Ofgem proposes deposits to clear phantom UK data centers

The queue to connect to the UK's power grid has become jammed with data center projects that will likely never be built, and Ofgem, the country's energy regulator, wants to clear them out. In July, Ofgem laid out a proposal that would require developers to put down a steep, nonrefundable deposit, potentially running to hundreds of millions of dollars for the very largest data centers, and to prove in advance that they have lined up customers and secured the funding to complete their builds. The plan is due to be finalized after an industry feedback process that ends in September.

According to Ofgem, the total energy demand of projects sitting in the connection queue jumped from 41 gigawatts in November 2024 to 125 gigawatts by June 2025. New data centers account for 73 gigawatts of that figure, equivalent to one and a half times the UK's entire peak electricity demand last year. The government has said it believes much of that demand is a mirage: developers currently pay only a few thousand dollars to join the queue, so applying for grid power is effectively a no-downside bet on future AI compute demand, even without a firm plan to build.

The crowding is not just cosmetic. Grid operators have to model the combined effect of every large proposal on network stability before granting individual connections, so speculative applications make those studies slower and more expensive and push out wait times for legitimate projects. The glut has also drawn in middleman developers who apply for grid access purely to flip land at a premium to data center companies later, packaging it with the connection rights.

Ofgem's challenge is to set the deposit high enough to deter speculators without driving real investment to the US or continental Europe, where energy is cheaper and land more plentiful; the UK is already considered an expensive place to build. Industry figures broadly expect the plan to work at thinning the queue, but warn it could also push out smaller, AI-specific data center operators unable to cover the fees, even as it improves long-term grid planning by giving operators an accurate picture of real demand.

Key facts

Ofgem's proposal, unveiled in July, would require developers to pay a steep, nonrefundable deposit that could reach hundreds of millions of dollars for the largest data centers, plus proof of secured customers and funding; it is set to be finalized after an industry feedback period ending in September.
The total energy demand of projects in the UK grid connection queue rose from 41 gigawatts in November 2024 to 125 gigawatts by June 2025, according to Ofgem.
New data centers make up 73 gigawatts of that queue, equal to one and a half times the UK's entire peak electricity demand last year.
Joining the queue has previously cost only a few thousand dollars, making speculative applications a no-downside bet for developers hedging on future AI compute demand.
Since 2024, developers have already had to show secured land rights and a submitted planning application; critics warn the new fees could still push smaller operators, such as Nscale, out of the UK market.

Why it matters

Phantom applications do not just sit harmlessly in a queue. Because grid operators must model the combined impact of every large proposal on network stability before approving connections, speculative bids make those studies slower, costlier and less reliable, delaying viable projects and distorting national forecasts of how much power the grid actually needs to build for. The queue's growth from 41 to 125 gigawatts of claimed demand in seven months illustrates how far the mirage has outpaced reality, complicating the UK government's own plan to expand AI compute capacity.

Who it affects

UK data center developers face the direct cost of new deposits, with the largest players best placed to absorb fees that could run into the hundreds of millions of dollars. Smaller, AI-specific operators such as Nscale, which has pledged to spend billions in the UK, risk being squeezed out if they cannot cover the same bar. Grid operators and Ofgem itself benefit from a cleaner queue that is easier to plan around, while middleman developers who apply for power purely to flip land and connection rights lose their main incentive.

How to use it

Developers weighing a UK data center site should treat the September deadline for industry feedback as the last window to shape the fee structure, and should budget for a nonrefundable deposit alongside proof of secured customers and financing, on top of the land-rights and planning-application requirements already in force since 2024. Firms evaluating the UK against the US or continental Europe should factor in that UK energy costs and land scarcity already make it a comparatively expensive build location before any new deposit is added.

How solid is it

The figures come directly from Ofgem, and the piece quotes Ofgem's own deputy director of strategic planning and connections alongside independent voices: a real estate consultancy's head of data centers, the managing director of a grid optimization company, a law firm partner specializing in digital infrastructure, and an academic who has published research on AI's effect on power grids. The proposal itself is not yet final; it is still subject to the industry feedback process closing in September.

Risks and caveats

Ofgem faces what sources describe as a balancing act: set the deposit too low and speculation continues, set it too high and legitimate developers redirect investment to the US or parts of Europe with cheaper, more plentiful renewable power. There is also a stated risk that the reform could concentrate the UK market among only the very largest data center operators, stifling smaller AI-specific entrants even as it improves the accuracy of long-term grid planning.

“We recognize data centers are a key part of the UK's AI ambitions and future economic growth. Enabling viable data centers to connect more quickly is an enabler of this.”

— Nathan Macwhinnie, deputy director of strategic planning and connections at Ofgem, in a statement to Wired