UK grid connections reform
Ofgem proposals for new data centre commitment fee and additional queue progression requirements

Fee level: The DCCF is proposed to be a lump sum amount between 2.5% to 7.5% of the average data centre capex per MW. The average capex is assumed to be £9.5 million per MW, resulting in a proposed fee of £237,500 to £712,500 per MW. As the fee level is proposed to be tied to average capex, it will not vary depending on a project's actual projected spend. 

Mechanisms are proposed to be introduced to allow NESO or Ofgem to review the level of the DCCF and the applicability threshold in future, with users having the ability to self-terminate without paying the DCCF if the fee is increased.

The proposed fee level is significantly higher than other jurisdictions requiring fees (Spain: €40,000/MW fee; Texas, USA: $50,000/MW fee in Texas; Georgia, USA: $70,000/MW). Ofgem's analysis concluded that the proposed fee range should not materially impact viable projects but the fee level is a critical point on which stakeholder feedback is sought.

Security: Projects will be required to provide security in respect of 100% of the DCCF in accordance with the existing CUSC security requirements (e.g. acceptable forms include a cash deposit, performance bond or LC) in addition to any other required securities. 

The consultation assumes that CMP417 is approved. CMP417 is a code modification which proposes to move demand projects from the Final Sums methodology for cancellation charges to the User Commitment Methodology currently used for generation and storage projects, which is expected to reduce other financial securities required for data centres and other demand projects.

Threshold: The DCCF is proposed for data centres of at least 40 MW. For hybrid projects, the threshold would apply only to the data centre component of the project.

Timing: The DCCF is proposed to apply from acceptance of a connection offer (or the modification of a connection offer for another technology type to a data centre) until energisation. Security will be returned on successful energisation of the project. 

Forfeiture: Security will be forfeited if the project terminates, reduces capacity or changes to another technology prior to energisation.

Exemptions and grace periods: It is proposed that projects whose energisation date is within 6 months of the DCCF being introduced will be exempt. 

Grace periods are also expected to apply to existing projects: projects with a signed connection agreement would have 3 months from DCCF implementation to provide the required security and projects with an unsigned connection offer would have 2 months from DCCF implementation to provide security. On implementation, existing projects will be given the opportunity to self-terminate without paying the DCCF but Ofgem is still considering whether such projects would be still be required to pay other any other applicable cancellation charges.

Progression milestones: As Ofgem had previously indicated, it is not proposing to introduce further requirements for data centres to apply for a grid connection but is proposing new data centre-specific queue management milestones to apply in addition to the existing milestones between acceptance of a connection offer and energisation.

Threshold: Ofgem's preferred approach is to apply milestones to projects with a rated IT load of at least 10 MW, though it is also consulting on aligning with the 40 MW DCCF threshold or applying no threshold.

Pathways: Two developer pathways are proposed to reflect different data centre business models, which will determine which of the new milestone requirements apply: 

1. Self-operation pathway: the developer (or group company) intends to develop and operate the data centre; and 
2. Lease or sale pathway: the developer demonstrates a credible route to a tenant, purchaser or third-party operator.

Projects may switch pathway once only during their development, subject to providing any required evidence for the new pathway within 6 months of the switch.

New milestones: the proposed new milestones are:

Exemptions and grace periods: It is proposed that projects that have achieved all existing milestones up to M6 or beyond, and those energising within 6 months of implementation, will be exempt.

Grace periods are proposed for existing data centre projects. Where a connection offer has already been accepted, the developer will have an additional 6 months to comply with the new milestones applicable on implementation; where a connection offer has been received but not yet accepted, the developer will have an additional 6 months to comply with the first additional applicable milestone. Further milestones are expected to be met on time.