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On 29 July 2026 Ofgem published Curate: Demand Connections Reform, a consultation proposing two measures aimed at data centre projects in the electricity connections queue. The first is a data centre commitment fee. The second is a set of data centre specific queue management milestones. Responses are due by 16 September 2026, and Ofgem intends to take decisions later in 2026.
The commitment fee is a returnable financial commitment that a data centre developer must secure from the point it accepts a connection offer until the point its project energises. It is not a charge for the connection and it is not a payment for network works. It is a sum placed at risk against the possibility that the project never connects.
If the project proceeds as planned, the commitment is returned. If the project terminates, reduces its capacity or fails to comply with the applicable requirements, the commitment becomes payable and is forfeited. Ofgem proposes that forfeited sums be passed back to consumers through reductions in transmission network use of system charges.
The mechanism selected is what the consultation calls Option 1A, a lump sum returnable fee secured in full at offer acceptance and released at energisation. Ofgem assessed this against an incrementally returnable fee and a progression commitment fee model, scoring each against four objectives. Option 1A scored lower on encouraging self-termination and on incentivising steady progression, but higher on deterrence and materially higher on administrative simplicity. An upfront non-returnable fee was considered in the earlier call for input and has not been taken forward.
Contracted demand in the connections queue rose from 41 GW in November 2024 to 125 GW in June 2025. Ofgem's analysis attributes approximately 73 GW of that total to data centres, across roughly 315 projects ranging from 1 MW to over 1,500 MW. Peak electricity demand in Great Britain in 2025 was 45 GW.
Applying the consultation's own capital cost assumption of £9.5 million per MW, the data centre pipeline implies around £693 billion of capital expenditure, which Ofgem puts at roughly 23% of United Kingdom gross domestic product in 2025. Ofgem also identifies at least 9 GW of transmission queue capacity that changed its stated technology from battery storage to data centre between May 2024 and August 2025.
Ofgem's diagnosis is that the cost of joining and holding a queue position is low, while the value of holding one is high. Securing planning permission and a grid connection materially increases the value of land. A developer therefore has an incentive to acquire connection positions across a portfolio, needing only a small number of them to be sold on to realise a return.
Ofgem identifies five broad developer types in the queue: hyperscalers, co-location providers, energy and infrastructure developers, powered land developers and independent landowners. It expects the fee to bear most heavily on business models based on what it terms powered land banking.
The harms it identifies from a queue containing non-viable and speculative projects are distorted network investment signals, scarce connection capacity locked up by projects that will not proceed, and delay to projects that would.
The fee is proposed to apply to data centre projects with a capacity of 40 MW or more that connect to the transmission system, or that connect to the distribution system and are subject to a Transmission Entry Assessment.
Ofgem reports that 99% of the total capacity in the data centre queue sits in projects above 40 MW. On the distribution side, its analysis of 14.1 GW of distribution data centre projects identified only five projects above 40 MW that would not be subject to a Transmission Entry Assessment, each with a connection date in 2027 or 2028. Rather than build a parallel fee administered by distribution network operators, Ofgem proposes to rely on the existing Transmission Entry Assessment route.
The definition of a data centre would be taken from the Cyber Security and Resilience (Network and Information Systems) Bill and imported into section 11 of the Connection and Use of System Code. All demand projects, not only data centres, would have to file a self-declaration signed by a director stating whether they meet that definition. A false declaration identified before energisation would be treated as a misrepresentation of fact and would result in termination of the connection agreement.
The formula is project capacity in MW multiplied by average project capital expenditure per MW multiplied by a percentage of that capital expenditure. Ofgem proposes a benchmark capital cost of £9.5 million per MW, derived from information collected by NESO and distribution network operators and reflecting market conditions as at April 2026. Benchmark figures are used rather than self-reported project costs in order to limit gaming.
The percentage is the open question. Ofgem is consulting on a range of 2.5% to 7.5%, which produces a fee of roughly £237,500 to £712,500 per MW. A 100 MW project would therefore secure between £23.8 million and £71.3 million. At the 40 MW threshold, the range is approximately £9.5 million to £28.5 million.
The fee scales linearly with capacity rather than through tiered bands. Ofgem gives three reasons: tiering invites projects to be split or restructured to fall into lower bands, a single linear rate is simpler to administer, and the available data is concentrated in the 100 MW to 500 MW range and does not support banding.
