Ofgem has proposed forcing datacentre projects to pay significant upfront fees or provide financial security to secure an energy connection, in a bid to ease a logjam in the electricity grid.
The energy regulator for Great Britain said there are currently 315 datacentres waiting to connect, representing 73GW of demand. That is almost 30GW above the country's peak energy demand of 45GW.
Proposals to thin out speculative schemes
Under the proposals, projects would be required to lodge significant upfront fees or financial security via letters of credit, bonds or cash deposits when they receive a connection offer. The money would be returned once the datacentre is switched on.
Ofgem is proposing that datacentre providers, including companies such as Amazon and Microsoft, put down pledges of £350m to reserve 500MW of grid capacity. The aim is to tackle one of the biggest obstacles to building datacentres needed for Britain's AI ambitions: connections to a power source.
Hard milestones and consultation
Ofgem said projects would be required to hit targets during the connection application process and would be removed from the queue if they fail to meet them. The watchdog added that "hard milestones" would include securing customers and financial backing, stressing it wanted to ensure limited grid capacity went to "projects most likely to be built, not projects preserving options".
The proposals will undergo a consultation process to test their feasibility, Ofgem said.
Rising demand and global context
In February, Ofgem revealed a surge in connection applications between November 2024 and June last year, with a significant number from datacentres. It said there were 140 proposed datacentres with energy demands of 50GW. Both numbers have since risen, according to data released on Wednesday.
The boom in datacentre demand comes amid a wider backlog of power generation and storage schemes waiting for a grid connection. Last year, the grid operator Neso announced reforms to the queue for renewable developers, clearing hundreds of dubious "zombie" projects without proper planning permissions or financing.
Concerns over datacentre grid connections are not confined to Britain. The Uptime Institute, which inspects and rates datacentres, identified 250 global datacentre projects exceeding 100MW in energy demand announced between 2021 and 2024. Uptime believes half of those projects will either not happen or be delayed, but still expects an "unprecedented and rapid" increase in required power over the next five years.
