HM Treasury published the Data Centre Covenant alongside the UK Budget on Oct. 28, 2026. The covenant is a two-sided deal. Developers of data centres the government considers "strategic" would get faster grid connections, priority for network capacity and help with planning. In return they would have to pay for the energy-system costs they create, sign up to local benefit commitments, report their energy and water use in public, and meet efficiency targets for new facilities.
The covenant does not yet say which projects qualify. According to Pinsent Masons' Out-Law, the government will define "strategic" data centre at a later stage. The same day, it opened consultation on a draft national policy statement (NPS) for data centres, the planning document the covenant is described as a precursor to.
Why the Government Says It Needs a Deal
The Treasury frames the covenant around one number. The government estimates it needs 6 GW of AI data centre capacity by 2030, according to the covenant document. The document also calls the UK the third largest AI market, after the United States and China.
Reuters, in a report carried by KFGO, described the announcement as a fast-track plan for strategically important data centres. The report said the UK has more than 520 data centre facilities and estimates it needs to triple its AI-capable capacity by 2030. Reuters also cited a government figure of £28.2 billion of investment generated by the AI growth zones programme.
Reuters said industry executives and developers have previously pointed to delays to electricity connections as a major obstacle to new data centre projects. It noted that earlier in October, Microsoft abandoned plans to anchor Nscale's Essex project after delays to a grid connection pushed the expected power supply date into the 2030s.
What Government Is Offering
The covenant document says the government will act on grid connections, planning and infrastructure for qualifying strategic data centres. Out-Law's analysis sets out how:
- Grid capacity. The government will use powers under the Planning and Infrastructure Act to reserve future grid capacity and to reallocate capacity freed up from the connections queue.
- Timing. The government has pledged to "accelerate connections before 2030." The covenant says it may use Planning and Infrastructure Act powers to facilitate the transfer of pre-2030 data centre connection contracts to strategically important data centres.
- On-site generation. Exceptionally strategic projects may be allowed to run on-site generation temporarily, under what Out-Law describes as a "tightly controlled" permitting regime.
- Planning. Out-Law describes the covenant as a precursor to the data centre NPS and reports it will inform development consent applications.
Out-Law also places the covenant alongside the Great British Grid, announced last month as a branch of Great British Energy.
What Developers Would Have to Commit To
The covenant sets out a series of tests for qualifying projects. According to the Treasury document, strategic data centres would be expected to:
- Pay a fair share of energy costs created by their connection and consumption.
- Agree a Local Benefit Plan with commitments linked to the size of the development.
- Publish annual energy and water reports.
- Design new facilities for a Power Usage Effectiveness (PUE) of 1.3 or better and minimise demand for public water supplies using technologies such as closed-loop water systems.
- Capture waste heat where it is viable to do so.
- Create local jobs and apprenticeships, prioritise UK suppliers and contribute to British AI hardware.
PUE is total facility energy divided by the energy delivered to IT equipment. A PUE of 1.3 means that for every unit of power reaching servers, cooling, power conversion and other overhead use no more than 0.3 units. The covenant text applies the 1.3 target to new facilities by design.
The Treasury document does not specify the size or content of a Local Benefit Plan beyond linking it to development size. It also does not set a format for the energy and water reports.
Open Questions
The covenant is a framework, not a finished regime. Several of its key terms are still to be defined.
Who qualifies? The government has not yet said what makes a data centre "strategic," according to Out-Law. That definition will decide which projects can get reserved capacity and planning support, and which developers take on the obligations.
How will government deliver its side? Pinsent Masons experts, quoted by Out-Law, said it is unclear how the government will keep up its end of the bargain. Ian McCarlie of Pinsent Masons said developers will want much more detail on how the planned use of Planning and Infrastructure Act powers will affect timelines for securing grid connection offers.
What does "fair share" mean? The Treasury document commits developers to pay a fair share of the energy costs they create but does not give a methodology.
How will on-site generation be permitted? The covenant says the government will develop a tightly controlled framework to permit on-site generation until a grid connection can be secured. It would be available only for exceptionally strategic projects, only where the other measures cannot secure the required capacity in time, and subject to conditions such as ensuring energy security. The sources reviewed do not set out the detail of the permitting regime, which the government still has to develop.
Why It Matters for Communities
For residents and local officials near proposed sites, the covenant adds some new commitments. The required Local Benefit Plan, annual public energy and water reporting, and the push to minimise public water demand would all apply to strategic projects. Out-Law says the covenant will inform development consent applications for projects in England, so these commitments could shape how large data centre projects are assessed. The extent of that will depend on the final NPS and the definition of strategic.
What Happens Next
Consultation on the draft national policy statement for data centres opened on Oct. 28, 2026, according to Pinsent Masons' Out-Law. The government has also said it will set out the definition of a "strategic" data centre, and the additional criteria such projects must meet, in due course. Neither source gives a date for that definition, and the sources reviewed for this article do not state a consultation closing date.
