Demand Connections Reform: A Connect Update – an Independent Transmission Owner Regime, Greater Self-Build Rights and Other Developments

In June 2026, Ofgem published an update on the Connect pillar of demand connections reform (the Connect Update), along with a summary of responses to its Demand Connections Reform Call for Input (the Summary).

This article explores the implications of the Connect Update and the policy developments alluded to in it including:

• the introduction of an Independent Transmission Owner (iTO) regime;
• greater options for the self-build of electricity transmission assets; and
• removing barriers that impede data centre occupiers / developers from entering into flexible connection agreements and/or providing flexible demand services. 

BACKGROUND

Ofgem, the Department for Energy Security and Net Zero (DESNZ), the National Energy System Operator (NESO) and others are currently grappling with a significant increase in the GB electricity connection queue for ‘final demand’ projects and a lack of regulatory and commercial tools to remove non-viable projects from the queue - many of which are believed to be speculative data centre projects.

The inability to prioritise strategically important demand projects in the demand connection queue is also seen as a barrier to the UK capitalising on the significant and near-term opportunities in AI and wider infrastructure development.

These challenges have prompted several consultation documents and calls for evidence over recent months, including:

• Ofgem’s Call for Input on Demand Connections Reform (Demand Call for Evidence) published on 13 February 2026 (please find a link here to our article on the call for evidence) which set out the proposed pillars around which DESNZ and Ofgem intended to frame demand connections reform and the phased approach to such reform, namely: Curate (Phase One), Plan (Phase Two) and Connect (Phase One and Two); and  
• DESNZ’s consultation on Accelerating electricity network connections for strategic demand published on 11 March 2026 (please find a link here to our article on the consultation) which set out proposed targeted and swift reforms to connection methodologies, industry codes and licence conditions to facilitate the better management and curation of data centre projects in the demand connection queue (incentivising non-viable projects to leave the queue) and potential prioritisation of strategically important demand.

On 16 June 2026, Ofgem published an update on the work it is doing on the Connect pillar of demand connections reform. The update sets out, among other things, further details on the context and aims of the proposals, progress to date and two more granular workstreams through which Ofgem will progress policy reforms: Connect Accelerate, which is relevant to all large demand, as well as generation and storage projects, and Connect Operate, which is specific to data centres and other large demand projects.

We explore these in more detail below.

CONNECT ACCELERATE

Ownership of Transmission Assets

The Demand Call for Evidence sets out a number of potential ideas to facilitate the acceleration of physical grid connections for all types of final demand projects, with ideas including:

• potentially providing greater clarity on whether demand projects can connect at high voltages (132 kV and above in Scotland, above 132 kV in England and Wales) based on the current definitions of “transmission” and “transmission system” in the Electricity Act 1989; and
• introducing greater standardisation and certainty in relation to the ownership of high-voltage assets, including the potential development of a dedicated iTO licence or adapting existing licensing regimes to achieve this.

The Connect Update sets out a helpful update on Ofgem’s (and the wider sector’s) current thinking on these options following feedback from stakeholders, namely:

1. there is strong demand for greater self-build and ownership rights in relation to high-voltage electricity assets (which reflects our experience on a daily basis);
2. Ofgem wants to expand the capacity of the system to connect demand projects, and to reflect market demand for greater self-build and ownership rights in respect of high-voltage assets. However, at a practical level it remains to be seen whether increased delivery and ownership options will help address the existing shortage of people and equipment needed to deliver such projects;
3. Ofgem is of the view that clarifying its interpretation of the definition of “transmission system” under the Electricity Act 1989, including the “wholly or mainly” element and its interaction with any generation licence, would not effectively address the issue of who is entitled to own and/or operate high-voltage electricity assets. Instead, Ofgem considers that projects and developers would benefit from greater certainty and a proportionate route to compliance, noting that, as the Connect Accelerate workstream is also relevant to generators, any developments in this area will have wider implications;
4. Ofgem will consult in autumn 2026 on proposals for the introduction of an iTO licence and separately, on the conditions of that licence. Ofgem has indicated that it is prioritising this work and would welcome feedback from stakeholders in advance, particularly in relation to: (a) the scope of an iTO licence; (b) the outcomes an iTO licence should seek to achieve and the risks it should mitigate; and (c) how Ofgem can best achieve the right outcomes and mitigate relevant risks through the conditions and regulatory design of an iTO licence; and
5. Ofgem will separately consider with Government and NESO whether one or more electricity transmission licence class exemptions should be added to the Electricity (Class Exemptions from the Requirement for a Licence) Order 2001. Ofgem has also made it clear that it is not a binary choice between introducing an iTO regime or introducing new electricity transmission licence class exemption(s).

