Demand Connections Reform: A Curate Update – Data Centre Commitment Fees (DCCF) and Data Centre Queue Management Milestones

Demand Connections Reform policy developments continue at pace. 

Hot on the heels of the Connect Update published by Ofgem in June 2026 (please find a link to our article on this here), Ofgem published on 29 July 2026 a Curate Update (the Curate Update), together with draft amendments to: the Connection Use of System Code (the CUSC), the electricity distribution licence standard licence conditions and the Independent System Operator and Planner Licence (the ISOP Licence). 

This article explores the significant proposals set out in the Curate Update in relation to:

• a Data Centre Commitment Fee (DCCF); and
• Data Centre Queue Management Milestones.

The deadline for responses to the Curate Update consultation is 16 September 2026, with Ofgem stating that it intends to take decisions later in 2026.

BACKGROUND

There has been a huge increase over the past eighteen months in the number of electricity demand connection requests that the electricity distribution network operators (DNOs) and the National Energy System Operator (NESO) have received (and the MW being requested), with the majority of this being made up of new data centres. 

The Curate Update (and before this the Call for Input on Demand Connections Reform (the Demand Call for Evidence)) indicates that between November 2024 and June 2025, total contracted offers in the electricity demand queue rose sharply from 41 GW (17 GW at transmission level, 24 GW at distribution level) to 125 GW (97 GW at transmission level, 28 GW at distribution level) in June 2025 (with the latest estimate that around 73 GW of the queue is comprised of proposed new data centre schemes). For comparison, the peak electricity demand in Great Britain on 11 February 2026 was 45 GW.

This has led to Ofgem, the Department for Energy Security and Net Zero (DESNZ), NESO and others grappling with the significant increase in the GB electricity connection queue and a lack of regulatory and commercial tools to remove non-viable projects (with a focus on data centres) from the queue.

Previous consultations, calls for input and responses on this topic include:

• Ofgem’s Call for Input on Demand Connections Reform 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 set out the policy intent of introducing a data-centre specific financial mechanism at transmission and distribution level, with an updated securities regime for demand at transmission, and strengthened readiness requirements for data centres;
• 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;  
• Ofgem’s Connect Update published on 16 June 2026 (the Connect Update) (please find a link to our article on this here) which includes proposals for 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; and
• a Summary of Call for Input Responses: Demand Connections Reform (the Responses Summary) which, among other things, indicates that of the 76 respondents that responded to the financial mechanism points in the Demand Call for Evidence, 63% were in favour of the introduction of a data centre specific financial mechanism (with 26 of those responding positively being data centre developers).

On 29 July 2026, Ofgem subsequently published the Curate Update which covers the work it is doing on the Curate pillar of demand connections reform, with the update setting out, among other things, further details on two proposals namely:

• a data centre commitment fee (DCCF); and
• the introduction of data centre specific queue management milestones.

We explore these proposals below.

DATA CENTRE COMMITMENT FEE (DCCF)

The Curate Update sets out Ofgem’s current assessment that a lump-sum returnable commitment fee (Option 1A from the Demand Call for Evidence) is the best commitment fee design when assessed against Ofgem’s stated evaluation criteria of: (a) discouraging less-viable projects in the queue; (b) encouraging proactive self-termination; (c) encouraging timely progression; and (d) being simple to implement and administer.

Ofgem goes on to set out in detail its current thinking on the following points in relation to the DCCF:

Which GB data centre projects will be affected by the proposed Data Centre Commitment Fee (DCCF)?

Ofgem sets out in the Curate Update that it is proposing that a DCCF will, on implementation, apply to any unenergised GB data centre project (with data centre projects being defined by reference to “data centre service” and with this proposed to have the meaning given in the Cyber Security and Resilience (Network and Information Systems) Bill (although Ofgem notes that this definition may change)) that satisfies one of the following criteria:

• the data centre will connect to the electricity transmission network and will have a capacity at or above a specified value (the “DCCF MW Threshold” which is proposed initially to be 40 MW) (although please see below); or
• the data centre will connect to the electricity distribution network and: (a) have a capacity at or above the DCCF MW Threshold  (although please see below); and (b) is or was subject to a Transmission Entry Assessment (noting that a Transmission Entry Assessment currently applies on a per demand project basis in a more nuanced way than the general 5 MW Transmission Impact Assessment threshold for generation; it is principally driven by whether there is available capacity at the location of the connection on the distribution system).

