Proposed data centre connection reforms: Ofgem consults on new measures to reform the connections queue
In its February 2026 Call for Input on Demand Connections Reform (the “Call for Input” – see our previous article), Ofgem introduced a number of proposals focussing on the issue of the grid having insufficient capacity for the growing “queue” of applications from demand projects (particularly data centres) seeking grid connections.
One of these workstreams broadly aims to reduce demand capacity in connection queues by removing what it sees as “less viable” / “more speculative” projects. Ofgem has branded this as its “Curate” workstream.
Ofgem took a significant step forward on this workstream on 29 July 2026, publishing a consultation (the “Consultation”) on additional hurdles for demand projects to enter and remain in connection queues. These measures are targeted specifically at data centre projects given the significant proportion of the demand queue such projects constitute. As proposed, once implemented these changes would impact many holders of existing transmission and distribution connection offers as well as those applying for and signing new connection offers and connection offer variations/modifications after implementation.
The proposed new connection-queue-filtering measures for data centre developers comprise:
- Additional termination liability + credit security (“Commitment Fee”) – a significant addition to the amount that certain data centre developers would be liable to pay on termination of their connection agreements, with a requirement to provide and maintain corresponding additional up-front credit security until the point of energisation; and
- Additional project progression milestones (“DC Milestones”) giving rise to connection offer termination if not met – new “queue management” milestone obligations in the terms of connection offers, that certain data centre developers will need to satisfy once they are in contract with the network operator by stipulated deadlines to avoid termination of their grid connection agreements, referred to as milestones “M0.5 (DC)”, “M2 (DC)” and “M6 (DC)”.
As foreshadowed in the Call for Input, a key aspect of the envisaged policy design is the proposal for these measures to apply to not only new applications for data centre project connections but also data centre projects that hold a connection offer with the network operator or are going through the connection offer/connection offer variation process.
This article provides a brief first look at the key characteristics of the measures proposed under this “Curate” package to manage the data centre connection queue, and in particular who the measures are intended to apply to, when it is envisaged they will apply, and the limited proposed grace periods/exceptions.
To which projects will these measures apply?
Ofgem envisages these new data centre specific hurdles – i.e. the (i) the new “Commitment Fee” credit support requirements, and (ii) the new project progression “DC Milestones”, will apply to certain mid and large scale data centre projects. The heightened credit support requirement will potentially apply to a slightly narrower set of projects than the new project progression DC Milestones.
We would summarise the application of these two new measures as per the following table (each of the two in measures in separate columns):
| Project characteristic | Commitment Fee | DC Milestones |
| Technology type | Data centres (as defined in cyber security legislation that at the time of writing is making its way through Parliament, broadly comprising buildings housing equipment used for the provision of IT services). Each applicant for a demand connection will be required to submit a written declaration from a director confirming whether or not it is a data centre. | |
| Size | > 40 MW import capacity | Various options under consideration:
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| Connection offer to/with |
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| Network connection energisation date or existing milestone M6 already met at the point of implementation |
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When will these measures apply?
Once implemented, the presently stated intention is that these measures will be introduced very broadly across connection offers for data centres meeting the above criteria, such as:
- NESO Connection Offers presently going through the TMO4+ process that receive a “gate 2” offer (of either phase);
- Existing DNO connection offers;
- Newly applied for transmission (NESO) and distribution (DNO) connection offers or modifications moving connection offer into the above criteria, after implementation.
As explained below, some limited time period grace periods and opportunities to terminate existing connection offers to avoid the new measures are provided for.
Implementation timescale
A specific date on which the amendments to industry licences, codes and agreements required to implement these measures will take effect (“Implementation Date”) is not committed to in the Consultation.
Ofgem has set a deadline of 16 September 2026 for responding to the Consultation, with a view to publishing its decision on the design of the new regime by the end of 2026.
Ofgem is expecting to use its streamlined modification powers under the Planning and Infrastructure Act 2025 to effect the required regulatory amendments, such that stakeholders may expect the Implementation Date to occur swiftly after that decision is published (i.e. potentially late 2026 / early 2027).
