Five things data centre developers need to know about Ofgem’s demand connections’ reform

As mentioned in our previous article here, Ofgem plans to introduce a package of measures to address speculative activity within the electricity demand connections system. These measures are grouped under the triptych of 'Curate, Plan and Connect'. On 29 July 2026, Ofgem launched a consultation on the measures that it intends to introduce under the 'Curate' pillar of the demand connections' reform.

For data centre developers, the direction of travel is now clear; Ofgem measures project viability against:

1. an operator's ability to commit significant upfront CAPEX,
2. evidence of customer demand,
3. existence of financial backing,
4. existing procurement activity and
5. technological maturity.

The proposed measures indicate that Ofgem is moving from policy setting to project-level intervention at pace.

Data centre Commitment Fee

Ofgem is proposing that data centres equal to or above 40MW, which connect to the transmission system or distribution system and are subject to a Transmission Entry Assessment, will be required to pay a 'Commitment Fee' at the point at which a connection offer is accepted. Under the proposals, the fee can range from £237,500 to £712,500 per MW. Ofgem proposes that the fee is refunded upon energisation,  but will be forfeited where a project fails to progress. The forfeited fee will be passed back to consumers through consequent reductions in transmission network use of system charges.

Subject to transitional arrangements, both projects with contracted capacity and projects that submit an application for a grid connection offer after the date that the proposals come into force will be subject to this requirement. However, data centre projects whose energisation date is within six months of the proposals coming into force will be exempt.

Importantly, the Commitment Fee may be adjusted at either Ofgem's discretion or through periodic review to address changes in market conditions and project costs. Data centre developers will have to place security which covers the difference between the original secured fee value and the new fee value. If the commitment fee decreases, projects will be repaid the excess fee. Should a project choose to self-terminate in response to the increase of the Commitment Fee, then the security will be returned.

Data centre queue management milestones

Four data centre specific queue management milestones are being proposed:

1. Compute offtaker evidence - Binding commitment for at least 20% of compute capacity for at least one year. This could be evidenced through a Master Services Agreement or another binding customer contract.
2. Long-lead procurement evidence - A genuine and material commitment to procure electrical equipment needed to connect and operate the project.
3. Financial capability - Financial capability through either an investment-grade credit rating or legally committed financial support (e.g. a bank letter of credit).
4. Technical capability - An independent third-party technical certification will provide evidence that the project has been sufficiently developed and credibly designed.

When it comes to the application of Queue Management Milestones, Ofgem is exploring three different options: (i) application only to those data centres that are 'caught' by the requirement to provide a Commitment Fee, (ii) application only to those data centres that have a rated 10MW IT load (recommended option) and (iii) application to all data centres irrespective of size.

What next?

The consultation closes on 16 September 2026, and any measures are expected to be implemented later in 2026.  Data centre developers, investors and interested stakeholders are encouraged to share their views and concerns regarding Ofgem's proposals. You can find a link to the consultation here.

The data centre Commitment Fee and Queue Management Milestones are likely to significantly reduce non-viable and speculative data centre projects in the queue. However, one possible consequence is that developers and investors may consider the financial exposure of the Commitment Fee unacceptable where project delivery remains dependent on factors outside of their control, such as planning permission delays, land assembly or financing and may therefore be discouraged from pursuing further development.    

If you would like further information on the proposals or support with submitting a response to this consultation, get in touch to discuss how we can help.