Energy company Drax has unveiled plans to build a new data centre at the site of its North Yorkshire power plant, which uses wood as fuel.

The FTSE 250 firm’s biomass plant is predominantly powered by wood pellets, but also uses straw and sunflower pellets. The company said it intends to use surplus energy capacity at the plant to power the new facility, in a new partnership with AI infrastructure business Radiant.

Drax said it hoped the total capacity of the data centre would exceed one gigawatt, with the first phase to deliver up to 100 megawatts by 2028 and the second phase to add an extra 500 megawatts by 2031. The potential investment, including semiconductor chips, could exceed £20bn, with an initial £2.5bn as part of the first phase of development.

Boss Will Gardiner said the scheme would “help secure the long-term future of the site and protect hundreds of jobs, maintain a critical source of this country’s energy security, support northern growth and enable us to continue delivering for our local communities.”

Drax shares rose 8.5 per cent to 877p on Tuesday morning following the announcement, making the stock the biggest riser on the FTSE 250.

Race to build AI infrastructure

It comes after John Healey said data centres would be allowed to use onsite generation while they wait for a grid connection to speed up their development.

At his Budget speech last week, the Chancellor unveiled a new “British Data Centre Covenant” with “strict tests that data centres must meet: To invest in local communities, create local jobs and protect local water supplies.”  

“In return, critical data centres will get the grid connections they need, and, where necessary, be allowed to build onsite generation while they wait,” Healey said.

The announcement followed frustration voiced by AI hyperscalers beset by years-long delays for grid connections for data centre projects. 

Last month, Microsoft pulled out of a tie-up with UK neocloud firm Nscale after the company’s proposed data centre project in Essex was unable to secure a grid connection until at least 2030.

But Drax’s decision could attract the ire of environmental groups over the carbon emissions from burning wood to power AI.

Earlier this year, reports suggested that burning wood for power generation could be worse for the climate than burning gas, even when the carbon dioxide emissions are captured.

Drax has also previously faced scrutiny over its receipt of government green energy subsidies. Its use of wood pellets is considered a renewable energy source.