Power and water – Unlocking the development bottleneck

Electricity and water supply are critical enablers of residential and commercial development. However, supply constraints are increasingly stalling the speed and scale of development activity in the UK. 2026 offers opportunities for infrastructure providers and funders to help unblock this bottleneck.

The Great Grid Upgrade

Not only is power in short supply, but the increased adoption of AI technology and the associated data centre demand is also accelerating demand, with over 100 GW of demand forecast against only 60-80 GW of peak capacity.

Although 700 GW of renewables are in the pipeline, a key problem is that integration with the national grid is lagging behind. Britain’s energy system is shifting from a one way coal based grid to mix of generation sources from offshore turbines, coastal nuclear, gas plants at import terminals, and high-voltage interconnectors linking to Europe. To support this, the Great Grid Upgrade is being undertaken, with 17 projects to build new high capacity spines, reinforce coastal hubs, and enable two way flows from renewables, storage, and interconnectors.

Delivering the Great Grid Upgrade is now essential. Some Independent Distribution Network Operators (who build and operate independent electricity distribution networks) have been abandoning projects or have exited the market entirely due to delays in grid connections, as well as other factors such as increased regulatory pressures.

Gate 2 – jumping the queue

The UK’s electricity grid connection process is undergoing transformative reform to support the transition to net-zero. At the core of this overhaul is the Gate 2 to Whole Queue process, also known as Connections Reform, led by the National Electricity System Operator (NESO). The reforms were hoped to significantly accelerate grid access for viable clean energy projects that meet the development criteria and support the UK’s broader decarbonisation strategy.

Connections Reform has shifted the process from "first come, first served", where speculative or unviable projects delayed more viable ones, to a "first ready and needed, first connected" approach. Projects must demonstrate readiness, for instance by securing planning consent, and must align with strategic priorities, including the UK’s Clean Power 2030 Action Plan. If an existing project meets the Gate 2 criteria and demonstrates readiness, it will retain its existing grid connection date (or may receive an accelerated connected date). During December, Gate 2 offers have been sent out to developers to help them start to understand when their projects can connect, with the phases being before 2030, 2031-2035, or later.

The next submission window for projects is likely to be in Q2 2026, with grid capacity available in a few areas for solar, in England for wind, and across the board for more novel generation schemes.

Small Modular Reactors to the rescue?

Google’s interest in Small Modular Reactors (SMRs) reflects a broader loss of faith in national energy infrastructure.

The decision to place the next generation of nuclear technology at Rolls-Royce in Derby is very welcome, with Rolls-Royce recently signing an agreement with US nuclear technology firm BWXT. The government has also published an updated Green Financing Framework, adding nuclear energy to the list of eligible expenditures for green financing (with some exclusions). This goes some way to support the role of nuclear energy as a ‘green energy superpower’.

Nuclear is central to a resilient energy mix. But until there is a commitment to the strategic grid upgrades required to move power from a likely SMR site on the coast to the urban centres where it is needed, its impact will remain limited.

Unblocking the water supply

Like electricity, water infrastructure is heavily constrained. The government has designated nine Strategic New Reservoirs (SNRs). These are designated as nationally significant projects (NSIPs), allowing them to be handled under the streamlined Development Consent Order regime, speeding up the planning process. We are seeing projects such as the SNRs at Lincoln and Abingdon move forward under the Direct Procurement for Customers (DPC) model, which is now gaining traction as a way to accelerate large-scale projects, with the potential to offer institutional investors a stable long-term income.

The Independent Water Commission’s final report, published last summer, made several key recommendations. These included a stronger and more integrated regulatory framework; long-term vision that drives delivery and articulates priorities; more integrated planning across the water system; and improved resilience including requirements for companies to map their assets.

Emerging funding models

The interplay between public and private sectors is key. Not only are there huge funding constraints, but there is growing consensus that government bureaucracy is too slow to meet infrastructure needs.

We therefore expect more direct procurement and more private capital coming into the sector. Private and global capital can be more agile, as international comparisons demonstrate – for example investment in the French and Spanish road networks shows how privately funded infrastructure can succeed.

The RIIO 3 funding package (UK energy regulator Ofgem’s price control framework) was agreed in December 2025. This provides a major funding commitment of over £10 billion for electricity transmission projects over the next five-year regulatory period from April 2026. This, together with other funding models such as the design-build-cost model used in highways, promises significant investment in the network from 2026.

In conclusion

2026 looks set to be a pivotal year for accelerating the utility infrastructure provision required to unlock housing and meet the accelerating demand for power. The need to ramp up investment in these vital areas is set against a backdrop of public sector cost pressures.

Cost control and a “do more with less” mantra will be defining characteristics of 2026. This will mean increasing opportunities for the private sector to both fund and deliver the infrastructure that is desperately needed to unlock development, help meet net-zero goals, and boost economic growth.

A recurring frustration is political short-termism, with five-year election cycles not suited to the long-term nature of infrastructure planning and delivery. This could be mitigated through independent, long-term planning bodies that transcend politics - something the National Infrastructure Commission has failed to achieve.

Ultimately, providing the necessary additional electricity and water is fundamental if the government is to reach its housing target, and encourage economic growth through greater use of AI.