Ofgem's Demand Connection Queue Reform: What Data Centre Developers Need To Know

The process of electricity transmission connection reform in Great Britain has been ongoing for some time now. Although demand connections and data centres were caught by the previous reforms – as we explored in Transmission connection reform: impact on data centres – generation connections have felt the greater impact to date.

However, a significant increase in demand connection applications, in excess of forecasts for future demand, has led the energy regulator Ofgem and the National Energy System Operator (NESO) to launch a consultation on proposals for the demand connection queue.

Why is Great Britain's demand connection queue under review?

There has been a rapid and dramatic increase in connection applications for demand projects. Between June 2025 and November 2025, the demand connection queue increased from 41 GW to 125 GW. This is in the context of current peak electricity demand in Great Britain of 45 GW. This increase was driven largely by the rise in data centre applications, which Ofgem identifies as accounting for about 75 GW of applications.

While the UK Government, Ofgem and NESO all want to facilitate data centre development in Great Britain, 75 GW is not realistic. There is therefore a concern that there are "less viable" projects in the queue, which pose a risk to the progress of projects with "genuine merit". In response, NESO launched the Call for Input with the support of Ofgem in February 2026, with a view to consider avenues for refinement of the demand connection queue. These refinements included queue management and regulatory reform, and were grouped as follows:

• Curate: to reduce speculative, non-viable projects in the queue and thereby ensure that viable projects are able to progress as quickly as possible;
• Plan: to identify strategic projects and locations that should be prioritised, which shall be led by the government; and
• Connect: to promote creative connection solutions to accelerate connections, whilst maintaining a secure system.

What changes does Ofgem's Connect Update propose?

Ofgem's "Connect" update, published in June 2026, outlined a set of proposals that would allow for a more flexible approach to connection (the Connect Update). Such proposals in the Connect Update include:

• Ownership: Rather than the current approach that requires projects owning high-voltage assets to either apply for a transmission licence or receive an exemption from the Secretary of State, Ofgem will consider introducing a class exemption for some electricity transmission projects, as well as an Independent Transmission Owner (iTO) licence with standardised conditions;
• Self-build: Ofgem will also consider options to facilitate the transfer of assets that are self-built to a Transmission Owner or iTO, where developers do not wish to own the high-voltage assets themselves. These will be considered "contestable builds", and will only be available in limited circumstances the process of which is under consideration; and
• Connection Agreements: Ofgem will also consider measures to enable faster connections including flexible, non-firmed and phased approaches to connection agreements, voluntary flex services that would be incorporated into the data centre as it is developed, and measures for operational control such as mandatory curtailment.

How is Ofgem proposing to manage the demand connection queue?

Further to the Connect Update, in late July 2026 Ofgem published its "Curate" update, which outlined proposals for improvement of demand connection queue management (the Curate Update). The Curate Update specified two key proposals:

1. Data Centre Commitment Fee: As a means of discouraging speculative projects from entering the demand connection queue, Ofgem have unveiled their plans to introduce a "Data Centre Commitment Fee" (the DCCF). This DCCF would be a lump sum financial commitment that is returned once the data centre is energised but would be retained where the project remains unenergized.

   This presents a significant contrast to current security arrangements, where termination fees for which security must be posted are often very low due to far off energisation dates. The security arrangements would be retained as well but note that these are currently subject to proposals which may see the overall security values reduce (CMP417).

   Data centre projects which meet either of the following criteria would incur a DCCF:

   • connection to the transmission network with a capacity at or above 40 MW; or
   • connection to the distribution network with a capacity at or above 40 MW where a Transmission Entry Assessment applies.

   The value of the DCCF is still being considered, however it would be a £ per MW fee in the range of £237,000 per MW to £712,500 per MW, representing the value between 2.5% and 7.5% of the average cost of a data centre in Great Britain.

   Feedback is sought from data centre project developers to obtain further insights on average capital expenditure and how such DCCF would impact the internal rate of return.

2. Date Centre Queue Management Milestones: In addition to the DCCF, under Ofgem's proposals, developers will also need to evidence having met new data-centre-specific project progression milestones. These milestones are proposed to differ depending on the "pathway" selected by the developer (which may be changed during the data centres development):
   
   
   • Self-operation: where the developer (or a group company) intends to develop and operate the data centre; or
   • Lease or sale: where the developer intends to lease or sell the data centre development to a tenant, or third party.

The proposed milestones are as follows:

• Compute offtaker: within six months of accepting an offer, the self-operation pathway must produce a certificate of intended self-usage, whilst the lease or sale pathway must evidence a non-binding offtake arrangement. The lease or sale pathway must later (at the same time as the M6 deadline) produce binding evidence of an offtaker, the details of which Ofgem are consulting on;
• Long-lead electrical equipment procurement: this milestone will align with the current M2 deadline, and will require material evidence of commitment to procurement of long-lead electrical equipment;
• Financial capability: this milestone will align with the current M6 deadline and will require evidence that either the developer (or project company or parent company) have an investment grade credit rating of at least BBB- (per S&P), or that a legally enforceable credit support commitment has been entered into in respect of the data centre; and
• Technical capability: this milestone will also align with the current M6 deadline and will require the data centre to have been certified against a recognised technical standard (British Standard EN 50600, TIA-942, or Uptime Institute Tier Certification (Tier I through to IV)).

Ofgem's consultation on the Curate Update is open until 16 September 2026, with an intended decision later in 2026.

Read the original article on GowlingWLG.com