Energy was a central theme of the Budget on Wednesday 28 October with support for household bills sitting alongside a wider programme of reform. Setting aside the tax raids to fund a cost of living package including £100m handouts to 20 million households to help with rising energy bills, for the energy sector, perhaps the more significant question is what happens next: can the Government make energy infrastructure quicker to deliver, as well as cheaper to use?
For developers and major energy users, the announcements on grid connections and data centre planning are particularly important. They point towards greater Government intervention in deciding which projects get access to power and a clearer planning framework for some of the infrastructure driving demand.
Highlights from the budget:
Cheaper electricity and energy market reform: Government is putting greater emphasis on cheaper electricity and faster grid development, including a new consultation on a Wholesale Contracts for Difference scheme for existing low-carbon generators.
Grid connections: strategically important projects will be prioritised through measures including reserving future grid capacity and reallocating capacity released by other projects.
£2bn Energy Wealth Fund: £2bn will be provided through the National Wealth Fund to invest in renewable and low-carbon energy infrastructure across the UK.
Data centres: a new Data Centre Covenant has been announced, setting tests that strategic data centres will be expected to meet, including their contribution to communities and the UK economy, alongside Government action to support the capacity needed for strategic projects.
Data centres and heat: particularly relevant to our Heat Networks work, data centres will be expected to capture waste heat for nearby homes, schools, hospitals or businesses wherever practical.
Faster routes to power: a new Ministerial Control Centre will aim to accelerate "time to power" for strategic data centres, including through measures to reallocate grid connections and identify capacity that may be available before 2030.
Planning: a draft Data Centre National Policy Statement is being published for consultation, providing the decision-making framework for data centre projects going through the NSIP regime.
The backdrop: energy demand
The growing demand for power is accelerating. Electrification and digitalisation are changing how and where power is used, and renewables are supplementing traditional energy sources. Over the next 5 years, electricity demand is projected to grow approximately 50% faster* each year than it did over the past decade. Energy security is a persistent concern because of the geopolitical landscape.
The energy crisis began with rising wholesale prices in 2021 and intensified following Russia’s invasion of Ukraine. Prices have since fallen from their peaks but that does not mean affordability has recovered. Exposure to international gas markets, inefficient homes, and the lasting effects of high bills remain part of the picture.
Faster grid connections, high electricity costs, and the growing burden of consumer debt and inefficient homes are recurring themes. Electricity demand is rising fast, including data centre cooling demands.
Energy security, economic security, and national security are increasingly intertwined. Yet encouraging households and businesses to electrify is difficult while electricity remains expensive relative to gas. Investment in generation and networks matters but so does giving people a workable financial reason to switch.
Changes announced in the Budget
The Budget’s near-term affordability measures include a £100 Household Energy Payment in 2027 for up to 20 million households in council tax bands A to D in England, with funding for similar support elsewhere in the UK. The temporary VAT cut on electricity bills will also be extended until 1 July 2027. For eligible manufacturers in Great Britain, the British Industrial Competitiveness Scheme is due to begin in April 2027, cutting electricity bills by up to 25%.
The Government will also ask Ofgem to abolish gas standing charges and move those costs into unit rates, with targeted mitigation to follow. The planned Gas Shipper Obligation will not be introduced; hydrogen contracts will instead be publicly funded, subject to the commitments and value-for-money conditions described in the Budget.
Removing a standing charge is not, of course, the same as removing the underlying cost. The distribution of savings, and the protection available to households that do not benefit automatically, will matter.
Grid connections: a more active role for Government
For infrastructure projects, one of the most significant announcements is the intended use of powers in the Planning and Infrastructure Act to prioritise grid connections for strategically important demand projects. The Government is publishing its response to the strategic demand connections consultation to confirm this approach.
For strategic data centres, a new Ministerial Control Centre will seek to accelerate access to power. The measures include reserving future capacity, reallocating capacity released when projects leave the queue, identifying additional capacity available before 2030 and facilitating the transfer of pre-2030 connection contracts.
That makes the relationship between site selection, planning and power availability even more important. A promising site is only part of the story. Developers will need to consider how their connection strategy fits the Government’s priorities, rather than treating it as something to resolve after the planning work.
These measures sit alongside the previously announced Great British Grid which will work with existing network operators to support grid upgrades and increase competition. The Budget also confirms that competition will shortly be introduced into onshore electricity transmission networks.
This potentially matters considerably to developers. Access to sufficient capacity and when a project can actually connect increasingly sits alongside obtaining planning permission and securing land rights as a practical question affecting deliverability. The Budget's emphasis is therefore not simply on generating more electricity. It is also about getting generation and demand connected more quickly.
Data centres: a new planning framework, with conditions attached
The new Data Centre Covenant links enhanced Government support to what strategic projects contribute to the UK. Expectations include community investment, energy costs, British industry and jobs, and national security. Further detail on what qualifies as a strategic data centre and the additional criteria projects must satisfy is still to come.
Alongside this, the Government is publishing a draft Data Centre National Policy Statement for consultation. It will set out the decision-making framework for data centre projects seeking development consent through the nationally significant infrastructure project regime.
There is also a proposed, tightly controlled route to temporary on-site generation while a grid connection is secured. It would be available only for exceptionally strategic projects where the other measures cannot provide capacity in time and subject to conditions including energy security.
The direction is encouraging for qualifying projects but it is not an unrestricted fast track – the eligibility rules, consultation outcome, and conditions attached to support will determine how useful the package is in practice.
Looking ahead
A new Cost Control Framework is planned for the 2027 spending review, setting budgets for components of energy costs with the aim of reducing bills over ten years. Further electricity market reforms will address siting and investment decisions, constraints, and system pricing. A consultation on wholesale Contracts for Difference also seeks to progress plans to delink electricity prices from volatile international gas prices.
Other measures to watch include the Energy Debt Circuit Breaker, further detail on electricity standing charge reform, a freeze in the main electricity Climate Change Levy rate from April 2028, and a Nuclear Regulation Bill expected early next year.
Investment will matter too. The new Energy Wealth Fund will receive £2 billion for renewable and low-carbon infrastructure. At the same time, the Budget reprioritises funding for hydrogen, carbon capture, and the Warm Homes Plan. That is a reminder that the transition is not simply a story of additional funding; choices are being made about which projects and delivery models to support.
So perhaps the most important point from this Budget is that the Government is beginning to look beyond short-term support. The policy direction is towards cheaper electricity, faster connections, and greater infrastructure investment, with electrification presented not simply as a net zero objective but as part of the response to energy affordability and security.
Whether those reforms can deliver cheaper electricity while meeting the cost of the considerable new infrastructure required is, of course, the harder question. For developers, investors and major energy users, much will depend on the detail still to come.
How can we help?
Our energy lawyers can advise on the full spectrum of energy projects and queries.
We help clients navigate planning and development consent requirements and understand the implications of the emerging Data Centre Covenant eligibility criteria. We can also advise on the contractual and delivery risks associated with power availability, helping clients on all sides of a project to protect project delivery and mitigate the risk of delay. If you are considering what the Budget could mean for your project, please get in touch.
*As quoted in a finding by the International Energy Agency.
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