UK Grid Connections Reform: More Changes Ahead For Data Centres And Electricity Demand Connections

Reforms have been proposed which signal the next step in Great Britain's (GB) evolving connections reform process and a more interventionist and strategic approach to demand connections. More proposals are expected in the second half of the year. The first phase of connections reform placed more focus on electricity generation and storage but attention is turning to the demand connections queue, particularly given the rapid growth in connection applications for large demand projects such as data centres. If implemented, the reforms can be expected to have significant impacts for projects seeking an import connection from the grid and offer new opportunities for investors in grid solutions. In this article, we unpack the proposed reforms and what they could mean in practice.

The Department for Energy Security and Net Zero (DESNZ), in its accelerating electricity network connections for strategic demand consultation published on 11 March 2026 (the DESNZ Consultation), and Ofgem, in its Demand Connections Reform Call for Input issued on 13 February 2026 (the Ofgem CfI), have outlined a programme of demand connections reform. On 16 June 2026, Ofgem published both a Summary of Responses, which sets out its initial positions on certain proposals made in the Ofgem CFI (the Ofgem SoR), and an update on the "Connect" pillar of demand connections reform (the Ofgem Connect Update). 
 

Key takeaways for investors

• For data centres with connection offers, new post-offer milestone requirements (eg, securing a customer and long-lead item procurement) and financial requirements (eg, deposits or commitment fees) are expected to apply. There may be opportunities to accelerate a connection date if aligned with the Government's strategic demand plan.
   
• For new data centre connections, alignment with the Government's strategic demand plan will be key. Increased flexibility may be required or at least help to accelerate connection dates.
   
• Reforms to self-build and ownership of high-voltage grid infrastructure may give rise to new grid solutions opportunities.
   

Current connections position

Projects seeking a demand connection to the GB grid are facing major challenges. According to the Ofgem CfI, between November 2024 and June 2025 demand side connection applications increased sharply by over 300%, from 41 GW to 125 GW, exceeding even the highest demand forecasts, with a significant portion of the demand queue occupied by data centres.

Although the new gated connections process applies to transmission-connected demand, less onerous requirements apply to demand projects than to generation projects. Under the new process, projects that satisfy both the “ready” and “needed” criteria are eligible to receive a firm "Gate 2" connection offer. Demand projects only need to meet the "ready" criteria (ie, holding sufficient land rights or submission of a Development Consent Order application) as they are currently deemed to have automatically met the "needed" criteria. Distribution-connected demand is currently out of scope of the reformed process.

Among the projects included in the demand queue, Ofgem and DESNZ expect many to be non viable - for example, those unable to obtain planning permission or secure a final investment decision. As a result, the progression to connection for important demand projects, such as data centres needed as part of the government’s AI Growth Zones programme (see our AI Growth Zones in the UK to Promote AI Data Centre Investment article for details), is being hindered.

To address this situation and ensure that viable projects can secure timely connections and strategic projects can be prioritised, DESNZ and Ofgem propose a reform of demand-side connections.
 

Overview of the reform programme 

Demand connection reform is intended to be implemented across three pillars — Curate, Plan, Connect, with DESNZ and Ofgem taking responsibility for progressing different aspects of the reforms. The Curate and Plan pillars are split into two phases, with Phase 1 expected to be in place ahead of the next connections application window and Phase 2 expected to be in place for the following connections application window.  The details remain subject to further consultation.

Curate – Stricter queue entry and membership criteria

The Curate pillar aims to strengthen queue entry and membership requirements to ensure that the demand queue consists only of viable projects capable of progressing to connection. Phase 1 focuses primarily on data centres and Phase 2 expands to cover wider demand types.

Ofgem set out a number of changes it is considering in relation to Phase 1 of the Curate pillar in the Ofgem CfI and provided an update on its current position in the Ofgem SoR. Further details are expected to be included in the upcoming Ofgem Curate consultation, with final decisions expected later in 2026. Government intends that Planning and Infrastructure Act 2025 (PIA) powers will be used to implement the final Curate measures. These measures would affect demand projects already in the connections queue through the G2tWQ process and successful new applicants in future connection windows, as well as any generation projects seeking to change use of their connection to demand.

