- Why is Ofgem introducing a data centre commitment fee?
- How much is the commitment fee, and who has to pay it?
- What milestones will data centres need to meet to stay in the queue?
- What other grid connection costs belong in a UK data centre budget?
- Will AI Growth Zones and priority projects connect sooner?
- What does this mean for a 2027 UK data centre budget?
- FAQs
For most UK data centres, the hardest part of the budget is no longer the building. It is the grid connection: when it arrives, what has to be built to get it, and from 2027, how much money must be put up just to keep a place in the queue.
Ofgem has proposed a Data Centre Commitment Fee of about £237,500 to £712,500 per MW of requested capacity for data centres of 40 MW or more that drive a transmission assessment. It must be secured from Gate 2 offer acceptance to energisation, is returned if the project proceeds, and is forfeited if it terminates or misses requirements. A 100 MW project would secure £23.8m to £71.3m. The consultation closed in September 2026, and Ofgem expects a decision before 2027, along with new queue milestones for offtakers, procurement, and finance.
Why is Ofgem introducing a data centre commitment fee?
Demand for grid connections is growing faster than the network can be planned for. Ofgem reports that demand connection applications rose from 41 GW to 125 GW between November 2024 and June 2025, and the government’s March 2026 consultation found around 140 data centres, totalling about 50 GW, in the transmission queue alone.
Many of those projects will never be built, but each one holds capacity that real projects need. The commitment fee is designed to make speculative applications expensive to keep, while returning the money to developers who build what they applied for.
How much is the commitment fee, and who has to pay it?
The proposals in Ofgem’s July 2026 consultation are summarised below. They are not final, and Ofgem has said it will set the fee value after reviewing responses.
| Item | Ofgem proposal (July 2026) |
|---|---|
| Who it applies to | Data centres of 40 MW or more connecting at transmission, or at distribution where they trigger a Transmission Entry Assessment |
| Fee value | About £237,500 to £712,500 per MW of requested capacity |
| Basis | 2.5% to 7.5% of average data centre capital expenditure, taken as £9.5m per MW |
| When | Secured in full between Gate 2 offer acceptance and energisation |
| Returned | When the project proceeds as planned |
| Forfeited | If the project terminates or fails to meet requirements; forfeited sums reduce transmission charges for consumers |
| Existing projects | Intended to apply to existing and future projects, with an exemption for projects energising within six months of the fee starting |
| Status | Consultation closed September 2026; decision expected later in 2026 |
At the proposed range, the amounts to be secured are significant:
| Requested capacity | At £237,500 per MW | At £712,500 per MW |
|---|---|---|
| 40 MW | £9.5m | £28.5m |
| 100 MW | £23.8m | £71.3m |
| 200 MW | £47.5m | £142.5m |
Because the fee is returned on a successful project, it is a security rather than a cost in the final account. Providing that security is not free, though. Guarantee or letter of credit charges, or the cost of tying up cash for several years before energisation, belong in the development budget.
What milestones will data centres need to meet to stay in the queue?
Alongside the fee, Ofgem has proposed three data centre milestones that sit within the existing queue management framework. Missing one could cost a project its queue position and its fee.
| Milestone | Timing | Evidence proposed |
|---|---|---|
| M0.5.Dc | New milestone before M1 | Choice of pathway (self-operation or lease or sale) and non-binding offtaker evidence, such as heads of terms or an MoU |
| M2.Dc | Alongside existing M2 | Long-lead procurement evidence, such as an executed contract, purchase invoice or binding supplier commitment |
| M6.Dc | Alongside existing M6 | Financial and technical capability evidence; lease or sale projects also need a binding offtaker |
For the binding offtaker test, Ofgem said it was minded to require commitments covering at least 20% of compute capacity for at least one year. The procurement milestone is the one that reaches into preconstruction: developers will need to show that transformers, switchgear and other long-lead equipment have actually been ordered.
Showing long-lead procurement means knowing early which equipment to order and what it will cost. Priced equipment schedules from a measured estimate give that evidence a firm basis. See data centre estimating services in the UK.
What other grid connection costs belong in a UK data centre budget?
The commitment fee sits on top of the physical cost of connecting. A UK data centre budget usually needs to cover:
- Connection assets. Substations, circuits and protection between the site and the network, split between contestable works that an independent provider can build and non-contestable works the network company keeps.
- On-site HV and MV infrastructure. The customer substation, transformers and switchgear that feed the data halls.
- Network charges and securities. Any reinforcement contribution set out in the connection offer, plus securities against future network works, which Ofgem is also reviewing.
- Phased energisation. Where capacity arrives in steps, temporary or on-site generation may be needed to bridge the gap, and some plant may be built before it can be used.
- Flexibility conditions. The government is considering a minimum demand flexibility requirement for very large users, and Ofgem is looking at non-firm and flexible connections. Either could add on-site storage or generation scope.
The connection offer sets the boundary between what the developer pays for and what is recovered through network charges, so each item should be checked against the offer rather than assumed.
Will AI Growth Zones and priority projects connect sooner?
The government’s March 2026 consultation, Accelerating electricity network connections for strategic demand, proposed powers to designate strategically important demand projects, including AI Growth Zones. Network companies could then reallocate released capacity, reserve future capacity and prioritise those projects when transmission queues are formed. One stated aim is to help critical sites such as AI Growth Zones connect before 2030 where possible. Mission Critical Preconstruction Services can help teams coordinate power capacity, phasing, resilience requirements, and long-lead infrastructure before construction begins.
For other projects, timing is still uncertain. The transmission queue for demand has been paused, with future application windows expected about twice a year. The Connections Accelerator Service, piloted from December 2025, helps applicants but does not guarantee a faster connection date.
Phased connection dates have a design consequence. If capacity arrives in stages, the campus has to be designed and built in stages too, with each phase able to operate on its own.
Phased energisation works best when the model is split by phase, with future connections and plant space reserved from the start. See data centre BIM modelling services in the UK.
What does this mean for a 2027 UK data centre budget?
Three changes are worth building into any 2027 feasibility study:
- Add the cost of securing the commitment fee to development costs, timed from Gate 2 offer acceptance.
- Plan procurement of long-lead electrical equipment earlier, since it may be needed as queue evidence rather than only for the build programme.
- Treat the connection date as a design input, with phasing, interim power and flexibility options priced as alternatives.
Ofgem’s fee is based on an average capital cost of £9.5m per MW. For how that compares with published construction benchmarks, and what those benchmarks include, see data centre construction cost per MW.
Working through a UK data centre feasibility study? Optimar Precon prepares NRM-based estimates and phased coordination models for UK developers and contractors. Explore UK data centre preconstruction services.
FAQs
It is a proposed returnable financial commitment of about £237,500 to £712,500 per MW of requested capacity for data centres of 40 MW or more that drive a transmission assessment. It is secured from Gate 2 offer acceptance to energisation, returned if the project proceeds and forfeited if it terminates or misses requirements.
At the proposed range, a 100 MW data centre would need to secure between £23.8 million and £71.3 million until energisation.
Ofgem intends it to apply to existing and future projects. Projects energising within six months of the fee being introduced would be exempt, and grace periods are proposed for offers already signed or received.
Ofgem has proposed three milestones: a non-binding offtaker and pathway choice at M0.5.Dc, long-lead procurement evidence at M2.Dc, and financial and technical capability at M6.Dc, with a binding offtaker for lease or sale projects.
The consultation closed in September 2026, and Ofgem said it intends to take decisions later in 2026. Fee values and milestones may change in the final decision.
