Data centres - here today, here tomorrow Bringing the entire data centre ecosystem together part 1

Ruth:

Hello and welcome to this Ashurst podcast on data centres. Here today, here tomorrow. In this podcast, we're going to discuss some of the key takeaways from the Data Centre Seminar hosted by Ashurst on International Data Centre Day. This was the perfect occasion to bring together the entire data centre ecosystem in one room and bounce around some of the key opportunities and challenges in the data centre industry at the moment. I'm Ruth Harris, a finance partner specialising in data centre financing, and I'm joined by Rebecca Clark, a digital infrastructure expert from our digital economy team. Rebecca, congratulations on a great event covering so many areas from planning, power, and investment and financing opportunities. Do you want to kick off with some of your key takeaways?

Rebecca:

Thanks, Ruth. Sure. Shall we start with the first panel on planning and construction?

Ruth:

Yeah, good idea.

Rebecca:

There was much discussion around recent planning reform and AI growth zones, but what I found particularly interesting were the practical tips for dealing with planning authorities.

Ruth:

I agree, Rebecca, it was great to get the inside story from Emma Williamson, director of planning at Old Oak and Royal Park Development Corporation. Since Emma is responsible for the planning for OPDC, it was interesting to hear how data centres can be viably placed in urban areas alongside where residential regeneration schemes are happening. So Emma has about three or four data centres, either in planning or construction phase under her remit, and that's as part of an urban master plan.

Rebecca:

It seemed like part of the ability to secure planning is identifying what data centres can give back to their local communities.

Ruth:

Yeah, I picked up that as well. It's giving that right focus and taking into account the local community's needs that can really speed up the planning process, perhaps taking years off the time from application to permission. So these tips were great really. I think the audience was really interested in the balancing of the national need with a focus on local benefits.

Rebecca:

I agree.

Ruth:

It seems like a lot of efforts spent by developers now in taking the local community on that data centre journey with them. I know for example that KO data involve a lot of time with local communities and they involve the local schools as well, which is great to hear. I also like the contrast that was drawn with the planning process for resi development or logistic development, where on those kinds of developments, they obviously bring job opportunities to the community and build phase and after build, but the planning permissions may also involve delivery of affordable housing, public realm. Or for logistics, for example, may even involve the road networks being improved under section 278 agreements and the like. So that's because there'll be increased traffic when you build a logistic centre or obviously resi developments, but for data centres that's not so obvious. So all those section 106 obligations and section 278 agreements that would benefit the local communities aren't so apparent with data centres. So it's about finding other ways to bring those local benefits.

Rebecca:

You say that the job opportunities are not perhaps as evident with data centres, but Robert at Pulsant was quite clear that whilst not so obviously linked, data centres bring thousands of jobs during the construction phase and that jobs will be created over the lifespan of the data centre in particular through the wider tech ecosystem. And I really liked his example of where Pulsant Data Centres have supported a start-up in Edinburgh using AI to enhance maritime safety. So effectively creating those local jobs.

Ruth:

Yeah, you're right to pull me up on that actually, Rob was very clear that not every business aims to be global and the ability to connect digitally with the local area is crucial. It's not all about building the big hyperscaler data centres and AI data centres that we'll talk about so much, but these edge data centres and data centres on a smaller scale are really important too. And that was a key takeaway actually for me because we hear so much, don't we, about hyperscalers, but the data centres outside of London in more regional areas are just as important. But same challenges with planning. Either way, you've got to convince the local authorities and the local communities of the benefits, the economic benefits and the other local benefits. Data centres are key part of infrastructure and they attract jobs and investment, but there's other benefits too.

Rebecca:

Speaking of local benefit, I suppose it's not just about job creation. And it was really interesting to hear from Emma about the heat reuse project where the data centres as part of the development that she's working on will be required to plug into the heat networks of the regeneration scheme to supply energy to thousands of homes, businesses, and key sites such as the hospitals. I think such initiatives not only demonstrate the local benefits that data centres can bring, but they also show that in terms of sustainability, data centres can also be part of the solution.

Ruth:

Yeah, I agree. But a key takeaway there is the need to articulate persuasive packages of local benefits and weigh those against the national needs to expedite planning. So it's not always easy to do that when the public perception is totally against you because no one likes the idea of a data centre.

Rebecca:

And I think data centres have to get better about communicating those benefits more widely. You're right, most people don't like the idea of a data centre being built on your doorstep, but this is much about not understanding about what happens in a data centre and why we need to build them and why we need to ensure that they're best in class.

Ruth:

Totally agree with that and actually facilitating an understanding of the geopolitical need is as great as articulating local benefits. I think this has been really key listening to Trump recently and this whole emphasis on dominating in the AI and data centre industry.

Rebecca:

I agree, Ruth, and in the fireside chat with Mike Tobin, he was certainly persuasive that data centres are here today and here tomorrow, so we might as well embrace them. But you did talk to Mike about how it was important to find the right metaphors to describe the digital world and in particular AI.