Ofgem is also proposing currently that:

• developers of all demand projects will have to self-declare whether their development is a data centre development that falls into one or more of the relevant categories above, with there being penalties for those that abuse the self-declaration process, and with a data centre that is the subject of a self-declaration as an in-scope data centre being a “DCCF Data Centre” for the purposes of the CUSC. (It will though be interesting to see how the self-declaration proposals (and wider principles) develop in relation to: (a) networks operated / to be operated by iDNOs; (b) operators of unlicensed distribution networks that may hold agreements with NESO and/or a distribution network operator for “import capacity”, but with a developer of a data centre looking to connect its project to that network; (c) unlicensed distribution network operators that have the contractual right to significant import capacity (and operate a “live” network), and are looking to attract new data centre development to use that network and capacity; and (d) the repurposing of what historic import capacity is used for (is final demand different if the final demand relates to a data centre?);
• developers of hybrid projects will only have the DCCF applied to the capacity requested for the data centre component of the hybrid project and, in the event hybrid projects have a generation and data centre component, the generation component may be subject to the generation project  commitment fee, and the data centre component would be subject to the data  centre commitment fee when applicable;
• the DCCF MW Threshold can be amended by NESO from time to time through the publication of a revised “DCCF Statement”, with NESO also required to seek Ofgem’s approval to any change (with any change also likely to be subject to consultation). NESO may also be required (as a result of proposed amendments to the ISOP Licence) to make changes to the DCCF Statement at the request of Ofgem; and
• it may exempt DCCF Data Centres from the DCCF regime where their energisation date is within six months of the DCCF regime being introduced, with the same approach applying to any future increase or change in the commitment fee, but only relative to the portion of the data centre commitment fee that has / will change within that six month period prior to energisation.

More widely, it is worth noting (among other things) that: (a) the Curate Update contains references to above 40 MW in places (rather than equal to or above), but the proposed CUSC amendments refer (in the definition of “DCCF MW Threshold”) to “at or above the MW capacity”; (b) the Curate Update generally contains references to the capacity of a data centre determining whether a fee may apply, but with it being unclear as to whether this means secured contractual import capacity in relation to a data centre or the computing capacity of the data centre (noting that a data centre could theoretically have a computing capacity of 100 MW, with 61 MW of “behind the meter” generation and 39 MW of secured import capacity). The proposed amendments to the CUSC (particularly the DCCF Data Centre definition) make it slightly clearer that Ofgem is likely to be focusing on the secured import capacity as the gating criteria to whether a fee applies, but the drafting is not as clear as it should be; and (c) the proposed terms “Demand Capacity” and “Embedded Demand Capacity” may cause confusion as we believe “Demand Capacity” may be defined in the BSC (not the CUSC), and with it being slightly unclear as to why Ofgem has selected this definition given the function of the “Demand Capacity” definition in the BSC. 

What will the value of the Data Centre Commitment Fee (DCCF) be?

Ofgem has indicated that it is minded to adopt a policy of a flat £/MW fee (the “DCCF Value”) that will be multiplied by the import capacity in the accepted connection offer / bilateral connection agreement in respect of a DCCF Data Centre.

In relation to the £/MW fee itself, Ofgem is proposing a value in the range of £237,000/MW to £712,500/MW. By way of example, a yet-to-be-built Data Centre with a 100 MW of import capacity and a DCCF value of £237,000/MW would need to pay a DCCF of £23,700,000 (although please see below for interaction with wider grid securities). 

Ofgem believes the £/MW fee (when multiplied by capacity) represents between 2.5% and 7.5% of its assessment of an average GB data centre project’s capital expenditure of £9,500,000 per MW (although Ofgem acknowledges that it has limited data on the capital expenditure in relation to smaller data centre projects). This value compares against benchmarks highlighted by respondents to the Demand Call for Evidence of €40,000 per MW based on the Spanish Government’s approach, $50,000 per MW figure from Texas, USA and an $70,000 per MW figure from Georgia, USA based on power reserved.

Ofgem is however seeking stakeholder feedback on a large number of the variables with regards the eventual £/MW fee, including what an average data centre project’s capital expenditure is, what impact different fees may have on a developer’s IRR in relation to a data centre and what the appropriate % of average capital expenditure should be. 

