H2Teesside vs South Tees Data Centre: Government Prioritisation and Overlapping Consents
The Teesworks site in Redcar has been at the centre of two conflicting proposed developments, each positioned respectively at the forefront of the UK’s energy transition and digital transformation strategies. On one side, the H2Teesside Development Consent Order (“DCO”) was sought to develop a blue hydrogen production facility, H2Teesside (“H2T”), affecting the Teesworks site and nearby land. In contrast, the landowners, the South Tees Group (“STG”), advanced plans for what could become Europe’s largest data centre on the Teesworks site.
In a significant decision, the H2Teesside DCO application was formally withdrawn on 1 December 2025, just days before a decision was due on 4 December.
This article explores the legal and policy tensions underpinning these overlapping proposals, the government’s role in prioritising the developments, and the broader implications for overlapping consents.
Conflicting Developments
H2T was set to become one of the UK’s largest blue hydrogen production facilities, supporting industrial decarbonisation using domestically sourced, low-carbon hydrogen and advancing the UK’s target of achieving net zero by 2050. Once operational, it was expected to deliver more than 10% of the government’s 2030 hydrogen target of 10GW.
However, those plans conflicted with STG’s data centre proposals at the Teesworks site in Redcar and the two proposals were assessed as incompatible. The Teesworks site has the potential for the construction of a data centre with more than a gigawatt of computing power, which would position Britain as an artificial intelligence (“AI”) hub and provide essential digital infrastructure to support economic growth.
Land use conflicts of this kind are becoming increasingly common in the promotion of infrastructure projects, given the locational requirements for such projects.
Background to the Developments
The H2Teesside DCO was sought under the Nationally Significant Infrastructure Projects (“NSIPs”) regime, which, if granted, would have conferred compulsory acquisition powers to purchase the required land. A decision on the DCO was initially scheduled for 28 August 2025; however, this was deferred to 30 October 2025 and then to 4 December 2025 to allow additional information to be obtained from STG regarding their proposed development.
In June 2025, STG submitted a reserved matters application to Redcar and Cleveland Council (the “Council”) seeking to build a 462,419-square metre data centre. The H2Teesside DCO promoter objected to this, on the basis that the proposed DCO land directly clashed with the land earmarked for the data centre and that the proposed inner zone for hazardous installations, required as part of H2T, would impose planning restrictions incompatible with the construction of the data centre. Despite this, the Council approved the reserved matters application a week later. Additionally, it had previously been reported that the Prime Minister had effectively ruled out the construction of H2T by endorsing STG’s data centre development, according to correspondence seen by The Telegraph.
Withdrawal of the H2Teesside’s DCO
On 1 December 2025, just three days before the scheduled DCO decision, the H2Teesside DCO application was formally withdrawn via a letter to the Planning Inspectorate from the promoter. The withdrawal followed speculation that the Teesworks site is likely to be designated as an AI Growth Zone, after similar designations elsewhere in the North East.
The promoter of the H2Teesside DCO cited material and significant changes in circumstances regarding options for development at the Teesworks site, since it submitted the DCO application in March 2024. It maintained that a solution in which H2T and the proposed data centre co-existed could have been achieved but noted that the Council had granted the primary consent enabling the data centre to proceed. The letter further stated that, given the incompatibility of the two proposals on the same land and without an alternative co-existence solution, the government must consider competing priorities in a very different manner compared to when the application was lodged in 2024. The promoter of the H2Teesside DCO also acknowledged that hydrogen demand in Teesside has deteriorated since the application submission and the end of Examination, as major industrial consumers scaled back operations or postponed their decarbonisation plans, which had a subsequent effect on the risk of developing H2T.
Locational Requirements for Data Centres and Energy Developments
Data centres and energy developments are often attracted to the same strategic locations, as they share several critical requirements for their successful operation. Both types of projects require a reliable, high-capacity power supply, sufficient and suitable land, proximity to power infrastructure, access to effective cooling resources and robust supporting infrastructure and connectivity.
For data centres, which operate continuously, an uninterrupted and resilient power supply is essential to meet the intensive demands of their servers and cooling systems. Data centres currently account for approximately 2.5% of the UK’s electricity consumption. Similarly, energy developments, whether focused on generation or distribution, also depend on a reliable power supply to function effectively. As a result, developers of both data centres and energy projects seek sites near key power infrastructure such as substations, transmission lines and generation facilities. This proximity helps to minimise connection costs and reduce transmission losses.
Additionally, both data centres and energy projects often require large sites that are compatible with development plans. These sites must also have minimal risks of flooding and other natural hazards to protect the project’s infrastructure.
Cooling is a critical consideration for both types of project. Data centres are among the top ten commercial industries, in terms of water consumption, primarily due to the use of water to address the significant amount of heat generated by their operations. To prevent overheating, they require reliable access to water or alternative cooling solutions. Similarly, many energy developments, especially thermal power plants, rely on substantial water supplies to support their cooling systems. Roisin Laycock, a planning and environmental specialist at CMS advised that “when abstracting water for these types of activities, a licence will likely be required from the environment agency and the suitability of the location, based on local water availability, will be a key factor when granting the licence.”
Further, data centres require robust telecommunications infrastructure to facilitate the high-speed transfer of large volumes of data. Both data centres and energy developments also benefit from locations with strong access to roads, utilities, and other essential infrastructure, which are crucial for both construction and ongoing operations.
Comment
As the UK progresses towards its 2050 net zero target and advances its ambition to become a global hub for AI, the demand for data centres and renewable energy projects is set to rise substantially. This anticipated growth suggests that developers will increasingly find themselves either competing for, or collaborating on, strategic sites essential to achieving these national objectives. Robert Garden, a partner at CMS, noted that: “This is a very site-specific issue given the interaction with such a significant data centre, and should not be seen as undermining government’s support for hydrogen, which is set to be set out in the upcoming Hydrogen Strategy. However, it demonstrates the importance of site selection”.
It is important that the government brings forward the data centre National Policy Statement, anticipated to be issued for consultation in early 2026, and a hydrogen national policy statement to set clearer decision-making frameworks for projects of this nature.
Robin Hutchison, head of energy and infrastructure planning at CMS further advised that “Where developers do not own the land for a core part of their project, and the landowner is promoting its own scheme, developers can encounter significant issues. This will engage the alternatives test on site selection and require a weighing of the need and policy support of the competing land uses. A landowner’s objection is not, in itself, determinative; however, it will trigger closer scrutiny of the justification for compulsory powers.”
Chris Bowes also notes that in CPO cases more generally “landowners have been known to promote their own schemes to challenge the notion that the use of CPO power is a last resort or to maximise land compensation by enhancing the value of the land via the grant of planning permission”.
CMS anticipates conflicting use cases to arise in future development projects.
This article was co-authored by Eleanor Addinall, Trainee Solicitor at CMS.
