UK Data Centre Covenant Sets Five Tests

The UK government has set five tests that the biggest new data centres must meet to qualify for help getting connected to the power grid, in a Data Centre Covenant published by HM Treasury alongside the Budget on 28 October. The tests cover electricity bills, investment in local communities, environmental standards, jobs and national security.

In his Budget speech, Chancellor John Healey presented it as a trade. “I am today launching a new British Data Centre Covenant with strict tests that data centres must meet,” he said. “In return, critical data centres will get the grid connections they need, and, where necessary, be allowed to build onsite generation while they wait.”

In brief

The government says the UK needs 6 GW of AI data centre capacity by 2030.
Strategic data centres must meet five tests to qualify for extra support; all others are encouraged to.
A new Ministerial Control Centre, chaired by the Minister for AI, will speed up their time to power.

The five tests

The covenant says all data centres are “encouraged to meet” the tests, while strategic data centres “must meet” them “to qualify for additional government action”. The five are:

Lower electricity bills. Operators should pay their fair share of energy costs, so that households and other businesses are not left to “pick up the bill”, and support grid resilience and clean power.
Invest in local communities. Strategic sites should agree a Local Benefit Plan with the community, committing “substantial investment” linked to the development’s size, to be spent on priorities such as transport, parks and town centres.
The highest environmental standards. New facilities should be designed for a Power Usage Effectiveness of 1.3 or better, use technologies such as closed loop water systems to limit demand on public supplies, reuse waste heat where there is a local user, and report energy and water use every year.
Jobs and reindustrialisation. Developers should create lasting local jobs, fund paid apprenticeships and training, prioritise UK suppliers and contribute to British AI hardware.
Security. Operators should provide secure access to compute for the NHS and other public services, and work with the National Cyber Security Centre on resilience “beyond baseline requirements”.

What strategic sites get in return

According to the covenant, sites that pass will be considered by a new Ministerial Control Centre, chaired by the Minister for AI and supported by the Exchequer Secretary to the Treasury and ministers from the Department for Energy Security and Net Zero. Its job is to “accelerate time to power” and speed up planning for the most strategic projects.

The government’s main tool is new powers in the Planning and Infrastructure Act. It says it will “reserve and reallocate connections”, reserving future grid capacity for strategically important demand and reallocating capacity freed up when other projects leave the connections queue. It will also work with the National Energy System Operator (NESO) and network companies to find capacity available before 2030, and may transfer pre-2030 data centre connection contracts.

On-site generation is the most tightly limited offer. The government will develop “a tightly controlled framework” to allow temporary on-site power until a grid connection is ready, but only for “exceptionally strategic projects” and only where the other measures cannot deliver capacity in time. It has not yet defined what counts as a strategic data centre, saying further details will follow “in due course”.

Why the government is trading grid access for local benefits

The covenant tries to solve two problems at once. The first is the grid queue. The covenant’s offer is built around “time to power” and the connections queue, which shows where ministers think projects are getting stuck, and its answer is to move the projects the government values most up the line. The second is local consent. Large sites use a lot of power and water, and the weight the covenant gives to local benefits, water use and lasting jobs suggests ministers expect host communities to need persuading.

By tying faster connections to bills, water, jobs and a Local Benefit Plan, ministers are trying to make the case that hosting a data centre brings something back to an area. The pledge that households will not “pick up the bill” signals concern that the costs of grid upgrades could otherwise fall on households.

There is also a sovereignty argument. The covenant says the UK “cannot rely entirely on infrastructure located overseas” as AI becomes part of the NHS, defence and other critical services. “When the NHS uses AI to treat patients, we want that data here,” the Chancellor said. The Budget document adds that the Ministry of Defence is assessing options for sovereign compute on its secure estate.

The hard choices are still to come. Until “strategic” is defined, it is not clear how many projects will qualify, and reserving grid capacity for data centres means other demand projects may wait longer.

What comes next

The covenant sits alongside wider reforms: support for Ofgem’s data centre commitment fee to deter speculative grid applications, a draft Data Centre National Policy Statement for consultation, and continued delivery of five AI Growth Zones across England, Scotland and Wales. It joins other AI measures in the Budget, including new money for the AI Security Institute and biosecurity and a consultation on who is liable for cyber breaches. The definition of a strategic data centre will be the first test of how many projects the covenant actually covers.

In London, Telehouse has since bought a site next to its Docklands campus with 65MVA of power already secured: Telehouse Pays Over £220m for Docklands Site With 65MVA of Power.