Ofgem outlines next steps for demand connections reforms

The demand connections backlog presents a structural impediment to data centre operators across the UK, threatening the growth of the sector as projects wait up to 8 years to be connected to the energy grid. After months of engagement with industry, including techUK members, Ofgem has now published its proposed approach to demand connections reform - with the aim of addressing speculative demand in the queue and progressing mature and strategically-important projects.

As noted in its previous update in November, Ofgem's demand connections reform will be based on three pillars: curate, plan, and connect. Crucially, whereas demand projects have historically only needed to be "ready" – as opposed to "ready" and "needed" like generation projects – the Government is keen to introduce mechanisms to prioritise strategic projects, with a focus on high-quality job creation and delivery of economic benefits.

In this statement, Ofgem reveals more information on how these pillars will work in practice:

CURATE: Introducing new or strengthened queue entry and membership criteria where needed to ensure viable projects progress to connection. Ofgem to lead Curate with NESO’s support.

PLAN: Supporting government’s prioritisation of strategic projects and development of a strategic plan for data centres. DESNZ to lead Plan with NESO’s support.

CONNECT: Developing new approaches and connection arrangements to accelerate and increase the number of connections, and maintain a secure system. Ofgem, NESO, DESNZ to work together on Connect.

Key aspects of the package

Scope: Both transmission and distribution connected demand projects are within scope of reforms. Demand projects both with a connection and seeking a connection will be impacted - in some cases, customers may be required to meet new eligibility criteria to retain their offers. Failure to do so could lead to a change in offer.

Timelines: Ofgem, DESNZ, and NESO are taking a phased approach to reforming demand connections. Phase 1 will focus on data centres and include immediate measures to strengthen financial commitments to address applications from non-viable data centres in the demand queue and prioritise strategic projects. Phase 2 will introduce further measures to implement a strategic plan for data centres.

Potential reforms on the table:

Introducing a financial mechanism for data centres e.g. a Refundable Deposit, a Progression Commitment Fee or an Upfront Non-Refundable Fee.

Strengthening readiness requirements for data centres.

Accelerating demand connections through greater self-build, and ownership and operation of high voltage assets.

Expanding access to flexible connection agreements.

Increasing focus on large demand consumer-led flexibility.

techUK's view

techUK welcomes the focus in Phase 1 on data centres, as the foundations of a modern digital economy and an important enabler of reindustrialisation and electrification. The continued engagement of NESO, DESNZ and Ofgem with industry is laudable, as is the urgency with which these reforms are being accelerated – this pace must be maintained to support UK growth and competitiveness. It is positive to see many of techUK’s suggestions included within the potential reforms, including outline planning as a progression milestone and regulatory changes to facilitate self-build and private wire solutions.

More clarity and industry consultation are needed to ensure 'strategic importance' is defined in a way that reflects the value and diversity of different types of data centre and compute. This is also the case for specific proposals such as consumer-led flexibility and flexible agreements, which must reflect the capabilities, development timelines, and operational realities of data centres.

We look forward to further engaging with government, NESO, and Ofgem on these much-needed reforms to ensure industry voice and experience is at the heart of decision making.

Ofgem has launched a Call for Input on these proposals, to which techUK will be coordinating a response. Please get in touch at [email protected] with any feedback.

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