LOGIC: Logistics Sector Update - Spring 2026
Coexistence or Competition: An H2Teesside Case Study
By Will Harwood & Rachael Davidson
LOGIC: Logistics Sector Update - Spring 2026
Coexistence or Competition: An H2Teesside Case Study
By Will Harwood & Rachael Davidson
The United Kingdom is witnessing a fundamental shift in the geography of data centre development. For decades, the sector has been overwhelmingly concentrated in and around London. That concentration, has created its own constraints, and grid infrastructure in the south-east is now under considerable strain.
As demand for data processing continues to accelerate, driven principally by the rapid expansion of artificial intelligence applications, both industry and government have been compelled to look beyond established markets toward new locations capable of supporting the next generation of digital infrastructure. This brings its own conflict with other developments designed to lead the country into future technologies, as the H2Teesside case starkly illustrates. On 1 December 2025, H2Teesside Limited (a bp company) (bp) withdrew its application for a development consent order (DCO) for the H2Teesside project (the H2T Application), citing conflict between the land required for that project and the land required for a consented data centre.
Background
The H2Teesside Application sought consent for a 1.2GW blue hydrogen production facility and associated pipelines and infrastructure. The project was intended to deliver approximately 10% of the UK's 2030 hydrogen target. The six-month examination period closed on 28 February 2025 and on 28 May 2025 the Examining Authority’s recommendation report was sent to the SOS for a determination to be made by 28 August. The decision date was extended twice, ultimately to 4 December 2025. Separately, outline planning permission for up to 464,515sqm of industrial, storage and distribution uses together with office accommodation and associated ancillary works had already been granted by Redcar & Cleveland District Council (LPA) on 2 March 2022 relating to land owned by South Tees Developments Limited (South Tees) which forms part of Teesworks, a major brownfield industrial site and Freeport, part of which was formerly occupied by the Redcar Steel Works. Such post-industrial sites present significant advantages for intensive infrastructure development: they often benefit from existing grid connections, utilities and transport links, and their remediation can bring substantial investment and employment to regions that have experienced economic decline following the closure of traditional industries. The scale of land available at locations such as Teesworks also permits the development of large campus-style facilities capable of phased expansion, which is particularly attractive for hyperscale data centre operators requiring flexibility to scale capacity in response to demand. The siting of data centres in close proximity to electricity grid infrastructure is paramount to efficient operations - electricity loses energy during transmission over distance, meaning that facilities located far from generation sources or high-voltage substations incur greater losses and reduced efficiency. Positioning data centres near grid connection points minimises these losses and allows operators to draw power more reliably, which is essential for facilities that require continuous, high-quality electricity supply. An application for reserved matters approval for a data centre was submitted pursuant to the outline consent on 30 May 2025 and was granted on 1 August 2025 (the Data Centre RMA).
Overlapping development – South Tees position
The H2T Application sought powers to compulsorily acquire the freehold of some of the Teesworks land for the hydrogen production facility. Bp argued that the hydrogen production facility was originally located on the Teesworks land by invitation from South Tees who wanted the land to be developed for green technologies. However, in various representations submitted to the Examining Authority toward the end of the examination period, South Tees objected to:
- the inclusion of its land for compulsory acquisition on the basis that it intended to bring forward the consented data centre on its land and that bp had not evidenced a compelling case in the public interest for the acquisition of its land;
- the sterilisation of its retained land that would arise through the application of the Health and Safety Executive’s land use consultation zones for hazardous installations (the retained land falling within the “inner zone”, thereby restricting the nature and scale of future development that could come forward); and
- the extent of powers sought in the DCO across the Teesworks site generally. While this could be mitigated to a certain extent through protective provisions, there were still fundamental concerns that the provisions offered did not go far enough.
In updating the Examining Authority that the Data Centre RMA application had been submitted, South Tees referred to the “critical importance of data centre development in the context of enabling AI and driving economic growth” which is supported through multiple national policy instruments including the government’s AI Opportunities Action Plan, and the introduction of AI Growth Zones (noting that an application to designate Teesworks as an AI Growth Zone had been made with local government support). This was positioned against the uncertainty in the UK hydrogen market at the time, citing other hydrogen projects being scaled back and the lack of evidence that the H2T project would in fact come forward.