Ofgem modelled the effect on a hypothetical 100 MW project with a ten year cash flow, calibrated to produce an unlevered pre-tax internal rate of return of about 15% before any fee. Assuming the fee is deposited as cash, which is the most onerous case for a developer, the modelled reduction in return ranges from 20 basis points for a 2029 connection at 2.5% to 170 basis points for a 2035 connection at 7.5%. The driver is the cost of carry over the holding period rather than the fee itself, which is returned.
Ofgem acknowledges that setting the percentage is an exercise of regulatory judgement rather than a calculation. It notes international comparators put forward by respondents, including figures of €40,000 per MW in Spain, $50,000 per MW in Texas and around $70,000 per MW in Georgia, but treats them as imperfect given differing market context and design.
Ofgem proposes to treat the fee as a security under the existing framework in section 15 of the Connection and Use of System Code, and to accept the security types already permitted there. Those are a performance bond or letter of credit from a qualified bank, a cash deposit in a bank account, and a performance bond from a qualified company.
Question 22 of the consultation asks directly whether that treatment and that list are correct. It is the point at which alternative custody arrangements for the cash, including regulated escrow, fall within scope of the consultation.
The consultation addresses four change scenarios. A project that declared itself a non-data centre and later converts becomes subject to the fee, and may lose queue position under existing material change guidance. A project that declared itself a data centre and later converts away becomes liable to pay the secured amount as though it had terminated. An increase in capacity requires additional security. A reduction in capacity triggers payment of the fee attributable to the reduction, with security maintained against the remaining capacity.
Self-termination before offer acceptance, or before the fee is implemented, carries no liability. Self-termination after that point makes the secured amount payable. Where the fee value is later increased, a developer that does not wish to post the difference has three months to self-terminate without paying it.
Ofgem is consulting on how other cancellation charges already incurred should be treated in that situation, and sets out the two options: retain them, which is consistent with the purpose of securities, or return them, which may be fairer but creates a route for weaker projects to remain in the queue in the hope of an increase.
Projects due to energise within six months of the fee being introduced would be exempt, and the same approach would apply to the changed portion of any future increase. Developers that have signed a connection offer under TMO4+ would have three months from implementation to post the security. Developers holding an unsigned offer would have two months, on the basis that they retain three months in which to decide whether to sign.
The proposals are intended to apply to existing projects as well as future ones, because the queue already contains the volume the reforms are directed at.
Ofgem proposes to govern the fee value and the applicability threshold through the NESO licence rather than through industry code modification, with the value itself held in a separate statement sitting under the licence. Two adjustment mechanisms are on the table: review at the discretion of NESO or Ofgem, or periodic review by NESO with Ofgem approval and a right of veto. Either route requires a 28 day consultation. Any revised value would apply to existing as well as future projects, which is what makes the three month self-termination window relevant.
Ofgem assessed the fee on the assumption that CUSC modification CMP417, which would bring demand projects within the User Commitment Methodology already applied to generation and storage, is implemented. Its sample of 19 projects indicates that reformed securities at or shortly after offer acceptance would sit between 0.06% and 0.41% of total capital expenditure, averaging 0.2%. That is an order of magnitude below the lower end of the proposed fee range, which is why Ofgem concludes that securities reform alone would not deter a project from holding a position for several years.
The fee also operates alongside the proposed data centre queue management milestones at M0.5.Dc, M2.Dc and M6.Dc, covering compute offtaker evidence, long lead electrical procurement, and financial and technical capability. Those milestones would apply from a lower threshold of 10 MW rated IT load. Failure to satisfy a milestone can result in loss of queue position, which in turn engages the forfeiture route under the fee.
Ofgem proposes to use the time limited powers conferred by the Planning and Infrastructure Act 2025 to modify the relevant documents. The changes span section 6, section 11, section 15 and section 16 of the Connection and Use of System Code, the standard conditions of the electricity distribution licence, a direction requiring distribution licensees to vary their connection agreements, and the NESO licence. Marked up legal text has been published alongside the consultation.
The consultation closes on 16 September 2026 and Ofgem intends to decide later in 2026. Of the 50 consultation questions, questions 1 to 28 relate to the commitment fee. The questions on which the outcome most obviously turns are the percentage of capital expenditure to be applied, the £9.5 million per MW benchmark, the 40 MW threshold, the treatment of the fee as a security, and the treatment of existing cancellation charges on self-termination.
The consultation document and Ofgem's press release are available on the Ofgem website, together with a response template that Ofgem asks stakeholders to use.
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