We expect that interested parties will welcome all these updates, with the iTO regime potentially being the most significant proposal given the large number of developers, generators, companies, lenders and funds looking at commercial opportunities in the electricity networks sector. 

As always though, the speed and clarity of implementation will be essential. We expect many stakeholders may therefore wish to provide feedback to Ofgem around any iTO regime, iTO licence conditions, the interaction with the CATO regime and any transmission licence class exemptions regime ahead of the publication of any formal consultation in autumn 2026.

Self-Build and Transfer of Transmission Assets

The Demand Call for Evidence separately acknowledged the desire of many developers of demand and generation projects for greater flexibility to self-build transmission connection assets and, potentially, transfer those assets to a Transmission Owner (TO) or an iTO. It also indicated that Ofgem would consider options to facilitate this, including the interaction with CUSC Modification Proposals CMP330 and CMP374 and CMP414, and related CUSC Modification Proposals.

Ofgem subsequently sets out in the Connect Update that it intends to utilise powers under the Planning and Infrastructure Act to make modifications to the industry codes to enable greater self-build and transfer of transmission assets (with the first consultation expected to be published in autumn 2026), with this decision expected to result in the withdrawal of CMP330 and CMP374 and CMP414.

The Connect Update also sets out some initial guidance from Ofgem as to what ‘good’ might look like in any self-build and transfer process for high-voltage electricity assets, with initial ideas being:

Ofgem also indicates in the Connect Update that “good” might be achieved through measures such as the use of Pre-Approval of Solutions by Engineering (PASE) to mitigate the risk of sub-standard and inefficient assets; establishing a clear process for self-build and transfer to maximise potential benefits and manage the key risks; and providing clarity on how these assets would be classified for charging purposes, including whether a standard price list may be needed for any assets that will not be charged to the connecting customer.

Similar to the Ownership update, we expect that the majority of stakeholders will welcome these developments with open arms. Looking at some of the ideas as to what “good” looks like and the measures to achieve “good”, however, it is clear that there are a number of thorny issues which industry will need to work through. These include the standards that TOs and iTOs are held to, potential second-comer principles, and the adoption process, which is commonly cited as being less smooth and efficient than it should be at distribution and transmission level. Industry will also need to strike the correct balance between speed of connection and energisation on the one hand and preserving a robust and reliable network on the other.

CONNECT OPERATE

In the Demand Call for Evidence, Ofgem noted the opportunity for large demand customers to contribute towards consumer-led flexibility, with potential options including ramped and non-firm connections and a wider requirement and/or incentive regime in relation to flexible demand. The Demand Call for Evidence also highlighted that such measures may also enable the faster connection of large demand projects (particularly data centres).

The Connect Update provides an update on this, with Ofgem, Government and NESO considering the following flexibility measures (which we explore in more detail below):

• Alternative Connection Agreements;
• Voluntary Flex Services; and
• Operational Control Measures.

However, the Connect Update acknowledges that any potential interventions will need to be assessed against a trilemma of system needs, data centre operational needs and data centre investability needs.

Alternative Connection Agreements

As alluded to above, Ofgem sought feedback in the Call for Evidence on the practical blockers to the uptake of flexible, non-firm, and phased (ramped) connection agreements. The feedback Ofgem received (based on the content of the Connect Update) is that:

• early engagement between developers and network operators does not always happen and this limits the ability to have pre-application discussions and impedes applicants from applying for the most appropriate type of connection agreement, as they are unclear on the options available and the relevant trade-offs;
• network operators are potentially reluctant to engage in discussions regarding bespoke connection solutions for a number of reasons including time and resource requirements and concerns that this may be perceived as discriminatory; and
• data centre developers and advisory firms working with developers have identified a potential new type of non-firm connection that deviates from SQSS requirements: an ‘N-1 connection’, but this type of connection agreement potentially requires further work.

