One in five UK firms have already moved AI workloads overseas due to high power costs, according to new research from CUDO Compute. 

The research, commissioned in partnership with Censuswide, polled more than 700 senior AI decision-makers across the UK, US and Europe. Among UK respondents, 20% said they had already shifted AI workloads out of the country because of power costs, while 33% said energy prices are limiting their ability to scale AI operations.

For those who have been keeping up with recent developments, this shouldn’t come as much of a surprise. Earlier this month, OpenAI paused its Stargate UK data centre project, citing an unfavourable regulatory environment and high energy costs. It was widely seen at the time as a setback for the Government’s efforts to position the UK as a global AI hub, which has been central to its economic policy. 

That said, the UK still has some advantages as a location for AI data centres. In fact, according to CUDO’s research, many firms are still eager to keep AI capacity close to home – mostly thanks to data sovereignty concerns. 

According to the findings, some 46% of UK organisations said geopolitical instability is pushing them to keep AI workloads within home markets, compared to 36% overall. But 43% also said cost and performance still outweigh sovereignty when it comes to deployment decisions.

Power, not just policy

The UK’s electricity pricing problem is hardly new. Official analysis has shown that Britain has had the highest industrial electricity prices among reporting International Energy Agency countries since 2021. The Iranian conflict is expected to keep UK electricity prices elevated in the near term. 

While all data centre firms are feeling the pinch of those high energy prices, the pressure appears to be even sharper among AI-first businesses. 32% of AI-first businesses responding to CUDO Compute’s survey said that they would consider moving workloads overseas due to power costs, compared to just 18% of general enterprise organisations. 

That’s hardly a surprising statistic, of course. Considering the power draw difference between a legacy data centre and an AI data centre, even a modest increase in electricity prices can have a huge impact on the bottom line for AI firms. But, it does show that the UK will need to get its electricity prices under control if it wants to lead in AI, as the Government hopes. 

When asked which market firms viewed positively for new AI cluster capacity, respondents ranked the US highest at 72%, followed by India at 62%. Eastern Europe also scored strongly at 58%, ahead of Western Europe at 45% and the Nordics at 44%. 

The US’ high ranking also comes despite significant capacity constraints in that market, where firms are often forced to be creative when it comes to dealing with power challenges. That showcases the scale of the problem that faces the UK if it hopes to compete on the global AI stage. 

Thankfully, growing sovereignty concerns are seen as a bright spot for the UK’s data centre prospects. Nearly a third of UK organisations said they are actively considering relocating workloads due to geopolitical pressures, while 45% said data sovereignty, regulatory compliance, or national security concerns are shaping their AI deployment strategy. At the same time, 31% said they are prioritising sovereign or regionally controlled compute, even if it comes at a higher cost.

Could hope be on the horizon? 

While the UK’s energy bills are expected to increase in the near term, as the country deals with the fallout from the Iranian war, there could be hope on the horizon for lower costs in the long-term. That’s because Ed Miliband and Rachel Reeves are expected to announce new plans to weaken the link between volatile gas prices and electricity bills. 

The announcement, which is due for April 21, will see the Government pursue new long-term fixed-price contracts for renewable generators, with the aim of protecting households and businesses from gas-driven price spikes. Ministers said around 30% of Britain’s power supply is still exposed to wholesale electricity prices set by gas, despite much of the country’s electricity increasingly coming from cheaper renewables and nuclear power.

The reforms are expected to take a carrot-and-stick approach. Renewable energy firms will be offered fixed priced contracts to guarantee price stability, while simultaneously being threatened with higher windfall taxes should they remain on the old scheme which pays based on the highest unit cost of electricity – typically gas. 

Many in the energy industry have long called for electricity prices to stop being tied to the price of gas, which has been especially volatile in recent years as Russia wages war on Ukraine and the US & Israel continue with their campaign against Iran. Whether it will meaningfully move the needle for AI firms to consider the UK a more attractive place to invest in remains to be seen, however. It’s unlikely to do much in the short-term, as the UK Government expects the policy to not have an effect until around a year’s time.