy-intensive data centers.

But doubts over whether Britain can supply enough energy to keep up with demand from data centers are an urgent problem for the government’s AI ambitions.

The government’s former AI adviser Matt Clifford has warned that without energy and planning reform, new data center projects and the billions of pounds of investment they bring are at risk. 

Britain’s industrial electricity prices are 60 percent higher than the average of countries in the International Energy Agency, and waits for a grid connection can stretch to a decade. 

“We had the biggest AI funders in the world lining up to invest tens of billions into our infrastructure if only we could sort out our energy mess,” Clifford said at an event about his time in No.10.

U.S. Ambassador to the U.K. Warren Stephens, Donald Trump’s point man in London, is also watching closely, calling Britain’s energy costs the country’s “chief obstacle” to growth. “If there are not major reforms to U.K. energy policy, then the U.K.’s position as a premier destination in the global economy is vulnerable,” Stephens warned a business gathering in London.

A tall order

The Newport project will need 80MW of energy – enough to power a small town – but the Department for Science, Innovation and Technology (DSIT) predicts the country needs to boost its total data center capacity five-fold by 2035, from 1.8GW to 9.6GW.

That expansion will mean data centers’ power total demand will treble over the same period, according to NESO, the body which manages U.K. electricity demand.

A spokesperson for the DSIT said it was looking at “bespoke options” to support data centers’ energy demands, adding: “The work of our AI Energy Council — bringing together regulators, energy companies and tech firms — will ensure we can do that using responsible, sustainable sources.”

AI Minister Kanishka Narayan told a conference for AI researchers in London in October that there was “no better place to build” than Britain, arguing its combination of talent, access to capital and large public markets is unmatched. Investors aren’t so sure. 

“People aren’t willing to pay a premium on U.K. power rates to run their workloads here,” Mike Mattacola, international general manager at AI infrastructure company CoreWeave said at the same conference. “We need to fix that.”

Selling the shovels

It’s not just energy prices that are the problem.

The boss of Hitachi Energy U.K., which is working with the National Grid to upgrade Britain’s power network, warned that the grid is the biggest hurdle to Britain’s AI ambitions. Laura Fleming said data centers should be at “the heart” of the country’s energy planning, but added: “I’m still not sure whether as the U.K. we have sufficiently planned for this.” 

More than half all applications for a grid connection are now made by data centers, according to the National Grid. Energy regulator Ofgem is trying to get a grip of things, grumbling that amid the “credible data center projects” applying for a grid connection, they want to get rid of “less viable projects that may crowd out those with genuine merit.”

Power providers, meantime, are lining up to find the opportunities in this uncertainty.

Two hundred miles to the north of Newport, the U.K.’s largest power station is offering itself as one solution. Drax Power Station burns wood pellets imported from North America and wants to build data centers hooked up to its four biomass terminals. 

Richard Gwilliam, director of future operations, revealed that Drax has already held talks with hyperscalers and plans to bring a data center online in the early 2030s. He hoped the 2.6-gigawatt power station could offer “big scale stuff” to the market. Gwilliam also said the existing connections gave biomass a trump card to play in the data center race.

Squaring the circle

The rush for power is also clashing with Britain’s net zero ambitions. The most in-demand energy source for data centers is still fossil fuels, specifically gas.

National Gas said it has had inquiries from five big data center projects since last November, equivalent to 2.5GW worth of energy capacity, or twice the capacity of Britain’s biggest nuclear power station, Sizewell B. 

Its chief commercial officer, Ian Radley, argued gas provided customers with “the flexibility and capacity they need to enable the Government’s strategic AI ambitions.” 

But environmental groups point out that the surge in carbon emissions from new data centers have not been factored in to the  U.K.’s Carbon Budget Delivery Plan, which sets out a path for the government to hit legally-binding climate goals up to 2037. 

“It’s unclear how the government intends to square the circle of encouraging a construction frenzy of new, highly polluting data centers while not overshooting the binding climate targets they need to meet,” said Donald Campbell, director of advocacy at campaign group Foxglove.

This tension is also being played out at the AI Energy Council, a body the government formed in January to bring AI and energy companies together, but which has only met twice. 

It is co-chaired by two ministers with different priorities. Ed Miliband, as energy secretary, needs to cut Britain’s emissions to zero by 2050, while Technology Secretary Liz Kendall needs to turn AI’s promises of investment and growth, particularly to left-behind areas, into a reality. 

The government has pushed the idea AI Growth Zones — huge data center campuses on former industrial land, which already have grid connections and will get fast-tracked through planning — as a solution.

One has already been announced in Northumberland, but a decision on a second, planned for Teesside in north-east England, has been delayed until the end of this year by Miliband, whose department has to make a call on whether to greenlight plans for a hydrogen plant on the same site, which could preclude data centers being built there.

“There is a large fight going on inside of government where Ed Miliband seems to have set himself up against not just the prime minister, but a number of secretaries of state,” Houchen told POLITICO during Conservative Party Conference in October. 

The nuclear option

Long term, the government is betting on a cleaner, but more expensive energy source — nuclear, specifically small modular reactors. Michael Jenner, CEO of nuclear firm Last Energy UK, said they had received dozens of enquiries from data center builders and argued that the green credentials of nuclear was an ace card it could play against rival bids from gas companies.  

“If you’re thinking about building data centers in South Wales, which a lot of people are, you have a problem with the authorities because they don’t want new gas there,” he said. 

In September, EDF Energy announced plans to work with American company Holtec International building a crop of data centers next to small modular nuclear reactors at a disused coal plant in Nottinghamshire. 

The Tony Blair Institute, which is influential with government ministers, has argued nuclear has a “unique” advantage when it comes to data centers. It also believes the country should scale back its net zero plans in favor of reducing energy costs to attract data center investment. 

“Cheap, firm power is … not a ‘nice to have’ but a prerequisite for attracting AI-driven growth,” it argued in a report last month. Gas, meanwhile, should be part of that energy mix, the Institute recommended in July. Firms represented at the AI Energy Council have urged ministers to green-light greater use of gas turbines in the short term.

The clock is ticking. Gas, nuclear, renewables or even wooden pellets — ministers willing on an AI revolution need to make decisions fast.