The proposed CUSC and Independent System Operator and Planner Licence amendments also make clear that like the DCCF MW Threshold, NESO will have the right to, and may be required to (from time to time), adjust the DCCF Value (and potentially the way in which the value is calculated) on a periodic basis through the publication of an updated DCCF Statement. 

When will the Data Centre Commitment Fee (DCCF) apply and when will the DCCF be kept by NESO?

Ofgem has proposed that the DCCF will apply to DCCF Data Centres from connection offer / bilateral connection agreement acceptance in respect of a DCCF Data Centre (or if later, from the time the policy is implemented) until energisation of that project.

Ofgem also sets out its current thinking that:

• developers of DCCF Data Centres would be allowed to self-terminate without the requirement to pay the applicable DCCF if they do so before the DCCF policy is implemented (but with further detail yet to come on how such a termination might interact with a developer’s liability for any existing Cancellation Charge that might apply under the CUSC in respect of the relevant project);
• if a developer decides to self-terminate its bilateral connection agreement / connection offer at a later stage, it will become liable to pay the DCCF previously secured (but this may not apply in a scenario where the DCCF is increased by NESO / Ofgem and the developer terminates their bilateral connection agreement / connection offer prior to the increased fee coming into effect);
• if NESO terminates the bilateral connection agreement / connection offer in respect of a DCCF Data Centre, the Cancellation Charge (including the DCCF) would be due from the developer of that DCCF Data Centre, with NESO entitled to keep the relevant securities if the Cancellation Charge is not paid;
• if a developer of a DCCF Data Centre reduces the import capacity for its DCCF Data Centre after the implementation of the DCCF policy or changes the technology that is the subject of the connection agreement / bilateral connection agreement away from a DCCF Data Centre, it would be liable to pay the DCCF in respect of the reduction in import capacity / the full import capacity in a change of technology situation (and also maintain security in respect of the reduced DCCF for the residual import capacity of the DCCF Data Centre where the import capacity was just reduced);    
• should any DCCF securities be kept by NESO, they will be passed back to consumers through consequent reductions in transmission network use of system charges; and
• in respect of a DCCF Data Centre, the DCCF will likely be returned following energisation of the DCCF Data Centre in the same way that Cancellation Charge secured amounts are returned.

How will the Data Centre Commitment Fee (DCCF) interact with Cancellation Charges and Securities Requirements?

The proposed CUSC amendments indicate that Ofgem is proposing that the DCCF becomes a component of the wider “Cancellation Charge” in respect of a DCCF Data Centre and as a result is in addition to the normal components making up a Cancellation Charge (Section 15 of the CUSC sets out how a Cancellation Charge for any demand or generation project will be calculated).  

Ofgem also acknowledges in the Curate Update that CMP417 (which looks to bring all demand projects into the User Commitment Methodology, aligning them with generation and storage projects) has been unanimously approved by the CUSC panel and that Ofgem has therefore conducted its assessments (with regards the Curate Update) on the assumption that the proposals in CMP417, or similar reforms, will be implemented.

The proposed amendments to Part 3 of Section 15 of the CUSC indicate in addition that the Cancellation Charge Secured Amount for a DCCF Data Centre (the value of the security that a developer needs to provide to NESO / a DNO to cover the potential value of the Cancellation Charge) will be calculated on the basis that the DCCF will be a separate variable that will always need to be fully secured; it will not be subject to the reducing % principles that apply to the other variables making up a Cancellation Charge Secured Amount as a generation project progresses. It is also proposed that the forms of security that can be provided for the DCCF will be the same as those acceptable to secure the Cancellation Charge Secured Amount, namely:

• a letter of credit or performance bond from a “Qualified Bank” (with one of the requirements of such an entity being that they have a credit rating of at least A- S&P or A3 Moody’s)
• a performance guarantee from a “Qualifying Company” (with one of the requirements being that the company has a credit rating of at least A- S&P or A3 Moody’s);
• or a cash deposit.

One point that the Curate Update doesn’t comment on though (and it will be interesting to see whether this is picked up in any of the consultation responses) is whether the general interest principles under the CUSC will also apply to any cash securities lodged with NESO to cover the DCCF (noting that in practice, it may be unlikely that too many developers will want to lodge a minimum of £9,480,000 with NESO) and whether any additional protections may need to be put in place taking into account the theoretical aggregate value of DCCF cash securities. 