Timing of new obligations following implementation
While, as above, the new measures are intended to apply to projects with existing and in-train grid connection agreements as well as new grid connection applications, the Consultation builds in some “grace periods” for grid connection offers that are in place or have already been applied for as at the date of implementation of these new measures, as summarised below:
| Status of connection arrangements when measure is implemented | Commitment Fee – when must credit security be provided? | DC Milestones – deadlines by which DC Milestones must be satisfied |
| New application after implementation / no Gate 2 offer issued as at implementation | On acceptance of Gate 2 offer (Transmission). On acceptance of connection offer (Distribution) |
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| Connection offer issued but not yet accepted | Gate 2 issued but not yet accepted (transmission): security within 2 months after the Implementation Date (or on acceptance of connection offer, if later) The consultation is unclear, but we imagine this timing principle may also apply to issued but not accepted distribution connection offers. |
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| Offer accepted prior to implementation date | Gate 2 offer accepted (transmission): security within 3 months after the Implementation Date The consultation is unclear, but we imagine this timing principle may also apply to accepted distribution connection offers. |
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Developer right to terminate existing connection agreements before new measures come into effect
Ofgem indicates that Developers with executed connection agreements or in-train offers prior to the Implementation Date will have an opportunity to terminate these existing arrangements before the new measures (including credit support requirements) come into effect. The question of whether any existing termination liabilities (e.g. under the existing termination liabilities regime) should apply to such termination is left open in the consultation for stakeholder input.
Key proposed characteristics of Commitment Fee
As above, the proposed Commitment Fee is an addition to the amount for which data centre developers are liable in the event of termination of their connection arrangements (and certain related scenarios), with respect to which credit security must be provided up front. (The data centre Commitment Fee shares some similarities with the Project Commitment Fee introduced via the first round of Connections Reform in the context of generation projects.)
- Amount of Commitment Fee (i.e. additional termination liability) – A fixed amount calculated in linear proportion to the import capacity of the data centre connection (expressed as a pounds per megawatt, £/MW, rate).
The Consultation provides a range within which Ofgem intends this rate to be set as at the Implementation Date, being £237,500/MW to £712,500/MW (Ofgem has based the lower and upper bounds of this range on 2.5% and 7.5% respectively of average total data centre capital expenditure).
Ofgem suggests that the £/MW rate set initially will be subject to review, by either Ofgem or NESO, either ad hoc or periodically, as the impact of the regime becomes clearer over time.
- Form of credit security – Same as existing types of termination credit security required under the CUSC – i.e. letter of credit, performance bond, performance guarantee from a group company with a rating of at least A- S&P or A3 Moody’s, or cash deposit.
- Triggers for payment of Commitment Fee / call on credit security:
- Termination of connection agreement.
- Reduction in required network import capacity (in which event the termination liability will be prorated in proportion to the amount by which network import capacity is reduced).
- Change in project technology type (i.e. from data centre to something else).
- Return of credit security – The requirement to provide this credit security applies up to energisation of the data centre’s network connection – credit security is released if there has not been a call event (e.g. termination or change in project type away from data centre) before that point.
- Interaction with existing transmission termination liability / credit security – The Commitment Fee is intended to integrate with existing mechanisms for termination liability and associated credit security in respect of grid connection transmission network works. Industry proposals (CMP 417) are in train with a view to (broadly speaking) decreasing the amount of credit security for termination charges to be provided by persons seeking demand connections to the transmission system (bringing them more in line with the equivalent security regime for generators). The Commitment Fee is intended to work alongside this reformed termination liability / credit security regime for demand connections – e.g. the likely reduction in termination charge securities is one of the factors Ofgem say it has taken into account in the sizing of the Commitment Fee.
Key characteristics of DC Milestones
Rather than imposing new connection offer eligibility criteria (e.g. like the requirements to obtain a gate 2 offer at all), Ofgem has instead proposed a set of post-connection-agreement project progression obligations for data centre connection offer holders to meet by stipulated deadlines to avoid termination of their grid connection agreements.
