UK regulator Ofgem proposes steep fees to clear phantom data centers from grid queue
Ofgem’s new framework demands non-refundable deposits and proof of funding to curb speculative projects, a move that could streamline grid planning but risks deterring smaller operators from the UK’s AI infrastructure buildout.
The United Kingdom’s energy regulator, Ofgem, has proposed a new framework designed to purge speculative “phantom” data center projects from the national power grid connection queue. The proposal, released in July and subject to an industry feedback process ending in September, requires developers to pay steep, non-refundable deposits that could reach hundreds of millions of dollars for the largest facilities. Developers must also secure customers in advance and provide proof of funding before being granted grid access.
The urgency of the reform stems from a dramatic surge in connection requests. Between November 2024 and June 2025, the total energy demand in the queue ballooned from 41 gigawatts to 125 gigawatts. New data center projects currently account for 73 gigawatts of this total, a figure equivalent to one and a half times the UK’s peak energy demand from the previous year. This growth coincided with the government designating data centers as “critical national infrastructure,” a status that, combined with previously low grid access costs, encouraged developers to apply without fully secured funding.
Industry experts argue that the current queue is plagued by an incentives problem. Because grid access involves years-long waits and the cost to join the queue was previously minimal, developers have treated applications as a low-risk hedge against future artificial intelligence compute demand. This has forced grid operators to account for the combined effect of potentially non-existent projects on network stability, complicating and lengthening the approval process for viable operators.
Ofgem faces a delicate balancing act in setting the final fee structure. The reforms must be burdensome enough to deter speculators, yet not so onerous that they drive legitimate projects to more attractive markets, such as the United States or other European regions with plentiful renewable energy. Nathan Macwhinnie, deputy director of strategic planning and connections at Ofgem, stated that the regulator recognizes data centers as a key part of the UK’s AI ambitions and future economic growth, aiming to enable viable connections more quickly.
However, concerns remain that high fees could disadvantage smaller operators. Alex Burgoyne, head of data centers at real estate consultancy Knight Frank, warned that while the buildout brings significant capital investment, regulators must avoid “shooting the golden goose.” There is a risk that the new financial hurdles could force all but the largest data center companies out of the UK market, potentially stifling the growth of newer, AI-specific operators like Nscale, which have pledged substantial spending in the country.
The proposal is expected to improve long-term grid planning by providing a more accurate picture of actual demand. By eliminating phantom projects, grid operators can target upgrades more efficiently, avoiding wasted investment in network capacity that may never be required. As the feedback process concludes, Ofgem will consider industry concerns before finalising the fees, aiming to shape the next five years of infrastructure development to ensure data centers are built in the right places with the right power supply.