DATA CENTRE COMMITMENT FEE ANALYSIS

The Data Centre Commitment Fee proposals indicate Ofgem’s and DESNZ’s desire to reduce rapidly the number of data centre projects in the GB connection queue.

The proposals themselves broadly reflect principles that a section of the data centre market has been requesting for some time and will if implemented likely have the desired impact of incentivising developers of data centre projects (and potentially other projects) to leave the connection queue. 

The proposed value of the £/MW fee will be one area that all stakeholders will likely have strong views on though, with others potentially commenting in addition on the fact that the proposed approach materially increases developers’ exposure to normal development risks (such as securing planning permission etc) and therefore creates too high a risk premium. 

It is also clear that a number of details and concepts in relation to the Data Centre Commitment Fee need to be developed and refined further and we encourage all interested parties to respond to the consultation (the deadline for responses is 16 September 2026). 

More widely, Ofgem, NESO and DESNZ have a tricky balancing act on their hands. 

Most parties are agreed that a commitment fee is a sensible and effective way to remove “speculative” data centre projects from the queue (and incentivise new projects to not join the queue). Following the publication of the Curate Update though, a large number of stakeholders have expressed concern in relation to the proposed value of the commitment fee. 

At a time when there is a global AI and digitalisation race, a high commitment fee will likely make Great Britain a less attractive place for investment in sorely needed infrastructure, also noting that GB energy costs, data sovereignty and copyright laws (as well as other matters) may mean that Great Britain is already not the first choice location for new data centre investment for certain parties. 

Conversely, a low commitment fee may not have the desired impact of putting an end to “powered land banking” developments through either self-termination of agreements or the sale of the relevant project to an end developer. 

Ofgem will also need to consider carefully the wider market impact of any commitment fee from the perspective of: 

• the uncertainty as to how large the demand is for new data centre projects in Great Britain;
• competition / business models - a number of parties have raised concerns that these reforms may provide significant market advantage to a small number of parties (which is also relevant to the proposed data centre queue management milestones (please see below));
• the potential impact on property rights (and other rights); and
• unintended consequences – by way of example, if there is no equivalent commitment fee for gas capacity, we may see an even bigger and quicker rush to secure exit capacity on the National Transmission Network for gas and/or other actions designed to mitigate the impact of the proposed DCCF, including “off-grid” and “grid-light” data centres and existing thermal power plants reducing Transmission Entry Capacity and servicing proximate data centre demand via private wires instead.

What is clear though is that the GB data centre development market is likely to undergo a period of profound and rapid change, with far reaching consequences. 

DATA CENTRE PROJECT QUEUE MANAGEMENT MILESTONES

The Curate Update (and the proposed amendments to the CUSC) separately set out Ofgem’s proposals to vary grid connection offers and construction agreements to introduce new data centre specific queue management milestones (with Ofgem confirming that it is now not proposing to change the “Readiness” requirements under the Gate 2 Criteria Methodology for new data centre demand grid connection applications).

These new data centre milestones will sit alongside the existing NESO queue management milestones and the current Energy Networks Association milestones applicable to projects connecting to the distribution network.

The Curate Update goes on to set out the following proposals in relation to the proposed data centre specific milestones:

What new Data Centre Queue Management Milestones is Ofgem proposing?

Ofgem is proposing to introduce the queue management milestones set out in the table below (subject to certain exemptions and grace periods), with the way in which a milestone can be satisfied varying contingent on whether a developer selects one or both of the following pathways:

• the “Self-operation Pathway” - the developer, or a relevant group company, intends to develop and operate the data centre. This could include a hyper-scaler or an operator providing managed space and services. Evidence would focus on self-operation and, where relevant, use by retail customers; or
• the “Lease or Sale Pathway” - the developer intends to lease or sell the data centre development to a tenant, purchaser or third-party operator,

with a developer potentially having the option to switch between pathways once during the life of a project (the restriction on switching is designed to reduce the risk of gaming). 

High level overview of proposed Data Centre Queue Management Milestones

Which GB data centre projects will the proposed new data centre milestones apply to?

The Curate Update sets out the options that Ofgem is considering currently in relation to a capacity threshold, whether the requirements should apply to both transmission and distribution connected projects, and how they should apply to existing and future projects.

