The Office of Gas and Electricity Markets (Ofgem) recently published its ‘Curate – Demand Connections Reform’ consultation, setting out proposals to reshape how data centre projects access and hold positions in the UK's electricity grid connection queue.

Ahead of the consultation deadline on 16 September 2026, here are my thoughts and insights for anyone with interests in data centre development, infrastructure finance, real estate or energy supply.

The problem Ofgem is tackling

The rapid growth of AI and cloud computing is driving unprecedented demand for data centre grid connections across the UK. According to Ofgem, the connection queue tripled between November 2024 and June 2025, from 41 GW to 125 GW, with approximately 315 data centres accounting for 3 GW of that surge, well above the UK's 2025 peak demand of 45 GW. The scale of this connection gap makes clear that significant speculation is already embedded in the queue, and recent reports of the National Energy System Operator (NESO) falling repeatedly below its normal operational range during this summer’s heatwave underline the pressure on the system.

At the same time, queue-switching has compounded the issue. Between May 2024 and August 2025, at least 9 GW of transmission queue projects modified their connection requests from battery storage to data centre technology. Under current arrangements, it’s relatively inexpensive to secure and hold a connection offer with no meaningful obligation to demonstrate project viability, creating conditions for speculative applications to crowd out genuinely ready projects and distort network investment planning.

What is being proposed?

Ofgem is consulting on two data centre-specific measures: a substantial data centre commitment fee and data centre queue management milestones. The regulator’s stated goal is to disincentivise speculative projects from joining and staying in the demand queue. If implemented, given the nature of the proposals, it’s likely that a significant cull of the current queue will follow.

Commitment fee

The commitment fee, which is additional and separate to the normal securities regime, applies to projects above a 40 MW contracted capacity threshold, set in the range of £237,500/MW to £712,500/MW, representing around 2.5% to 7.5% of average capital expenditure of £9.5 million/MW, according to Ofgem. A 100 MW data centre, for example, would therefore have to secure between £23.8 million and £71.3 million at the point of accepting a connection offer. 

This is how it’s supposed to work in practice: the fee is payable upfront and is required to be maintained – and left at risk – until energisation. It’s then returned upon successful energisation but forfeited on abandonment (for any reason) or termination for non-compliance with milestones. Worth noting, the proposals are intended to apply retrospectively to existing projects, except those energising within six months of introduction – meaning projects already in advanced development face cost increases not accounted for in their current financing arrangements.

Queue management milestones

The queue management milestones, which sit in addition to applicable existing milestones, apply to all data centres with IT load capacity of at least 10 MW (transmission and/or distribution). This lower threshold (below the commitment fee threshold) is deliberate to prevent gaming of the system by bunching projects below the 40 MW threshold and as such avoiding scrutiny altogether.

The way these milestones can be met is dependent on whether a developer selects one or both of the following pathways:

1. Self-operator pathway – where the developer intends to self-develop and operate; and/or
2. Lease/sale pathway – where the developer intends to sell/lease the site or engage a third-party operator.

Three staged requirements apply: 

1. M0.5.Dc – Non-binding offtake and pathway selection: requires evidence of a compute offtaker (i.e. heads of terms or memorandum of understanding) or certificate of intended self-usage within six months of a connection offer. This deadline applies irrespective of forecast energisation date; 
2. M2.Dc – Long lead item procurement: requires genuine and meaningful evidence of long-lead electrical equipment procurement (i.e. purchase invoices, executed procurement contract, binding supplier commitment). The deadline is the same as the existing M2 milestone (Secured Statutory Consents and Planning Permission). Operationally, this could be particularly challenging as it may force developers into technical/commercial decisions before the wider platform model is fully settled; and 
3. M6.Dc – Financial and technical capability and binding offtake: requires demonstration of financial and technical capability, each of which is to be independently confirmed, with a binding offtake for those on the lease or sale pathway. In practice this is effectively demonstrating the ‘deal is done’ with the deadline being at the same time as the existing M6 milestone (Agree Construction Plan).

Failure at any of the three stages results in the possible termination of the connection agreement and, where applicable, forfeiture of the commitment fee.

There isn’t much clarity on the application of these reforms to connections held by Independent Distribution Network Operators (IDNOs)/private network operators. If these connections are not caught by the regime, then there are potentially significant structural advantages to that approach, and even more intense interests in such arrangements may follow.

There are still questions about how NESO and DNOs will verify and police the information provided which force them to stray into new areas of project fundamentals, economics and financing.

Three issues for those advising on transactions

1. Pre-investment capital burden. The commitment fee must be secured at offer acceptance, well before the final investment decision. The burden falls on sponsor equity, group balance sheet, or bilateral credit facilities, and will be felt most acutely by independent developers and special purpose vehicle (SPV) based platforms without balance sheet backing - this must be factored into project economics. I expect the impact of the reforms will, as a result of this burden, be wider than eliminating purely speculative projects.
2. The offtake ‘chicken and egg’. Hyperscalers and compute offtakers are typically unwilling to contract without having connection certainty, yet evidencing an offtake is now itself a condition of retaining that connection. M0.5.Dc would require developers to evidence a non-binding offtake within six months of connection offer which – as of today – is unrealistic for projects many years away from energisation. The proposals also contain no force majeure, change-in-law or other relief mechanics from milestone deadlines arising from circumstances outside of developer control, a material gap that developers should raise in their consultation responses given the significant financial consequences associated with termination.
3. Regulatory uncertainty. The commitment fee level will be embedded in NESO's licence, with discretion for NESO or Ofgem to revise it, leaving developers exposed to sudden increases in financial commitments after they are already locked into their projects.

The broader picture

These measures land at a time when the UK is actively seeking to attract AI and training data centres, including through AI Growth Zones. TechUK has already expressed concern that the commitment fee, at levels significantly above comparable international frameworks, risks making the UK a less attractive destination for data centre investment. Whether Ofgem's calibration is proportionate, and how it sits alongside wider government industrial policy, is a live question.

The consultation closes on 16 September 2026. This is a material opportunity for developers, investors and lenders to inform the structure of the final regime – which in its current form would reshape the current industry. I strongly encourage those with projects in the queue to seek legal advice and consider responding before the deadline, and you can contact our specialist data centres team to discuss further.