The UK Power Grid Has a Phantom Data Center Problem

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As data center developers compete for a cut of the hundreds of billions of dollars flowing into the artificial intelligence industry, the queue to join the UK’s power grid has become jammed with projects that will likely never get built. The snarl is exacerbating already years-long wait times for viable projects, and it's messing with attempts to forecast energy demand and plan grid expansions.

In July, the UK’s energy regulator, Ofgem, laid out a proposal meant to force phantom data centers out of the swollen queue. Under the plans, set to be finalized after an industry feedback process that ends in September, developers would be required to put down a steep, nonrefundable deposit that could balloon to hundreds of millions of dollars for the very largest data centers. Developers would also be required to line up customers in advance and prove they have the funding to complete their builds.

However, Ofgem faces a Goldilocks conundrum: The reforms must be burdensome enough to deter speculators but not so much that they drive legitimate data center projects to other shores, undermining the UK’s ambitions to meet the voracious demand for the compute required to run sophisticated AI models.

Data center developers face delays almost everywhere; similar grid congestion issues afflict the US and countries across Europe. But whereas the US is a highly desirable market, Ofgem’s reforms risk making the UK—already unattractive for the high cost of energy and dearth of land—one of the world’s most expensive places to build a data center, industry experts believe.

The frenzied data center buildout “is bringing a huge amount of capital investment into the UK,” says Alex Burgoyne, head of data centers at real estate consultancy Knight Frank. “We don’t want to shoot the golden goose.”

Ofgem says that it will take into account industry concerns before settling on a fee, but that differences between international energy markets make like-for-like comparison difficult. “We recognize data centers are a key part of the UK's AI ambitions and future economic growth. Enabling viable data centers to connect more quickly is an enabler of this,” Nathan Macwhinnie, deputy director of strategic planning and connections at Ofgem, tells WIRED in a statement.

The queue to join the UK grid began to balloon toward the end of 2024, around the time the government designated data centers “critical national infrastructure.” Between November 2024 and June 2025, the total energy demand of the projects in the connection queue increased from 41 gigawatts to 125 gigawatts, according to Ofgem. New data centers make up 73 gigawatts of that—equivalent to one and a half times the peak demand for the entire UK last year—and counting.

The government has said it believes much of that demand is a mirage. “It’s absolutely insane,” says Taco Engelaar, managing director at grid optimization company Neara. “No one really understands … what the real grid demand will be because of these phantom projects.”

The crowded queue is largely the product of an incentives problem. Because developers face a years-long wait for grid access, and it has previously cost only a few thousand dollars to join the queue, they might as well apply for power, even if they do not have a watertight plan to develop a site. It’s a no-downside bet that allows developers to hedge for a future in which demand for compute remains sky-high.

However, because grid operators have to account for the combined effect of large infrastructure proposals on network stability before granting individual connections, phantom data centers can exacerbate already-lengthy delays for viable projects. “They have to treat every project as serious when they try to study whether the system can handle them,” says Olivier Darmouni, associate professor of finance at HEC Paris Business School, who has published research on the impact of AI on power grids. “The more speculative projects are especially damaging because they make these studies more complex, more expensive, longer.”

A lengthy queue also attracts middleman developers who apply for power with the aim of later flipping land at a premium to data center companies, packaged with grid access. “It’s like scalping for concert tickets,” says Darmouni. “The congestion feeds on itself and gets out of hand.”

The UK has required all developers since 2024 to demonstrate they have at least secured land rights, submitted a planning application, and met other milestones that indicate they are likely to follow through on their projects.

The latest Ofgem proposal runs with that same logic, and in the most basic sense, it’s expected to work. “It’s going to pour water on a lot of the speculative data center applications,” says Burgoyne.

Eliminating phantom data centers from the queue will also make it easier for grid operators to plan upgrades and expansions, avoiding a scenario where money is wasted on parts of the network that don’t actually require extra capacity. “If there’s an accurate queue and we know exactly what the demand will be, where it’s going to be built, it will help potentially target more focused investment from a grid upgrade and building perspective,” says Engelaar.

There is some concern, however, that the reforms could have unintended side effects that undermine the UK government’s ambition to rapidly expand the country’s compute capacity.

One risk is that the steep new fees make the UK market less enticing for data center developers, already more attracted to the US and corners of Europe that can offer plentiful, renewable energy. “It’s a really difficult balancing act,” says Daniel Newton, a partner at the law firm Slaughter and May who specializes in digital infrastructure. “If you don’t set [the fee] high enough, you don’t deter speculation. If you set it too high, you risk killing viable projects, because people are unwilling to put large sums of money at risk at the development stage.”

The plans could also force all but the very largest data center companies from the UK market, trampling a new generation of smaller, AI-specific data center operators that may be unwilling to cough up the fees. Some of those up-and-comers, like Nscale, have previously pledged to spend billions of dollars in the UK. “There are new players arriving all the time,” says Burgoyne. “It might have the unintended consequence that it stifles growth in the sector.”

But while the reforms may not improve the UK’s immediate prospects of riding the wave of AI infrastructure investment, some say that cleansing the queue of phantom data centers will give the country a better long-term chance of winning a cut of the hundreds of billions of dollars pouring into the sector.

“It’s about shaping the next five years to make sure you build the data centers in the right place, at the right size, with the right power supply,” says Darmouni. “It’s not going to be a gas pedal you can press on, and the car is going to accelerate immediately.”