Proposals under consideration include: 

Financial mechanism for data centres

The introduction of a financial mechanism, for both new and existing data centre applications, with the aims of deterring applications from non‑viable projects, encouraging proactive self‑termination of such projects and driving timely project progression. Two main options remain:

• a refundable deposit paid at the time of application or upon accepting an offer, with the amount returned (as a single payment or a staged return) once specified milestones are reached; and
• a progression commitment fee (similar to that already available in respect of generation applications), in which the deposit amount increases over time and the obligation to pay arises if a project fails to satisfy particular progress criteria, with the deposit then refunded once the required milestones have been achieved. 

An upfront non‑refundable fee, payable at the time of application or offer acceptance was initially considered but was discounted in the Ofgem SoR. 

The upcoming Ofgem consultation will include details of the financial mechanism scope, applicability period, value and acceptable payment methods. The consultation will also address the treatment of projects that change the type of use of their connection in the development stage (e.g. from generation to a data centre or vice versa). The Ofgem SoR notes the importance of allowing projects to change use or technology, and that Ofgem's current view is that projects which change use or technology shouldn't be charged more than other projects, but emphasises that the right behaviours must be incentivised. Developers with existing connections should monitor this to understand what flexibility there is to adapt their connections. 

Ofgem is also undertaking further work to understand the interaction of any additional financial mechanism with the securities regime. Its current view in the Ofgem SoR is that both the financial mechanism and securities will be applied without offsetting each other. This work sits alongside the ongoing CMP417 code modification process proposing to align demand and generation cancellation securities.

Strengthened post-offer milestone requirements for data centres

To ensure that only sufficiently mature projects can receive a Gate 2 connection offer or retain their existing queue position, Ofgem is considering strengthening readiness requirements for data centres. In the Ofgem CfI, Ofgem initially proposed that these requirements could function as criteria for Gate 2 entry, requirements for receiving a connection offer for distribution-level projects or post-offer progression milestones. Ofgem has now confirmed in the Ofgem SoR that it is only developing post-offer milestone-based requirements, applicable to both transmission and distribution-connected projects.

Readiness requirements under consideration include:  

• financial project backing (eg, credit rating or letter of credit requirements) prior to the existing queue management milestone 7 (project commitment) date;
• initiation of procurement of long-lead items (eg, an invoice or contract with a supplier for transformers) around the time of queue management milestone 2 (secured consents);
• securing a commercial offtaker or anchor customer, potentially with a staged approach requiring initial evidence early in the queue management process and more stringent requirements at a later date; and
• developer track record.

Ofgem considered, but is minded not to take forward, additional requirements in relation to obtaining planning permission, provision of flexibility or participation in sustainability initiatives as additional readiness or progression requirements. 

Financial mechanism and strengthened readiness requirements for other demand types

As part of Ofgem's Phase 2 workstream, additional measures to strengthen project commitments and address applications from non-viable demand projects other than data centres will be considered. Further details are expected later in 2026.
 

Plan – Prioritisation of strategic demand projects 

The Plan pillar aims to ensure that the demand connections process delivers timely connections for strategic projects, while also supporting wider Government priorities such as economic growth and decarbonisation. Government intends to use its PIA powers to introduce mechanisms to allow NESO and the network companies to prioritise projects identified by Government as having strategic network importance. 

The policies under consideration in the DESNZ Consultation (Government response awaited) include:

Prioritisation mechanisms to reserve and reallocate capacity for strategic projects

Government will publish a list of strategically important demand projects, including AI Growth Zones, in a designated strategic plan using powers introduced under the PIA. Such Government-identified demand projects would be treated as NESO-designated projects under the Project Designation methodology and could be prioritised in relation to (i) any released queue capacity that is to be re-allocated; (ii) reservation of future network capacity; and (iii) in the connections queue formation in future application rounds. 

The DESNZ Consultation relates to prioritisation of transmission connections only but DESNZ is separately considering amendments to the connections methodologies, or a parallel process outside of the methodologies, so that distribution-connected projects can be prioritised in same way. 

The changes, if implemented, are expected to be in place (at least at transmission-level) before the opening of the next connections application window and will affect the queue position of projects applying for a new import connection, as well as potentially providing strategically important demand projects already holding a Gate 2 offer with a route to accelerate their connection date.

Strategic alignment of data centre connections

Future data centre connection applications could be required to be strategically aligned (in a similar way to most generation and storage connection applications under the current connections process) to regional infrastructure targets set out in a data centre strategy. Protections would be available for data centre projects in advanced stages of development.

