Spring 2026 update on further Demand Connection Reform for Data Centres and other Large Energy Users

Some flesh is now starting to be put on the bones of proposed reforms to the grid connections rules in England, Wales and Scotland for large power demand sites – in particular data centres. Since our last Law-Now in this series:

• Ofgem has published updated proposals on its connections end-to-end review in December 2025.
• New streamlined powers (exercisable until December 2028) for Government and Ofgem to push through changes to industry rules and grid connection arrangements, came into effect also in December 2025 as part of the Planning and Infrastructure Act 2025 (“PIA”).
• In Q1 2026, the regulator, Ofgem, (“Ofgem Call for Input”) and Government itself (“DESNZ Consultation”) have each sought industry input on proposals for demand grid connections reform, including on how to leverage these PIA powers to expedite delivery.
• As part of its annual consultation cycle, NESO has today published its proposed updates to the Connections Methodologies and is seeking industry feedback, with responses due by 14 April 2026. While the proposals capture demand specific changes, NESO notes that it is not inviting views on those demand related elements – which should instead be submitted through the DESNZ Consultation.

This Law-Now focuses on the new ground covered by these latest reforms and the likely implications for stakeholders in datacentre developments and other projects with larger energy consumption.

Further demand connections reform – Ofgem Call for Input and DESNZ Consultation

Scope

Crucial design parameters that have now been confirmed for this latest round of reform include:

• Retroactive effect – As with the original “TMO4+” Connections Reform initiative, central aspects of these further reforms will again have retroactive (as well as prospective) effect, resulting in a second round of reordering of existing connection queues by way of changes to existing connection offers.
• Application to distribution-level demand connections – Unlike TMO4+, distribution-level demand connections will be within the scope of these further reforms. The new powers of Government and Ofgem under the PIA to direct network operators, including DNOs, to amend their connection terms may have helped to unlock this additional territory. 

Ofgem has identified (and DESNZ has recognised) three key ongoing demand connection reform workstreams, broadly entailing the following:

1. “Curate” – Further streamlining the connection queue to filter out more speculative / less credible demand developments (led by Ofgem). 
2. “Plan” – Designing and implementing mechanisms to prioritise demand projects that the Government considers “strategic” (led by DESNZ).
3. “Connect” – Accelerating the delivery of connection infrastructure and ensuring regulation keeps pace with greater variety in network infrastructure and more flexible connections (collaboration between DESNZ, Ofgem and NESO). 

We consider the key proposals within each of these workstreams below.

1. “Curate” – streamlining the queue

Following TMO4+, generators applying for grid connections are required to satisfy a “strategic alignment” criterion (i.e. broadly fall within regional per-technology capacity limits set by the Government) in order to be eligible for connection arrangements with a committed energisation date – see our TMO4+ Law-Now. The design choice to relieve demand projects from this criterion left a gap that has inevitably needed to be filled, a problem exacerbated by the recent surge in applications for demand connections.

• Strengthened demand readiness requirements – Ofgem has proposed additional eligibility criteria for demand connection arrangements with committed energisation dates, including:
  •  a requirement for grant of outline or full planning permission (i.e. bringing this forward from its current status as a post-offer Queue Management milestone); and
  •  “evidence of broader financial backing”, which appears to be touted as a requirement over and above the specific financial mechanisms under consideration (below).

• “Strategic alignment” criterion for datacentres – DESNZ has proposed the possibility of a new eligibility criterion, specifically for datacentres, based on regional targets to be set by the Government in a future data centre strategy.
• New financial mechanism – Ofgem has proposed a number of options for encouraging self-selection among developers on financial grounds, including:
  • a refundable deposit (paid at application or offer acceptance and refunded upon achieving specific milestones);
  • a Progression Commitment Fee, similar to that introduced for generators (increasing over time and payable if progression criteria are not met); or
  • an upfront non-refundable fee.
• Expediting transmission security reform – Ofgem has indicated that it will work with NESO to expedite reform to the credit security regime for demand transmission connections, given the expectation that existing industry proposals (seeking to align the approach for demand to that for generation) will not progress fast enough to keep up with the demand connection reform timeline.

2. “Plan” – prioritising strategic demand projects

Speculation has been mounting since the acknowledgement in Ofgem’s November 2025 demand connections update of the lack of an existing clear route for Government to safeguard development timescales for projects seen as critical to policy priorities. 

Identification of strategic demand – As envisaged in the June 2025 Industrial Strategy, DESNZ intends to use new powers introduced under the PIA to designate a strategic plan including a list of the demand projects that it considers to be strategically important. The DESNZ Consultation provides some more colour on what is meant by “strategic importance” by reference to the sorts of factors that have been used to date to provide access to the Connections Accelerator Service, including alignment with the focus sectors set out in the Government’s June 2025 Industrial Strategy (on which see our Industrial Strategy Law-Now), magnitude of capital investment, job-creation and social impact. As indicated previously, it is clear that the Government considers AI Growth Zone data centre projects will always meet the threshold for strategic demand. Other specific examples given in the DESNZ Consultation include EV charging hubs and sites where manufacturing facilities are to be electrified.

Development of mechanisms to prioritise strategic demand – The levers that DESNZ envisages pulling to move strategic demand projects forward in the connection queue include:

• reallocation of capacity released when projects exit the queue to strategic demand;
• reservation of future network capacity including connection points and placeholder queue positions, allowing the transmission owner to build relevant connection infrastructure ahead of need; and
• designation by DESNZ, by amending the base queue formation mechanics to NESO to treat DESNZ-designated projects in the same way as those designated by NESO under its Project Designation Methodology.

Worked examples of each of these mechanisms are included in an annex to the DESNZ Consultation.