Taking into account this feedback, Ofgem provides an update in the Connect Update on the steps it will take including:

• gathering evidence on the practical blockers to more flexible connection arrangements and the reasons for these;
• working with network operators to understand the technical risk and opportunity for an N-1 connection arrangement;
• exploring the uptake of phased connection agreements, whereby connection capacity increases from the initial connection capacity to the maximum connection capacity over an agreed period (typically years);
• considering options regarding mandatory disclosure of intended ramp rates and utilisation factors;
• working with industry to ensure the available connection agreements meet their needs in terms of investment certainty/bankability; and
• providing an update on connection agreements in autumn 2026, with the update providing greater clarity on the type of connection agreements that are available and trade-offs that might be relevant for data centre demand.

Voluntary Flex Services 

Ofgem acknowledges in the Connect Update that the ability to operate a data centre flexibly is dependent on that data centre’s use and underlying business model. However, it also notes that flexible operation of a data centre can be designed as it develops, with data centre developers potentially being willing to do this if it enables an earlier connection.

Ofgem goes on to indicate in the Connect Update that the next steps in identifying the opportunity for voluntary flex services are:

• working with the Flex Technical Taskforce to identify solutions that may be appropriate for specific types of development, considering location-specific network and site challenges, which may include consideration of on-site generation;
• reporting back to the AI Energy Council in autumn 2026 on the opportunities, risks and blockers in provision of greater voluntary flex services from data centres as well as identifying opportunities within the existing policy framework and setting out areas where policy reform may be required;
• following the first two steps above, developing and consulting on any wider policy change required; and
• providing clarity on the direction of policy and regulatory change by Q4 2026 (but noting that full policy implementation may not be complete in advance of Q4 2026).

Operational Control Measures

Ofgem has indicated that it will continue to consider whether backstop operational control measures (such as mandatory curtailment) should be introduced into the industry codes to reduce uncertainty around the modelling and forecasting of data centre demand and therefore potentially facilitate an accelerated connection of data centre projects (and the connection of a greater number of projects).

Ofgem notes though the key message from data centre operators and trade associations that any backstop operational controls present challenges to different data centre business models and overall investability.

Reflecting this, Ofgem indicates that it will:

• continue to explore with the system operator and stakeholder engagement groups, the technical requirements for any additional operational control measures, with any such requirements only being implemented if they are necessary and feasible (noting that impact analysis is very dependent on a number of variables); and
• publish a consultation during autumn 2026, with this consultation setting out confirmation on what, if any, backstop mechanism(s) are required, how they will be implemented, and any relevant assessment(s) of the impact of the mechanism(s).

CLOSING REMARKS

The Connect Update represents an important policy update to all those involved in the electricity and data centre sectors.

A greater right to self-build and own and/or transfer electricity transmission assets, together with an iTO regime, has been on the wish list for developers, iDNOs and those looking at investment opportunities in the wider electricity network sector for many years. As a result, confirmation by Ofgem that it will look to facilitate all of these developments will, we expect, be exceedingly well received. We nevertheless anticipate that a large number of organisations may wish to provide feedback to Ofgem on these proposals before any formal consultation is published later this year, with some of this feedback potentially having more of an investor/funder focus than Ofgem expects, given the wider opportunities arising from any iTO regime and its interaction with CATO policy developments.

We also anticipate that stakeholders will welcome Ofgem’s recognition that any targeted policy interventions relating to grid connection agreements and flexible demand for data centres must be assessed against the trilemma of system requirements, data centre operational needs and data centre investability. However, Ofgem’s stated intention to continue exploring whether mandatory backstop operational control measures (such as mandatory curtailment) should be implemented, is likely to concern all those parties developing data centre projects (and potentially owners of operational data centre projects, contingent on whether such measures may also be applied to operational projects at the time of implementation). 

More generally, the speed at which these measures are implemented will be crucial if the UK is to reform the current demand connection queue and unlock significant data centre and demand projects at a time of material market demand. Many affected stakeholders may therefore want to push Ofgem, Government, NESO and others to accelerate the consultation and implementation timetable. 

Burges Salmon has extensive experience advising clients on all aspects of the delivery of GB data centres, as well as on the numerous opportunities that are arising in the GB electricity network sector as result of regulatory reforms. If you would like to discuss how any of these potential reforms may affect you and/or create an investment opportunity, please do get in touch with Alec Whiter or James Phillips.

This article was written by Alec Whiter, with assistance from Alice Veloso.