Data Centre connections and AI power surge: UK grid seeks urgent solutions to demand queue crunch

In parallel, NESO – with Ofgem’s support – launched a call for input (“CFI”) to customers with existing transmission-level demand connection agreements and generation agreements which include demand technologies. NESO wish to gather deeper insight into the composition of the demand queue to inform any regulatory changes that may be required. In this article, we take a closer look at the Ofgem Open Letter and related developments.

One minute read

• Ofgem and NESO are seeking to address a surge in demand connection applications.
• Data centres drive much of the demand queue growth.
• Ofgem and NESO are proposing reforms for prioritisation of viable demand projects.
• New financial requirements are being considered to deter speculative applications.
• Proposal to move demand from final sums to more favourable user commitment.
• High voltage asset ownership rules are under review to better facilitate viable projects.
• NESO is seeking input from customers by 5 December 2025.

Scale of increase in demand offers

Since November 2024, there has been more than a threefold increase in total contracted offers in the demand queue. In November 2024, there was a total of 41 GW of demand contracted offers (17 GW transmission, 24 GW distribution) and as at June 2025 this now stands at 125 GW (97 GW transmission, 29 GW distribution), increasing by 19 GW from May 2025 alone. ENA data shows that the May-to-June increase was a result of both an increase in applications before the "pause", now flowing through to acceptances, and NESO errors in reporting demand for previous months.

These volumes are misaligned with the most ambitious demand forecasts. The Ofgem Open Letter identifies that data centres account for a significant share of growth and, while some projects are credible and beneficial in unlocking value for consumers and taxpayers, others may be less viable which could ‘crowd out those with genuine merit and block progress for those behind them in the queue’.

Options being considered by Ofgem and NESO

The Ofgem Open Letter sets out a series of options Ofgem intends to explore to deal with the volume of projects in the demand queue.

These include:

• Review of ongoing queue entry and requirements for queue membership to ensure viable projects progress in the demand queue.

• Considering whether there are demand-type-specific requirements that may be needed for certain sectors or technologies to ensure that viable projects are able to demonstrate their maturity and proceed through the queue. (The NESO CFI questions possibly betray some options NESO are considering, such as the entry into offtake/customer contracts.)

• Considering amendments to the CUSC under certain CUSC Modification Proposals (“CMPs”) set out below.

Replacing Final Sums with User Commitment for Demand (CMP417) – Reducing Security Requirements

If approved, CMP147 will result in demand users no longer being subject to the Final Sums Methodology and instead being subject to the same regime as generation Users, under what is called the User Commitment Methodology’ Final Sums requires demand Users to place security with NESO to secure all Transmission Owner (“TO”) spend associated with the project as it progresses, and often involve multiple Users each securing 100% of such spend resulting in significant over-security for NESO.  User Commitment, by contrast, requires Users (currently only generation) to place security to cover a proportion of its liability, which decreases over time as certain progression milestones are met.

Whilst the implementation of CMP417 would not assist to reduce the demand queue, it would benefit those credible projects by reducing the substantial security requirements they are currently required to meet under the Final Sums methodology.

Progression Commitment Fee (CMP448)

If approved, CMP448 will introduce an additional financial requirement called a ‘progression commitment fee’ (‘PCF’) on generation or interconnector developers, that would only be activated if a certain trigger is met (called the ‘activation threshold’). Ofgem is considering implementing a similar PCF regime for demand developers. Below we summarise the current proposals under CMP448 as currently formulated for generation and interconnectors, which may form the basis for any expansion to demand, although different treatment of demand cannot be ruled out.

The PCF would initially be dormant and set at a rate of £0/MW unless and until the activation threshold is met. Broadly speaking, the proposed metric for the activation threshold is based on the level of project terminations and capacity reductions in relation to Gate 2 projects that fail to satisfy Queue Management Milestone 1 (initiation of statutory consents and planning permission, “M1”). If the a certain threshold of such terminations is met NESO may activate PCF (but may not), and until the threshold is met the PCF must remain dormant (£0/MW).  If activated, the PCF would be payable by those developers who have accepted a Gate 2 offer but who then have their offer terminated or have reduced their capacity before M1 is met, and until M1 is met developers would have to provide security for such payment.

On 20 October 2025, Ofgem launched a consultation (closed 3 November 2025) on its minded-to-position to approve the original proposal of CMP448 under which:

• The PCF profile starts at £2,500/MW and increases by £2,500/MW every six months until it reaches a cap of £10,000/MW.

• The PCF would be treated as a cancellation charge against which a User must post security until they have achieved M1 (after which the liability and security for PCF will fall away, and any security returned).

• If the activation threshold is met, NESO may activate the PCF and Ofgem would have the power to override NESO’s decision - NESO proposes to measure and publish the activation metric every six months.

