Ofgem weighs tougher rules for data centre grid queue

Ofgem is considering rules that would require data centre developers to pay upfront and meet project milestones to keep their place in the grid connection queue. The proposal is aimed at speculative projects seeking access to already constrained electricity networks.

The move comes as demand for grid connections rises across the UK and Europe, driven by the growth of data centres and renewable energy projects. Policymakers and market participants have been grappling with long waits for new connections as developers compete for limited network capacity.

Olivier Darmouni, associate professor of finance at HEC Paris, said the impact of the changes would depend on whether the new rules remove projects unlikely to proceed or simply raise the cost of getting connected.

"Interconnection delays have major consequences: they push many tech companies to build 'behind the meter' (BTM), off-grid, personal power plants in their data centre backyards. These plants, however, tend to be inefficient fossil fuel plants, since renewables are intermittent and batteries are expensive. The reform could go both ways. In the good scenario, the reform pushes out enough speculative projects to speed up the queue. This would be good news, as it would reduce BTM plants and their associated emissions and fossil fuel imports. In the bad scenarios, the reform would only increase the cost of interconnection, making BTM plants even more attractive."

The issue has moved beyond network engineering and planning into broader questions of industrial policy, energy costs and competition in AI infrastructure. Data centres require large, often concentrated power supplies, and delays in securing a connection can affect where projects are built and how they are powered.

Queue pressure

Across western electricity markets, network operators have faced a wave of applications that existing rules were not designed to handle. Regulators are now trying to distinguish between developers with viable projects and those reserving capacity without clear plans to build.

Darmouni said the strain on current systems reflects structural change in power markets as new forms of demand and supply emerge at the same time.

"With the growth of renewables and data centres, we've witnessed across the western world a massive increase in interconnection requests. The rules and institutions in place were not designed for the growth and complexity associated with these new technologies. In recent years, we've seen many attempts to align the rules with the times. This is a good development. Interconnection might initially seem like a purely technical issue, but nothing could be further from the truth. Interconnection delays are a key driver of future energy bills and energy investments, which largely determine the climate impact and competitiveness of European AI."

Ofgem's proposed approach would place more responsibility on developers to show that projects are progressing. Supporters of tougher rules argue that this could reduce queueing by applications that tie up capacity without moving into construction.

That matters especially for data centres, where the urgency of securing electricity supply can lead operators to consider alternatives when grid access takes too long. One option is to build power generation at or near the site, allowing facilities to operate outside the normal grid connection process for at least part of their needs.

Those behind-the-meter arrangements can offer speed and control, but they may also lead to greater use of fossil-fuel generation if cleaner options are not consistently available. In that sense, interconnection reform could affect not just waiting lists, but also emissions, fuel use and local energy investment.

Cost and competition

Another question is whether higher connection charges could help fund network upgrades that benefit a broader range of users. Large technology groups have strong incentives to secure electricity for data centres, prompting arguments that they should bear more of the cost of expanding infrastructure.

Darmouni said that logic has a public interest case, but warned that it could also deepen the advantage held by the biggest companies.

"In principle, charging a higher cost for interconnection can have some benefits for society at large. Tech firms have a very high willingness to pay for data centres and energy - charging them more to pay for grid infrastructure that would benefit the public in the long run seems like a win-win. The downside, however, in addition to some tech firms choosing to go off-grid, is that only big tech firms might be able to afford interconnection, making it more difficult for new actors to challenge the existing behemoths. Down the road, this might only reinforce the concentration of AI power in the hands of a few giant firms."

That tension sits at the centre of the debate over how to allocate scarce grid capacity. Rules that deter speculative applications could make networks run more smoothly, but higher financial barriers could also shape which companies are able to expand their computing infrastructure.

Darmouni recently studied 420 planned data centre projects in the US and found that their effect on electricity prices would be limited at a national level but much greater in specific regions, underlining how concentrated power demand can have uneven effects across local markets.

For UK energy policy, that leaves a narrow path: speeding up legitimate projects while avoiding a rush towards private fossil-fuel generation and preventing grid access from becoming a privilege reserved for the largest technology groups.