Overall though, the Curate Update indicates that Ofgem’s preferred approach is that the new milestones will apply to projects:

• proposed to be connected to the electricity distribution or transmission network;
• that have a rated IT load of at least 10 MW in line with the definition of “data centre service” set out in the draft Cyber Security and Resilience Bill; and
• already in the connection queue as well as new data centre developments seeking to join the connection queue (but with the implementation method being different at transmission level and distribution level and for new and existing projects).

Ofgem has, though, proposed potentially exempting certain projects, including: (a) data centres with existing agreements that meet the definition and are above a specific threshold, (if the DCCF is implemented), and/or if all queue management milestones up to M6 and beyond have been satisfied in respect of the project; and (b) data centres in the connection queue that are due to energise within six months of implementation of the additional data centre milestones. Ofgem has also proposed grace periods for certain projects. 

Who will assess compliance with the milestone requirements and what will happen if a milestone is missed?

Ofgem has proposed that NESO and the electricity distribution network operators will (like the existing queue management process) be responsible for receiving, checking and recording readiness evidence, including how they assess whether evidence is valid, incomplete, expired, insufficient or no longer effective.

Ofgem has also proposed that:

• a failure to provide the required evidence by the applicable deadline, or provision of evidence that does not satisfy the relevant requirement, would result in the relevant project being treated as having failed the requirement and may lead to a project being ejected from the connection queue. It will therefore be interesting to see whether in due course Ofgem proposes that a failure to comply with certain data centre milestones will result in NESO / the relevant DNO having to terminate a connection agreement, whilst a failure to comply with other data centre milestones results in NESO / the relevant DNO having the right to terminate (but not being required to). In all cases though, any termination would then give rise to a requirement to pay the Cancellation Charge (which includes the DCCF); and  
• material misrepresentation of fact, including the provision of materially false or misleading evidence, or the failure to notify NESO or the relevant distribution network operator where earlier evidence no longer satisfies the requirement, will be treated as failure to provide the required evidence by the applicable deadline entitling NESO / the relevant DNO to terminate the connection agreement and trigger the requirement for the developer to pay the Cancellation Charge (which includes the DCCF).

DATA CENTRE QUEUE MANAGEMENT MILESTONE ANALYSIS

The introduction of new data centre queue management milestones for most data centre projects would appear to many to be a pragmatic way to ensure that developers of data centre projects (however well-funded) have clear incentives to develop their project(s) quickly, failing which the project can be removed from the demand connection queue.

As ever though, we suspect that the detail in relation to the actual milestones (and the evidence and timing requirements themselves) and how they will be implemented will be scrutinized heavily, with Ofgem likely to receive a large amount of feedback. 

Four points that stand out to us initially though are:

• the timing of the milestones, given the impact they may have on development & planning timings and when material contracts need to be entered into;
• how the milestones might apply in a private network scenario (where a data centre developer does not hold the connection offer / bilateral connection agreement and the import capacity is for more than just a data centre);  
• the Financial Capability requirement (like the DCCF) may provide market advantage to a small number of parties; and
• the requirement (if the Lease or Sale Pathway has been selected) for a developer to provide to NESO / the relevant DNO an MoU / Customer Contract at Milestones M0.5.Dc and M6.Dc may be a polarising point, with potential issues for parties to consider including:   
  • how a DNO / NESO would ever know / assess whether the contract / MoU is with a “credible” party;
  • if a list of “approved” counterparties and/or counterparty assessment process was introduced (and in any event), how the proposed MoU / contract requirement might affect lease, use and/or sale negotiations as all parties to the negotiations would be aware of the queue management deadlines and the potential consequences for the developer if the negotiations were not successful, and as a result, certain parties might try and use this to their advantage (especially in a market where there are numerous potential suppliers, but a small number of customers); and
  • how the option to switch between pathways, together with the potential lighter touch evidence requirements for the Self-operation Pathway, may lead to a certain type of behaviour.

Reflecting this, we recommend that all interested parties respond to the consultation by 16 September 2026 deadline, noting that Ofgem has said that it intends to take decisions later in 2026.

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 and energy sector more widely as a result of regulatory reforms and data centre developments.

If you would like to discuss how any of these potential reforms may affect you, please do get in touch with Alec Whiter.

This article was written by Alec Whiter.