Do data centres drive up my energy bills?
Data centres are not what's driving up energy bills. Structural gas pricing and fixed network costs are. They can help bring bills down by reversing the decline in industrial energy demand that has left fixed costs and levies increasingly concentrated on households.
What are data centres?
Data centres are specialised and secure facilities that house and operate IT infrastructure used to store, process, and distribute data. If a service uses the internet, it is almost certainly running a data centre somewhere. Together with communications networks, they form our digital infrastructure.
Data centres underpin all digital activity. This covers everyday uses, such as backing up photos on a phone, as well as complex tasks like processing large datasets for weather forecasting and scientific research.
There are several types of data centre:
Enterprise data centres are privately owned and run by a single organisation for its own IT needs, while colocation facilities (the dominant model in the UK and Europe) let an operator provide space, power and cooling to multiple customers who bring their own servers.
Hyperscale data centres are much bigger sites run by major tech firms like AWS, Microsoft and Google to power cloud and global digital services, alongside an emerging category of neocloud providers building GPU-based platforms specifically for AI training and inference.
Finally smaller edge data centres are sited close to end users to minimise latency – the time it takes for data to travel between a user and a data centre – for things like gaming or real-time systems.
Why are my bills high?
UK electricity bills are among the highest in the developed world, and this is a serious problem for household budgets and the competitiveness of British industry. The reasons why they are so high are largely structural.
The UK – and most other countries across the globe – uses marginal pricing, where the most expensive unit of electricity is used last and sets the wholesale price for all electricity sold at that time. That most expensive unit is typically gas, which is easily dispatchable and often required to top up generation if renewables output is low. Although gas supplies only around 31% of UK electricity, it ends up setting the market price roughly 60% of the time. This is especially damaging when gas prices spike due to geopolitical instability.
Consumers also pay for non-commodity costs as well as the wholesale price: both the network costs to upgrade the physical infrastructure that carries gas and electricity across the country, and levies to fund important government environmental and social schemes. Network charges fund grid upgrades, connection costs, and the ongoing operation of the national and low voltage grid, with £80 billion required in transmission upgrades between 2026 and 2031. Together these added £11bn to bills in 2025-6.
Critically, these costs are largely fixed: whether demand is high or low, the bills still need to be paid. Non-commodity costs (network charges, balancing costs, policy levies and taxes) are forecast to make up nearly 60% of a small business electricity bill by 2026. The fewer users there are to share these fixed costs, the more each individual pays. While households are getting some relief from levies, and eligible energy-intensive manufacturers are shielded through schemes such as the British Industry Supercharger and, from 2027, the British Industrial Competitiveness Scheme (BICS), digital infrastructure, including data centres and telecoms, are excluded from this support. The Social Market Foundation (SMF) estimates that, at 2023 prices, powering a 100MW data centre in the UK could cost £226.5 million a year, compared with £156.3 million in France, £67 million in Sweden and just £56.8 million in the US.
techUK has been calling on DESNZ and HMT to implement levy reform to bring electricity prices down for all consumers, both households and businesses. This is directly within Government's gift and faster than decoupling gas from the electricity price.
Falling energy demand
While data centres are significant energy consumers, it is important to bear in mind that since the 1970s, the UK’s industrial energy demand has fallen by two-thirds. This is the result of energy efficiency improvements, offshoring, automation, and a shift from coal to cleaner but less energy-intensive production. Manufacturing's share of GDP fell from 17% to 9% between 1990 and 2023; the great factories that once anchored regional economies have largely disappeared.
Whilst reduction in demand for more carbon intensive sources such as coal and gas is a positive development, falling demand for electricity – which is quickly decarbonising – poses issues. With fewer large users on the system, the fixed costs of running the grid are spread across less demand, making each unit of electricity more expensive for everyone. As prices rise, businesses and households have a growing incentive to bypass the grid altogether (aka "grid defection") through rooftop solar, battery storage, or private wire connections. This shrinks the pool of users further, pushing unit costs higher still for those who remain. Left unchecked, this self-reinforcing spiral risks making the grid progressively more expensive for ordinary bill payers.
Do data centres contribute?
There are legitimate questions about whether data centres will strain the grid and push up prices. Firstly, it should be noted that, unlike the US, the UK has a national energy price, which means, even if a data centre is near you, it cannot make your local energy prices spike.