Overlapping development – South Tees position
The H2T Application sought powers to compulsorily acquire the freehold of some of the Teesworks land for the hydrogen production facility. Bp argued that the hydrogen production facility was originally located on the Teesworks land by invitation from South Tees who wanted the land to be developed for green technologies. However, in various representations submitted to the Examining Authority toward the end of the examination period, South Tees objected to:
- the inclusion of its land for compulsory acquisition on the basis that it intended to bring forward the consented data centre on its land and that bp had not evidenced a compelling case in the public interest for the acquisition of its land;
- the sterilisation of its retained land that would arise through the application of the Health and Safety Executive’s land use consultation zones for hazardous installations (the retained land falling within the “inner zone”, thereby restricting the nature and scale of future development that could come forward); and
- the extent of powers sought in the DCO across the Teesworks site generally. While this could be mitigated to a certain extent through protective provisions, there were still fundamental concerns that the provisions offered did not go far enough.
In updating the Examining Authority that the Data Centre RMA application had been submitted, South Tees referred to the “critical importance of data centre development in the context of enabling AI and driving economic growth” which is supported through multiple national policy instruments including the government’s AI Opportunities Action Plan, and the introduction of AI Growth Zones (noting that an application to designate Teesworks as an AI Growth Zone had been made with local government support). This was positioned against the uncertainty in the UK hydrogen market at the time, citing other hydrogen projects being scaled back and the lack of evidence that the H2T project would in fact come forward.
Overlapping development – bp position
In its objection to the Data Centre RMA application, bp cited:
- the nationally significant nature of the H2T Application which was recognised as being a “critical national priority in planning terms by the Government’s national policy” (which the Data Centre RMA was not); and
- the very substantial public benefits the H2T Application would deliver including those in relation to the UK’s net zero targets, arguing the Data Centre RMA could not deliver “comparable levels of public benefit”.
Bp stated that in light of the physical incompatibility between the two schemes, the LPA should wait to determine the Data Centre RMA until the SOS decision on the H2T Application had been made. Alternatively, if the LPA were to take the decision before determination of the H2Application, the RMA Application should be refused. In setting out to the Examining Authority how the parties had engaged to facilitate co-existence between both projects, bp noted a key obstacle had been that HSE’s position relied on detailed design of the H2T project which simply had not yet begun. Bp argued that the data centre could be located on another part of the site. Following the grant of the Data Centre RMA, bp maintained the position it was still open for the SOS to grant the DCO, as it would not prevent South Tees bringing forward a new reserved matters application for a data centre in a different location on the wider Teesworks site. Ultimately, bp stated, the SOS would need to make a decision in the national interest between two competing proposals.
What is driving data centre demand?
The surge in artificial intelligence applications represents the most significant driver of data centre demand in recent years. The release of generative AI tools has dramatically increased the requirement for computational power, as training and operating large language models necessitates processing capacity far in excess of that required for traditional data workloads. As AI applications extend beyond text generation into media production, design, simulation and autonomous systems, demand for compute capacity is expected to continue growing. The UK government has set an ambitious target of deploying at least six gigawatts of AI-capable data centre capacity by 2030, and has introduced the AI Growth Zones to help accelerate connection times and remove speculative demand from the grid connections queue. Beyond AI, data sovereignty requirements (whereby organisations must ensure that certain categories of data are stored and processed within specific jurisdictions) have made domestic data centre providers highly sought after, particularly in regulated sectors such as finance, healthcare and defence.
Comment
This case study turns on a very particular set of facts but serves as a stark reminder of the complexities inherent in bringing forward major infrastructure projects in areas experiencing significant development pressure. This applies particularly for projects in the energy transition and digital infrastructure spaces, which compete for similar industrial land with good grid connections and transport links. The Teesworks site benefitted from legacy grid connections that reduced the cost and complexity of connecting to the national grid, making it highly attractive for large-scale data centre development. That same infrastructure could similarly be deployed to harness green technologies. In the end, the withdrawal of the H2T Application by bp relieved the SOS from having to weigh two projects against each other and essentially declaring a “winner”. From a planning perspective, the outline planning permission to which the Data Centre RMA application related already existed – the LPA noted that permission had established the principle of development at the site. Had the outline consent not existed, the outcome may have been different. For DCO projects, the case study underscores the risks inherent in projects for which the applicant relies on compulsory acquisition powers. Early engagement is critical to ensure that the threshold for establishing a compelling case in the public interest can be reached. Private agreements with landowners are preferable. The case study also serves as a cautionary tale where the examination period has ended but issues material to determination continue to evolve.
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