- DC Milestone “pathways” – The Consultation acknowledges the broad range of commercial models for the development and operation of data centres. The proposed DC Milestones regime accordingly provides for different evidential requirements, with a view to acknowledging these across different models, comprising:
- Self-operation pathway – where the connection applicant intends to operate the servers itself; and
- Lease or sale pathway – where the connection applicant intends to sell the data centre, or lease the data centre, to a third party.
It is recognised in the Consultation that data centre projects behind single connection offers may involve a combination of both pathways, and a limited right to switch between pathways once within the lifetime of the project is proposed.
- DC Milestones and evidence required to satisfy them – The new DC Milestones would come along with the existing User Progression Milestones regime such that both would apply (by way of adjustments to CUSC Section 16). The table below provides a brief overview of the new DC Milestones and the evidence required to satisfy them in the context of each pathway. (See the “Timing of new obligations following implementation” section above for the deadlines by which each of these milestones will need to be satisfied.)
| Milestone ID | Milestone | Matters to be evidenced | |
| Self-operation pathway | Lease or sale pathway | ||
| M0.5 (DC) | Election of pathway | “Certificate of Intended Self-Usage”. | Non-binding arrangement with a purchaser / lessee (e.g. a memorandum of understanding or heads of terms). |
| M2 (DC) | Long lead procurement | At least one item from stipulated categories of transformer or switchgear equipment has been procured, such as a procurement contract, purchase invoice or supplier commitment. | |
| M6a (DC) | Financial capability | Either:
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| M6b (DC) | Technical capability | Data centre project designs adhere to recognised industry standards (e.g. BS EN50600, ANSI/TIA 942, Uptime Institute Tier Certification). | |
| M6c (DC) | Compute offtaker | N/A (self-operators do not have to demonstrate an offtaker). | Binding commitments from a compute offtaker. Ofgem is considering various options for minimum parameters for these commitments:
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- Ongoing compliance – Similar to existing user progression milestones M2 and M3, Ofgem proposes that compliance with the proposed DC Milestones will need to be “ongoing” – i.e. if following initial satisfaction of the DC Milestone the evidence used to satisfy the DC Milestone is no longer valid, satisfactory replacement evidence will need to be provided in order to avoid termination of the connection arrangements.
Planning considerations
Notably, Ofgem considered, and ultimately decided not to take forward, planning permission as an additional readiness criterion under the new DC Milestones regime. The Consultation records that respondents to the Call for Input identified planning as a potential queue management measure; however, Ofgem concluded that it should not be progressed as a new data-centre-specific requirement, not least because it is already addressed by the existing milestone framework.
The existing NESO queue management framework already includes milestone M2 which requires projects, including data centres, to have secured statutory consents and planning permission by a stipulated deadline linked to the project’s connection date. Data centres must satisfy this existing M2 requirement in addition to the new DC Milestones. The new DC Milestone M2 (DC), which requires evidence of long-lead procurement of key electrical equipment such as transformers and switchgear, is proposed to apply at the same deadline as the existing M2. In practice, this means data centre developers will need to have secured planning consent and demonstrated equipment procurement by the same point in time in order to remain in the queue.
Planning remains relevant to the wider demand connections reform programme and is a central element of the separate “Plan” workstream, which is being led by government. In March 2026, the government consulted on proposals including the use of new legal powers to identify strategically important demand projects and whether a strategically-aligned process should be introduced for data centre connections.
The key message is that planning permission has not been added as a new standalone DC Milestone, but it is nonetheless a requirement that must be met at the existing M2 milestone and in the wider debate about which demand projects should be prioritised for connection.
Next steps
Data centre developers, operators, offtakers, their investors and funders - and others impacted - will wish to consider carefully the likely impacts of these latest proposals on their projects and whether they may wish to respond to the Consultation, the deadline for responses to which is 16 September 2026.
