Datacentre projects face fees for grid access to ease connection queue, Ofgem says

Datacentre projects in Britain will be forced to pay hundreds of millions of pounds to plug into the power grid under proposals to tackle a growing electricity connection logjam.

Ofgem, the sector watchdog, said it was taking action to discourage “speculative” datacentre projects from causing unnecessary delays to the grid connection queue, which includes hospitals, schools and housing developments.

There are 315 datacentres queueing to connect, representing 73GW of demand, according to Ofgem. This has increased by almost 50% in the last year to almost 30GW above the entire country’s peak energy demand of 45GW.

The energy regulator for Great Britain said it planned to introduce a new “datacentre commitment fee” that would be equivalent to between 2.5% and 7.5% of the average cost of a project in order to secure a date for grid connection.

This would be returned once the datacentre was switched on, or forfeited if the project failed to move forward.

This means datacentre providers, which include companies such as Amazon and Microsoft, could be required to put down pledges of £350m to reserve 500MW of grid capacity for their new facilities.

Developers would also be required to hit “hard milestones” in advance of their connection date or be removed from the queue to ensure the country’s limited grid capacity went to “projects most likely to be built, not projects preserving options”.

The proposals intend to tackle one of the biggest obstacles to building the datacentres at the core of Britain’s AI ambitions: connections to a power source.

Datacentres are the central nervous systems of AI tools such as chatbots, but they have increasingly sizeable energy needs as their usage and capability grows. Some projects are exploring private, on-site power generation as a temporary solution to avoid the lengthy wait for a grid connection, but most developers would prefer to draw power from the grid too.

The rising number of datacentres seeking a grid connection has followed the UK government’s stated aim to “lead in the age of AI”, and has coincided with a wider boom in demand for electricity to cut the use of fossil fuels.

Ofgem has faced a wider backlog of power generation and storage schemes which face years of delays to secure connection to the grid, yet are vital to meet the country’s growing electricity demand.

The government-owned National Energy System Operator, which runs the grid, used reforms last year to clear hundreds of dubious “zombie” projects from the queue to make way for clean electricity schemes with the best chance of achieving the government’s energy targets.

Tackling the datacentre queue will be more complicated, however, because there is little consensus within government over how much data capacity the UK will need in the coming years, despite the drive to create AI growth zones across the country to support their development.

The energy system operator’s most conservative forecasts for Great Britain’s datacentre capacity by the end of the decade stand at 3.7GW, and their top-end estimates are 6.7GW. The government’s own “compute roadmap” calls for “at least 6GW of AI-capable datacentre capacity by 2030”.

Meanwhile, experts have said the UK is likely to miss its target of creating a virtually carbon-free electricity system by 2030, raising the risk of greater than expected reliance on gas-fired power plants to fill a potential supply shortfall.

Michael Shanks, the energy minister, said: “Britain needs a grid connections system that works for the 21st century and allows businesses to invest and grow, creating jobs across the country.

“That’s why this government reformed the connections process and why Ofgem’s actions will help ensure that viable, connection-ready projects can get going and not be held up by speculative applications.”

Concerns over datacentre grid connections are not confined to Britain. The Uptime Institute, which inspects and rates datacentres, has identified 250 global projects exceeding 100MW in energy demand – equivalent to the energy needs of about 300,000 homes – announced between 2021 and 2024.

Uptime believes half of those projects will either not happen or their completion will be delayed, but that even in that scenario there will still be an “unprecedented and rapid” increase in the power required over the next five years.

Ofgem’s proposals will now undergo a consultation process to test their feasibility.