Ofgem launches sweeping review of grid connections as datacentre demand surges

Beyond tightening entry requirements, the regulator is consulting on ways to accelerate new capacity delivery

Ofgem has launched a wide-ranging review to reform grid connection processes in response to a surge in datacentre demand, proposing stricter entry requirements and new models to accelerate electricity capacity delivery.

Energy regulator Ofgem has launched a major consultation on reforming electricity demand connections, warning that a surge in datacentre applications has pushed the grid queue to unprecedented levels.

In a Call for Input published last week, the regulator said the pipeline of projects awaiting connection to the electricity network had tripled in just seven months, from 41GW in November 2024 to 125GW by June 2025.

Roughly 50GW of that total is linked to datacentre developments, many of which are at early or speculative stages.

The scale and speed of growth, Ofgem said, have exposed structural weaknesses in the way demand projects secure grid access.

Ofgem identified three interrelated challenges facing the current system: a rapidly expanding queue containing a significant number of potentially non-viable schemes; delays for well-progressed projects due to network build times and speculative applications; and the absence of mechanisms to prioritise strategically important developments.

"We therefore need a demand queue composed of viable projects which can progress to connection in a timely manner within the constraints of the energy system," the regulator said.

It added that strategically important projects must be able to move ahead where necessary.

The rapid growth of datacentres – fuelled in part by AI, cloud computing and broader digital expansion – has "brought into sharp focus the challenges within the demand connections process," Ofgem said.

However, it added that wider electrification of the economy would eventually have exposed the same pressures over time.

Stricter tests for datacentres

The proposed overhaul will take place in two phases.

Phase one will focus specifically on the datacentre sector, introducing tougher financial and readiness requirements designed to filter out speculative bids.

Among the options under consideration are refundable deposits tied to delivery milestones, progressive commitment fees throughout the development lifecycle, upfront non-refundable deposits, and requirements to demonstrate secured financing.

Projects may also need to show evidence of outline or full planning permission before entering the queue.

Ofgem expects to publish its formal decision on this first phase in spring 2026.

Phase two would extend strengthened criteria across all demand sectors. For datacentre operators, this could mean prioritisation for projects located in government-backed AI Growth Zones or aligned with national strategic energy plans.

Faster connections, new models

Beyond tightening entry requirements, the regulator is also consulting on ways to accelerate new capacity delivery.

The proposals include allowing companies to build more of their own high-voltage grid equipment, which would be supported by clearer rules under the Electricity Act 1989.

Ofgem is also considering creating a new type of licence called an Independent Transmission Owner licence to allow for more flexible or mixed grid set-ups. The regulator is also considering broader use of ramped and flexible connection agreements to enable operators, particularly those deploying modular datacentres, to energise facilities in stages rather than waiting for full build-out.

The consultation closes on 13 March 2026, with new advisory groups set to help shape the final framework.

The review follows reforms approved last year to remove so-called "zombie" projects from the queue and to prioritise schemes aligned with national energy strategy, measures put forward by the National Energy System Operator.

Ministers hope the wider package of changes will underpin the government's Clean Power Action Plan, which could unlock around £40bn of investment in the UK's clean energy sector between 2025 and 2030.