Ofgem envisages that extending CMP448 to demand, and exposing demand users to the additional PCF security/liability, will deter speculative applications, and encourage those where progress is lagging between acceptance and M1 to either speed up, sell to a more committed developer, or self-determine to exit the queue thereby freeing up capacity for viable projects. Unlike queue management milestones, which are a backstop giving NESO the right to terminate, the idea is that having the ability to deploy PCF (where justified) will create the right financial incentives for developers to self-select their way out of the queue.

Ownership of High Voltage Assets

The Ofgem Open Letter also clarifies that high voltage connections (i.e. connections over 132 kV in England and Wales) are not, in principle, prohibited under the Electricity Act 1989, and depends on whether developers seek to build or own such high voltage assets. In addition, Ofgem noted interest in enabling greater ownership and operation of high voltage assets and are exploring potential options and solutions.

One such solution is another suite of related CMPs (in particular CMP414) which seek to remove the 2 km limit for self-built transmission assets. Currently it is possible for developers to construct single user transmission assets (connection assets) to facilitate their connection to the wider transmission network by, subject to agreement with the relevant TO, providing their own connection assets which are limited to 2 km or less in length. On 8 July 2024, Ofgem paused or sent these CMPs back to the CUSC panel to address deficiencies noted by Ofgem, including lack of clarify on potential and proposed benefits, as well as potential risks. So the fate of these specific proposals is still unclear, although the general direction of travel (once these proposals are supported by adequate data and analysis) is in favour of exploring the impacts of increased competition in connections.

Alternative Connection Arrangements

Ofgem also noted that it is working with NESO and network companies to understand the barriers to greater use of non-firm, ramped, or self-supply connection agreements.

Alignment with Government Priorities

Ofgem reiterated its expectation for NESO to bring forward amendments to its connections methodologies and guidance to ensure projects identified as strategically important by government can benefit (where appropriate) from capacity reservation, or other forms of prioritisation.

Alignment between Distribution and Transmission

Ofgem also noted in the Ofgem Open Letter that it expects Distribution Network Operators to review their connection processes and update them as required to gather additional information from applicants that better demonstrate project maturity – and pursue greater alignment between the requirements and process at distribution and transmission.

NESO Call for Input

In parallel to the Ofgem Open Letter, NESO has launched a Call for Input (‘CFI’), aimed at customers with an existing transmission-level demand connection agreement as well as transmission-level connected generation agreements that include demand technologies.  It has started contacting customers to request their input to help shape how the demand queue is understood and managed.

Customers will be asked to provide information on key themes, such as project details, connection status, project timelines, financial readiness, and project maturity. The deadline for responding to the CFI is 5pm on 5 December 2025.

One area that NESO could have provided more clarity on is the interaction between CFI responses (which ask for specific details of specific connections/offers) and the wider Gate 2 to Whole Queue process under TMO4+.  The two are not expressly linked, so there is no requirement to provide responses to the CFI in order for NESO to progress the associated Gate 2 applications, but developers may nonetheless be apprehensive about providing currently “behind-the-scenes” details about their projects for fear this could prejudice their Gate 2 applications or resulting Gate 2 offer terms. NESO could do more to allay these fears, to support developer engagement with the CFI (especially for those projects that are less progressed). 

We foresee a risk that the responses will be skewed towards only projects that are well-progressed, with developers being less willing to share information about their less-progressed or more challenging projects.

Another aspect of the CFI that might cause developers to pause for thought are the numerous questions that require a developer to confirm that they will provide further evidence to NESO (including, for instance, redacted customer contracts).  It is however open to a developer to say “no” to such questions.

Conclusion

Whilst the TMO4+ process will reform the existing queue to prioritise those generation projects that are ‘ready’ and ‘needed’ under the Clean Power 2030 Action Plan (‘CP30’), it only goes so far in respect of transmission-level demand projects, as such projects are only required to meet the ‘readiness’ limb of this criteria.  Embedded demand projects are completely excluded from the TMO4+ process.

Given the scale of the growth in demand connection offers, driven especially by data centres, Ofgem and NESO are now focusing their efforts on ways to remove unviable demand projects from the connections queue and are considering forms of prioritisation for strategically important demand projects.

Ofgem has made it clear that it intends to work at pace to develop and implement a targeted package of regulatory and policy measures in partnership with government, NESO and network companies over the coming months to reform the demand connections process. 

Data centres and other large demand customers should ensure that they are actively keeping abreast of and engage with these imminent proposals, including by responding to the CFI to ensure their views are considered.

Ben Brown, Partner, Co-Head of Energy Commercial and Regulatory team
Simon Davies, Partner, Co-Head of Energy Commercial and Regulatory team 
Rob Broom, Senior Associate 
Sophie Lowe, Associate