However, data centres do require significant new power capacity and more grid to deliver it, which increases network charges on consumer bills. While data centres' continuous, baseload consumption profile means they can make good use of wind generation during periods of low demand, but it also means we have to meet their demand during periods of system scarcity, when costs are highest, contributing to the balancing costs. Moreover, there is a large amount of speculative connection requests in the grid queue (~73GW), which can result in stranded costs, for energy infrastructure investments that become unrecoverable if the projected load does not materialise. However, this risk is currently being mitigated by work undertaken by Government, NESO and Ofgem to fundamentally reform the connections process and clean up the queue.
Aware of this, many operators procure renewable energy through long-term Corporate Power purchase Agreements (CPPAs). A WPI Strategy report commissioned by Microsoft Corporation estimates that data centre operators’ CPPAs for carbon-free electricity could unlock more than £15.56 billion of additional renewable investment in the UK by 2050 and create more than 17,000 green-energy jobs.
Modelling from Aurora Energy Research suggests that data centre growth could provide a “route to market” for up to 19GW of renewables in Great Britain by 2035. Moreover, they are also exploring how to build and finance their own high-voltage transmission and distribution infrastructure, through "build and transfer" or "build and operate" models being developed by Ofgem, NESO, and Government. This effectively reduces the costs of network upgrades that are socialised across all consumers.
Indeed, in the US there are significant concerns about the impact of data centres on household bills, with a survey finding 78% of Americans are concerned data centres will push up their energy bills. Lawmakers in more than 30 states have introduced over 300 bills on the issue. However, US utilities companies, such as Entergy Mississippi, are using new revenue secured from data centres to help fund broader grid upgrades, so costs are not passed onto households.
Other data centres are covering the full cost of its energy usage to avoid impacting local bills. Bearing in mind that the UK context is significantly different to that in the US, in both locations, when managed strategically, data centres can support grid investment and growth without burdening everyday consumers. Data centres can also be valuable sources of waste heat. As they expand to meet growing computing demand, the heat they generate, where circumstances allow, can be captured and fed into heat networks.
This is not only a source of decarbonised heating, but heat networks in turn, help reduce the cost of heat for customers connected to them by sharing installation, maintenance and operating costs across multiple properties and enabling bulk energy purchasing at lower prices. The need for strategic demand In the context of declining industrial energy demand, data centres represent a significant opportunity for reindustrialisation.
More demand on the network means fixed levies and infrastructure costs are divided across more units of electricity, lowering the unit price for everyone. After years of decline, UK electricity demand rebounded by around 2.4% in 2024, driven in part by data centres. Boston Consulting Group has estimated that connecting 14 GW of the data centre pipeline would cut £35 from every household’s annual bill by 2035. Data centre growth has also been found to address three specific problems created by the expansion of renewables:
Price cannibalisation. On very windy or sunny days, excess supply causes wholesale prices to collapse. Data centres, running continuously, absorb this excess and keep prices stable enough for generators to remain financially viable.
Curtailment. When the grid cannot carry all the power being generated (for example, when Scottish wind produces more power than the transmission lines to carry it south can handle) wind farms are paid to switch off while gas fills the gap at consumers' expense. Curtailment payments for wind energy alone were £1.5 billion in 2025. Balancing costs are increasing and are predicted by NESO to go up from around £2bn a year now to as much as £8bn by 2030. With the right locational signals in place to encourage siting in these areas, certain data centres near renewable generation could absorb that surplus locally, reducing waste.
Investment confidence. Growing data centre demand gives renewable energy developers and investors’ confidence that there will be a robust market for power in the 2040s and beyond, making renewables projects easier to finance today.
Supporting the economics of the green transition
These benefits go beyond bills. Electricity is currently significantly more expensive than gas in the UK because it carries network charges and levies that gas bills do not - a price difference known as the 'spark gap'.
Cheaper electricity is therefore vital to improving the economics of heat pumps, electric vehicles, and the electrification of industry. By spreading fixed costs across a larger base of demand, data centres help bring the price of electricity down, narrowing the gap between electricity and gas. EDF has modelled that delivering expected electrification-driven demand growth could save households around £40 a year by 2030 — and if that demand fails to materialise, the spark gap worsens, making the very electrification needed to lower bills even harder to achieve. A virtuous cycle becomes possible instead: more demand lowers unit costs, lower costs accelerate electrification, and greater electrification brings in still more demand.
The improved economics of electricity can then support wider electrification across the economy, particularly in heat and transport, and ultimately underpin the path to net zero.