DESNZ is considering the potential role of auctions in the reservation and reallocation of capacity mechanisms, e.g. in areas where there is high demand for large connections or where Government has reserved capacity ahead of need.

3. “Connect” – facilitating private sector participation in transmission and more flexibility in connections

Aside from refining the queue, this third workstream considers other potential means of reducing pressure on network operators by increasing the proportion of grid infrastructure built and owned by the private sector and by encouraging the take-up of curtailable grid connections.

Enabling private sector build and operation of transmission-voltage assets – Ofgem acknowledges existing uncertainties in the electricity regulatory framework on the extent to which developers can build, own and operate electricity transmission infrastructure. Ofgem expresses support for remedying this, noting that “expanding the range of high-voltage connection options in response to market demand delivers value in its own right”, both for demand projects and generation projects.

Transmission contestability – In the narrow context of self-build of sole-user transmission assets for adoption by the incumbent licensed transmission owner, Ofgem indicates that it is considering accelerating existing industry proposals on this (envisaging removal of the current two kilometre limit on adoptable infrastructure and greater transparency on the adoption process) by using its new powers under the PIA.

Transmission ownership – Beyond that narrow context, Ofgem’s suggestion for mitigating this issue in the short term is to publish guidance on the interpretation of the regulatory provisions on transmission. The ambition in the longer term is to introduce greater standardisation, such as via the development of a dedicated Independent Transmission Owner licence.

Consequential updates to technical standards – Ofgem envisages that updates to industry technical standards including the Security and Quality of Supply Standard and Grid Code are likely to need to be updated to keep pace with network evolution, particularly increases in private sector participation. 

Flexible connection arrangements – In response to stakeholder feedback, Ofgem and DESNZ are seeking to identify barriers to ramped and non-firm connections and develop practical solutions. 

DESNZ is also considering whether some categories of very large demand users, such as datacentres, should be required to provide a mandatory minimum level of demand flexibility, enabling the system operator to curtail or limit demand during periods of network or system stress.

Next steps

The Ofgem Call for Input has a response deadline of 13 March 2026. The DESNZ Consultation closes on 15 April 2026. Both bodies intend to consult further on detailed policy proposals in spring 2026. 

DESNZ and Ofgem have categorised their proposals as:

• “Phase 1” – those they consider need to be implemented in time for the first post-TMO4+ transmission connection application window (NESO has indicated that its working assumption is that this will be no earlier than Q2 2026, but acknowledging this could be pushed back depending on factors including the pace of further demand connections reform); and
• “Phase 2” – those that can wait to be implemented for the second application window.

Given the extent to which datacentres have dominated recent growth in demand connection queues, implementing measures for datacentres is a central focus of Phase 1.

The proposals have been categorised as follows:

Connections end-to-end review

Background

Where connections reform helps to make connection queues more manageable for network operators, Ofgem’s connections end-to-end review initiative is looking at ways to challenge network operators to increase the quality, consistency and robustness of connection offer terms for those remaining in the reformed queue. As noted in our latest Law-Now in this series, DESNZ and Ofgem are looking to network operators to ensure that their latest connection arrangements keep pace with the direction of travel on the connections end-to-end review (despite the review not yet having reached its conclusion).

Latest updates

Ofgem’s December 2025 update broadly stuck with the issue headings identified in the original connections end-to-end review consultation (see section 3 of our TMO4+ Law-Now introducing the review). Key developments in this latest update include:

• Increasing ambition of connection offers – Ofgem is seeking to introduce a principles-based licence obligations for network operators to offer the earliest possible energisation dates to customers, taking into account their needs.
• Strengthening network operator commitments on target energisation dates – Ofgem is minded to strengthen the Guaranteed Standards of Performance regime for DNOs and extend it to transmission licenses, and to explore the potential for meaningful delay liquidated damages where target energisation dates are missed.

Next steps

Ofgem’s consultation on the updated proposals closed on 27 February 2026. The consultation document noted an intention for Ofgem’s response to be published around mid-2026.

Comment

The hugely significant confirmation that this further round of demand connections reform will once again have retroactive effect may disappoint developers that were hoping to draw a line this year under the seismic controversies and uncertainties introduced by TMO4+ and the associated queue reform exercise. 

The trajectory of demand connection eligibility appears to be edging slowly further in favour of larger, more financially robust businesses. With the new financial backing readiness criterion being proposed on top of the envisaged deposit/fee, and the prospect of auctions for access to the new prioritisation mechanisms, there is an increasing sense that obtaining and holding connection offers will come at greater financial cost – some may argue better reflecting such connection offers’ scarcity  and associated value. 

The prioritisation of “strategic” demand to our minds represents a fundamental shift in the use of the grid connection regime – and of course reception to this across different projects and sectors will rest on which projects are categorised as strategic; a question which is not answered by the publications to date. It is however noteworthy that defining what represents strategically important demand is inherently a far wider policy question than previous grid connection exercises to define which electricity generation/storage projects are strategically desirable. Electricity generation/storage is fundamentally a part of the electricity sector whereas, of course, demand projects will generally exist to serve sectors/society outside the energy sector. As such, this aspect of the reform will need to draw on policy inputs from governmental bodies and relevant stakeholders from a range of sectors/societal areas.

The proposal for more direct access to NESO’s project designation mechanism adds a potentially significant weapon to DESNZ’s arsenal in influencing queue outcomes.

The nature of the solution for private sector participation in high voltage “transmission system” ownership/operation remains an important open question. While Ofgem is offering clarifying guidance, in light of the broad range of structures and developers that are showing interest in this area, the potential roles for licence exempt transmission versus wider licensed transmission (such as an equivalent to IDNOs for transmission infrastructure) versus simply greater avenues for customer build of transmission infrastructure appears to have growing momentum as an area of industry and policy focus.