Ofgem targets speculative data centre projects holding grid capacity

Ofgem wants to clean up the connections queue, which it believes has become overloaded with speculative data centre developments. In fact, according to the regulator, contracted demand connection offers increased from 41 GW in November 2024 to 125 GW by June 2025, with data centre projects accounting for at least 80GW of the total.

Given the constraints the UK’s connections process was already facing, with Ofgem and NESO making constant changes to help ease a queue that had some receiving connection dates well into the late 2030s, it’s no wonder why the regulator is now stepping in to punish speculative development. Not only does the speculation mean some projects that are shovel-ready get stuck at the back of the queue, but it also means that Ofgem has a harder job when it comes to understanding what actually needs to be built in order to reinforce the grid. 

Under the proposals to deal with speculative projects, data centre developers could face substantial commitment fees and tougher progress checks. The fee could range from £237,500 to £712,500 per megawatt, equivalent to between 2.5% and 7.5% of the regulator’s estimate of average project costs. That fee would be payable when a large development accepts a connection offer, but would only impact speculative projects as it would be refunded as soon as the development reaches energisation. It would only be forfeited if a project leaves the connections queue early. 

Additionally, Ofgem is also looking to tighten up requirements for hitting milestones while in the queue – although they will be specific to data centres and not impact other projects. The new requirements could see developers asked to demonstrate financial capability, commercial maturity and procurement activity to retain their place. That should further weed out speculative projects that may never materialise. 

With both the commitment fees and tighter requirements, Ofgem is hoping that network operators will get a better view of which loads are likely to materialise. It could also expose projects where the requested capacity has moved ahead of the site design, commercial case or equipment strategy.

Freeing capacity is not the same as building it

Ofgem says wider connections reforms have already accelerated around 7.8GW of projects by an average of six years. It hopes that applying a firmer test to demand connections will produce similar results for projects that are ready to proceed.

However, removing an unviable project from a queue does not automatically produce a usable connection for the next applicant.

Available capacity remains location-specific. Projects may still depend on new substations, transmission reinforcement, land access, planning approval and long-lead equipment. A cleaner queue should improve decision-making, but it does not remove the physical work required between connection offer and energisation.

That distinction matters beyond the data centre sector. The Government has identified EV charging hubs and industrial electrification among the strategic demand projects that could benefit from capacity released through the wider reform programme.

The proposals therefore have implications for any large electricity user competing for capacity in a constrained part of the network. A more accurate data centre pipeline could affect reinforcement decisions, connection dates and the capacity available to neighbouring developments.

The fee will need careful calibration

Ofgem’s challenge is to set the commitment fee high enough to discourage speculative applications without creating an unnecessary barrier for well-developed projects.

Data centres already face high pre-construction costs, uncertain connection dates and lengthy procurement programmes for transformers, switchgear and standby power systems. Adding another financial requirement will increase the cost of holding a grid position, even where a project is ultimately delivered.

There will also need to be clarity over when money can be recovered, what happens when delays sit with the network rather than the developer, and how consistently progress evidence will be assessed across transmission and distribution connections.

Eleanor Warburton, Ofgem’s Director for Energy System Design and Development, said consumers “should not bear the risks created by speculative projects” occupying the connections system.

That is difficult to argue with. The harder task is distinguishing speculation from a credible project working through the unavoidable uncertainties of planning, power availability and customer demand.