Executive Summary

• Ofgem has launched a consultation around wider reforms to electricity demand connections – and is initially targeting speculative data centre projects
• Proposals include the introduction of a commitment fee – approximately 2.5% to 7.5% of average project costs – and greater queue management milestones
• “Together, these measures are designed to ensure scarce grid capacity is used for projects that are actively progressing towards delivery, rather than speculative projects that may never connect,” Ofgem noted

Ofgem has launched a consultation to tackle what it calls ‘speculative’ data centre projects to free up grid capacity in Britain’s electricity connections queue.

The consultation concerns wider reforms to electricity demand connections, with an initial focus on data centre projects. Proposals include the introduction of a commitment fee and new project progress milestones. The Data Centre Commitment Fee, as proposed by the regulator, would be paid by large developments when accepting a connection offer, to be refunded when the project reaches energisation, and forfeited in the case of early exit.

The fee itself would be set within a range of approximately 2.5% to 7.5% of average project costs – £237,500 to £712,500 per megawatt.

The data centre-specific queue management milestones, meanwhile, would require developers to demonstrate ‘tangible’ progress to ensure they keep their place in the queue. This would include financial capability, commercial maturity, and procurement activity.

“Together, these measures are designed to ensure scarce grid capacity is used for projects that are actively progressing towards delivery, rather than speculative projects that may never connect,” Ofgem noted.

Data centres are a key area for Ofgem and the National Energy System Operator (NESO) to tackle, currently accounting for a significant proportion of demand. As per the Ofgem consultation, demand currently sits at around 73GW.

Other organisations have noted this bottleneck. In its recent 12 Pillars of Change: Power In report, freight industry body TwentyForty also pointed an accusing finger at the data centre industry, though for a different reason, finding that, across UK Power Networks’ distribution network, the median site drew only 18% of the capacity it had contracted. TwentyForty founder Jamie Sands wrote that he was advocating for a system ‘that stops handing the scarce thing to whoever booked it first, and starts handing it to whoever will use it.’

Ofgem added that since the introduction of wider connections reform measures, around 7.8GW of projects have been accelerated by an average of six years.

“Britain’s electricity demand connections queue has more than tripled in size in less than a year, and consumers should not bear the risks created by speculative projects taking up space in the system,” said Eleanor Warburton, Ofgem director for energy system design and development.

“The connections system must work for consumers and for the projects that are ready to invest, build and connect. Where speculative projects take up space in the queue, they can delay other schemes and create uncertainty about future network needs,” Warburton added.

The consultation is open until 16 September.

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