UK grid connections reform: Impact on data centres

On 15 April 2025, Ofgem announced its package of decisions on the reform of the electricity connections process and published supporting documents including its formal impact assessment (IA). The decision follows earlier consultations on the proposals. As we noted in our earlier publication (based on the consultation position), the TM04+ "First Ready and Needed, First Connected" reforms represent a significant shift in the UK electricity grid connection regime. By prioritising projects that are ready for immediate connection, these reforms aim to reduce delays, lower costs and support the rapid deployment of renewable energy.

As a reminder, in order to secure a connection offer under the TM04+ proposals, a project will need to demonstrate the following:

1. Strategic Alignment: Projects must be aligned with long-term strategic planning for the UK's energy system, including the Government's CP30 Action Plan and the upcoming Strategic Spatial Energy Plan (SSEP).
2. Readiness Criteria: Projects need to demonstrate they are "ready" by meeting specific requirements such as obtaining exclusive land rights (e.g., an option, lease, or ownership) and, for projects pursuing the Development Consent Order (DCO) process, submitting and validating an application for planning consent.

Certain projects in the existing queue will receive "protected" status.

Ofgem’s package involves a number of discrete decisions relating to changes to licence conditions of network companies, changes to industry-led code documents and to methodologies. While broadly those consulted were supportive of the proposals, potential negative impacts were raised across a range of areas.

Data centres, and the impacts on projects, are mentioned specifically in Ofgem’s decision – see e.g. page 63 of the main document which refers to a concern that the timing of data centres acquiring land rights (later than other potential connectees) means that they might be particularly disadvantaged by the proposals, because they would be unable to demonstrate the readiness criteria. Ofgem’s response seems to acknowledge this concern but suggests that in the round it considers this to be an acceptable outcome:

Calls for specific treatment for demand projects, including data centres

7.18 We consider that these reforms put the energy system in a better baseline position and provide opportunities for all ready and needed projects to progress (including demand, as all projects are deemed needed). Projects that do not meet the ready and needed criteria will be moved to Gate 1, making it likely that some demand projects that are ready receive improved dates. We are also exploring with the Government and NESO whether any further future changes to the connections process are required to better facilitate demand. This could include those of strategic importance.

In the IA, Ofgem acknowledges the risk that investors may step away from projects which are moved to Gate 1, with negative impacts on growth. E.g. at paragraph 1.52 of the IA:

“…concerns [were raised] about the impact of the TMO4+ reform package on data centres, with particular regard given to concerns that it will inhibit development of new data centres, having a knock of impact on economic growth, and the roll out of new technologies in UK. Linked to this, a small number of respondents expressed concerns that this could lead to a loss of inward investment in the UK for data centres and AI, slowing adoption of digital products and services in the UK.”

The precise impact will likely need to be assessed on a project-by-project basis.

On future steps in the process, Ofgem has noted the following in its decision:

• It expects the Gate 2 evidence submission window for transmission connecting customers to open in July 2025. NESO will publish the exact dates for the window with a minimum of 4-weeks notice.
• The evidence submission window for distribution customers to submit evidence to their respective DNO will open in May 2025.
• NESO will indicate to projects whether they have been successful in securing a place in the reformed queue from September 2025.
• NESO and network companies expect to start issuing revised offers from Autumn 2025, with an initial focus on those that are connecting in 2026 and 2027.

This is potentially not the end of the matter.

There remains the possibility of legal challenges being made of Ofgem’s decision. This is something it has spoken about openly (by Ofgem’s Chairman) as being a potential risk to delivering the reforms. This is consistent with its experience of other significant changes relating to access to the network and charging for access which have been the subject of prolonged legal challenges. Ofgem’s approach here appears to be informed by its experiences of defending such challenges although it seems to us that there are likely to be areas which those considering challenges will want to explore.

It has resulted in the government proposing additional powers through the Infrastructure Bill (see our summary here) to act as a backstop against the threat of legal challenges. There is particular complexity with the suite of decisions published by Ofgem yesterday and there are multiple different appeal routes – with some decisions subject to judicial review while others are subject to appeal to the Competition and Markets Authority. These have short limitation periods and so those considering challenging will need to move fast.