Ofgem proposes upfront grid fees to clear UK datacentre connection backlog

Britain’s energy regulator, Ofgem, has proposed requiring datacentre developers to pay significant upfront fees to secure electricity grid connections. The watchdog aims to eliminate speculative schemes from a massive connection queue that currently threatens to stall the country's artificial intelligence ambitions.

The queue currently holds 315 datacentres representing 73 gigawatts of demand. That volume exceeds the entire United Kingdom’s peak energy demand of 45 gigawatts by almost 30 gigawatts.

To thin out the backlog, Ofgem wants projects to lodge financial security via cash deposits, bonds, or letters of credit when they receive a connection offer. For instance, providers would need to pledge £350 million to reserve 500 megawatts of grid capacity. These funds would be returned only when the facility is switched on.

This policy directly targets major technology companies, including Amazon and Microsoft, which rely on these facilities to power AI tools like chatbots. By demanding hard milestones such as securing customers and financial backing, the regulator intends to ensure limited grid capacity goes to "projects most likely to be built, not projects preserving options".

The datacentre boom is compounding a wider backlog across power generation and storage. Last year, the grid operator Neso reformed the renewable queue by clearing hundreds of "zombie" projects lacking planning permissions or financing. Ofgem also noted a "surge in demand" for general connection applications between November 2024 and June last year, with datacentres driving a significant portion of that growth.

The infrastructure bottleneck extends well beyond British borders, highlighting a broader challenge for the technology sector and energy markets. The Uptime Institute identified 250 global datacentre projects exceeding 100 megawatts announced between 2021 and 2024.

These global projects carry energy demands equivalent to about 300,000 homes. While the institute believes half will be delayed or cancelled, the remaining developments will still trigger an "unprecedented and rapid" increase in power requirements over the next five years.