Ruth:

That's right. In a sense that we've got to make it our friend and not our foe, and there's definitely work to do here. But I did like the way Mike focused on the need to reinvigorate the recognition of apprenticeships being more useful, for example, than a degree I think he said in underwater weaving or something like that. So yeah, Mike did start off life in digital services as an apprentice for a robotics firm, so he's clearly going to be a fan. It's true though, and I mentioned KO data again, that involving the local communities and the local schools and teaching them about what data centres are all about and the great job opportunities is really key and it's great to see that that is happening.

Rebecca:

Henry asked on his panel about the tension between sustainability net-zero and digitalisation and how data centres are very energy hungry. I know you picked up with Mike in the fireside chat about whether AI can also help solve these problems. What did you think about Mike's take on that?

Ruth:

It's interesting because I thought Mike might take the conversation in that way, but actually we really focused on whether AI could prevent AI becoming dangerous. So could AI be used to stop AI becoming the monster that everybody's a bit afraid that it might be, but you are right. AI could help solve some of the power consumption issues. Chips are becoming more efficient. Grey space equipment uses AI to decrease the energy consumption requirements, but I mean, I'm not convinced that it will produce the right counterbalance. I mean, if energy trajectory and data centre usage continues on the track that we're on, it's going to be really hard to counterbalance that I think. So anyway, that probably segways quite nicely into the energy panel, Rebecca.

Rebecca:

Nicely done, Ruth.

Ruth:

So on the energy panel, I was really pleased to have Tim O'Reilly from Tritax and Ed Sargent on the panel. I don't know about you, Rebecca, but I found the key takeaways on the panel, however, were not that surprising. Data centres, as we all know, were going to have a transformative impact on the grid, and AI is a monster energy consumer and not many countries have that kind of supply readily available. I mean, in the UK our grid is amongst one of the oldest in the world, and so the strains on the congested areas are just going to continue and be more and more evident I think. What do you think?

Rebecca:

You're right, it's just the UK access to power in all of the FLAPD markets is constrained, and it's common to see grid connection dates many years away in some cases due to so-called zombie applications.

Ruth:

What do you mean zombie applications?

Rebecca:

So those applications that are in the queue where they can't show that they've secured land rights or planning approval.

Ruth:

Yeah, and I heard people talking about this afterwards and I heard that NESO or the National Energy System Operator is going to sort that out for us in the UK. Is that right?

Rebecca:

Yes, that's correct. There are reforms underway to remove these zombie applications from the queue to speed up the connection dates.

Ruth:

So there are applications where there's no planning yet, but they've just hogging the electricity, so they're grabbing it, getting to the top of the queue, but then staying there and no one else can get electricity because they're not moving on and actually achieving their scheme. So that's really quite interesting because what it means is the first panel on planning is even more important. All those tips to get your planning quickly means that you're not going to get bumped off the energy queue. So it goes back to the first session and that whole ecosystem of being able to work through the data centre ecosystem in one sort of smooth transition. But still, let's get back to energy demands. How do we address these? What were your key takeaways from the energy panel?

Rebecca:

So to address connection and sustainability challenges, data centre operators will need to be innovative and work proactively with the energy providers. On the energy panel, there was a really interesting discussion around the mix of potential solutions to the current power issues from pairing on-site generations with the grid, PPAs, micro grids and the exploration of SMRs. It was clear that there isn't one particular solution for the UK here. In respect of on-site renewable power generation, unfortunately, we don't live in a country where we have 365 days of sun or wind for that matter. So backup from the grid will still be necessary given the baseloads of a data centre. In addition, such on-site generation needs to work with a specific site and be geospatially appropriate.

Ruth:

That's really interesting because one of my takeaways was when Mike Tobin talked about dirty diesel backup generators and how actually these are being converted potentially to hydrogen generators, and that might be used as the prime source with the grid being the backup, which I think is just such a fabulous idea. But what about nuclear? Lots of people talked about nuclear on the day, is that the solution?

Rebecca:

SMRs have the potential to form part of the solution, but we're about 10 years away from this and the sector needs solutions for the challenges it faces today.

Ruth:

That's true. So what about battery storage solutions?

Rebecca:

Yes, there was a focus on energy efficiency to reduce consumption and wastage, and in this regard there is a really interesting discussion around using battery energy storage systems to secure and soak up unused electrons as well as providing backup power and load balancing.

Ruth:

Yeah, it's going to be really interesting to see if power-sharing agreements also become the norm. Do you know what, Rebecca? We've run out of time for today. I hope you found this podcast interesting. This is part one of a two part series. In part two, we will cover our key takeaways on investing in data centres and financing data centres. So look out for that. Also, look out for our podcast from my Spanish colleagues, Ismael and Jose Christian, who are going to talk about the data centre market in Spain. Thank you for listening and hopefully see you soon.