DESNZ expects that strategic alignment of data centres would be in place for the second post-G2tWQ connections application window.

Strategic demand connection auctions

Government also sought industry views in the DESNZ Consultation on the introduction of auctions to allocate capacity for strategic demand connections. It is not currently clear when any such mechanism would be implemented. Ofgem recognised in the Ofgem SoR that there are concerns that auctions to reserve and reallocate capacity for strategic demand could favour a developer's ability to pay over the project's readiness or wider system value.

Connect – Changes to physical connection arrangements

The Connect pillar aims to accelerate and increase the number of physical grid connections for demand projects, and to ensure the system can operate effectively and securely even as large demand loads increase. The policies under consideration include:

High‑voltage asset self-build and ownership framework – iTO licence or class exemption

As large-scale demand grows, more demand projects are requiring high-voltage transmission connections. Ofgem have confirmed that it will make changes, using its PIA powers, to make self-build, ownership and transfer of high-voltage assets easier. 

In November 2025, Ofgem issued guidance confirming that connecting demand projects to the transmission system at high voltage is not prohibited under the Electricity Act 1989 (EA 1989). Having initially indicated that it would also clarify its interpretation of the EA 1989 as to whether developers can construct or own high‑voltage assets for data centres or other demand uses and provide guidance on what activities are permissible for sole‑use assets, Ofgem has now confirmed in the Ofgem Connect Update that it will not provide such clarification as it would be unlikely to be able to provide the necessary certainty to developers. 

Ofgem is instead prioritising development of a new standardised independent transmission owner (iTO) licence, analogous to the existing independent distribution network owner (iDNO) licence. Ofgem is also including considering how the iTO licence would interact with the competitively appointed transmission owner (CATO) regime and whether the CATO regime could be used to facilitate delivery of certain projects. 

Ofgem, NESO and Government are also considering whether a class exemption could be used as an additional option for high-voltage asset ownership for certain types of project or to allow demand customers to undertake commissioning activities for self-build and transfer. 

Ofgem aims to consult on its initial proposal for the iTO licence, and on the relevant code modifications, in Autumn 2026.

Alternative connection models – flexible, non-firm and phased connections

To support earlier connections and wider consumer-side flexibility, Ofgem, NESO and Government are considering a range of alternative connection agreements and the extent to which such arrangements would be investable. Under consideration are phased or ramped connections involving a gradual increase in connection capacity as project development progresses, non‑firm connections allowing earlier connection in exchange for accepting curtailment during system constraints and other flexible connection models. Key points for investors will include whether any such alternatives are voluntary and are backed by clear, standardised terms. For any non-firm connections, the level of curtailment and the extent to which curtailment provisions are time-limited will be critical to being investable.

Ofgem are aiming to provide an update on connection agreements, including the proposed timescale for achieving any required policy reform, in Autumn 2026.

Voluntary flex services

Options are being explored for certain types of large demand to provide voluntary flexibility services to better facilitate wider system operation and potentially secure earlier connection dates. In the Ofgem Connect Update, industry feedback is welcomed on options that would be suitable for each demand type, noting that the ability to participate will depend on each development's use and business model.

Next steps include Ofgem reporting to the AI Energy Council in Autumn 2026 on increased use of voluntary flex services by data centres, including opportunities within the existing policy framework and areas for policy reform. Ofgem expects to provide clarity on policy direction and any regulatory change prior to the next connections application window but has noted that full policy implementation may not be complete by then.
 

Operational control measures

Ofgem is considering whether additional backstop control measures, including mandatory curtailment, are required to ensure the system can continue to withstand stress events. Whether such measures are needed will partly depend on the uptake of voluntary flex measures and alternative connection agreements by data centres. If any form of mandatory curtailment is introduced, this could have a significant impact on the investability of large demand such as data centres and prompt the need to have access to additional on-site back-up power supplies.

Ofgem intends to consult on any potential measures during Autumn 2026, including confirming whether any mechanism is required, how it will be implemented and an impact assessment.

Technical code and standard updates

As large demand loads increase, new system operation challenges are expected to arise. Ofgem intends to update technical standards and codes to address this, including standardising infrastructure design and engineering principles, where possible, to facilitate self-build.

Ofgem expects to consult on the updated technical standards as part of its self-build and ownership consultation in Autumn 2026.