National Grid has struck a deal paving the way for Britain’s biggest electricity substation to be built on Teesside as the government races to avoid missing out on global demand for AI infrastructure development.

Sky News has learnt that National Grid Electricity Transmission last week signed a deal to purchase more than 70 acres of land at Dorman Point on a site owned by Teesworks, a local private-public partnership.

Sources said the power infrastructure group had drawn up plans to construct a large substation which would provide power to a vast neighbouring data centre, which sources said was likely to be the largest in Europe.

The site is understood to have drawn significant interest from US-based frontier labs and technology hyperscalers in recent months.

One tech industry source said competition for the Teesside location was likely to lead to an investment decision with a preferred partner in the coming months.

"Sovereign AI in the UK requires UK-based infrastructure," said an industry source.

"Despite numerous announcements and smaller sites elsewhere in the UK, it's clear that the data centre project in Teesside is the only real opportunity for UK plc to deliver its hopes of true sovereign AI." The National Grid deal with Teesworks underlines the importance of resolving power supply bottlenecks, with grid connection delays having become one of the single-biggest blockages to industrial development in Britain in recent years.

It also comes at a time when mounting concerns over UK data sovereignty - particularly in areas of sensitive public services and national security - have spurred demands to reduce reliance on overseas tech giants.

"Securing this land agreement is an important step forward in the development of the new substation," Matt Pearce, National Grid head of lands, said in a statement this weekend.

"It reflects the constructive work between all those involved to enable this vital infrastructure which is part of The Great Grid Upgrade, the largest upgrade of the electricity grid in generations, and will support the growth of AI and digital technologies and enable the region's next phase of industrial and economic development.

"We are committed to working closely with our partners to progress the development as quickly as possible." In documents published alongside last week's Budget, the government unveiled a national policy statement on data centres in which it described them as "as fundamental to our economy as the railways and electricity networks on which we have long depended".

"We must take control over the development of data centres in this country and ensure that the country and host communities benefit from them," it said.

"We therefore must be clear about what we expect in return: infrastructure that strengthens our national sovereignty, protects billpayers, delivers real benefits for local communities and helps reindustrialise Britain." The explosion in the data centre industry has also fuelled a backlash in some communities, with complaints about pressure on local power and water supplies spurring an intense debate about their desirability.

In a statement issued to Sky News, Ben Houchen, the Tees Valley Combined Authority mayor, said: "Everyone who's tried to build a data centre in this country knows the biggest problem is getting enough power to the site quickly.

"While we've been stuck in the queue, the US, the Gulf and parts of Europe have been getting on with it and hoovering up the investment.

"Having up to 3.2GW of capacity here means we can finally compete for those projects.

"If Britain is serious about having its own AI capability, with sensitive data stored safely on British soil, it needs somewhere to physically put it, and I'd much rather that was Teesside than Texas or Abu Dhabi.

"Full credit to Steel River Power, Iberdrola and Teesworks for getting it over the line, and I have no doubt it'll mean thousands of good jobs for local people over the next few years." Sources said that Balfour Beatty, the London-listed infrastructure services group, was in line to deliver the Teesworks substation for National Grid, with Steel River Power (SRP), which owns and operates the private electricity network across the estate, also heavily involved in the project.

SRP is a joint venture between Steel River Energy Limited and North West Electricity Networks, part of the energy giant Iberdrola, which owns the UK supplier ScottishPower.

Teesworks encompasses 2,500 acres, making it Europe's biggest brownfield site, and its ownership has drawn scrutiny over the profits made by its owners.

The entity is structured as a private-public partnership, with 10% owned by the public sector South Tees Development Corporation.

"Making this land available for what is expected to be the UK's largest substation is an important step in putting the infrastructure in place to support the next phase of industrial development across the site," Chris Musgrave, the Teesworks chairman, said.

"Our focus now is on delivering the remediation works and preparing the land for handover, helping to ensure Teesworks is ready to support the energy needs of major businesses and industries for years to come."