Britain Wants Up to £712,500 a Megawatt to Hold a Grid Place. A Green PPA Doesn’t Buy One.

TLDR: Britain’s regulator wants large data centres to lock up capital to hold a grid place, and a renewable power purchase agreement buys electricity only, so where compute connects becomes a board question.

Ofgem has priced a place in the grid queue and refunds it at energisation

Great Britain’s energy regulator, the Office of Gas and Electricity Markets (Ofgem), wants data centre developers to put real money behind every megawatt they ask the grid to reserve. In its consultation of 29 July 2026, it proposes a data centre commitment fee of about £237,500 to £712,500 per megawatt (MW) of requested capacity¹, equal to 2.5 to 7.5 per cent of average data centre capital expenditure. A developer secures the full amount when it accepts a connection offer and gets it back at energisation. If the project terminates or misses the requirements, the security is forfeited, and Ofgem proposes to pass forfeited sums back to consumers through lower transmission network charges.

The fee is a refundable deposit to hold a grid place, separate from the connection and use-of-system charges a project pays to be built and run. It applies to data centre projects of 40 MW and above that connect to the transmission system, or that connect to a distribution network and go through a Transmission Entry Assessment. The threshold is narrow in count and wide in effect: Ofgem found that 99 per cent of the capacity in the data centre queue¹ sits in projects above 40 MW.

A 100 MW data centre would secure between £23.75 million and £71.25 million on the day it signs its offer, and keep that security posted until the grid energises it. Ofgem translates the same range into financing terms: the fee equals around three to nine months of minimum return expectations on a project, based on a weighted average cost of capital of 10.95 per cent drawn from the National Energy System Operator (NESO). Of the three options it assessed, Ofgem recommends Option 1A, a fixed liability secured at offer acceptance and returned at energisation, as the strongest balance of a clear deterrent to speculative projects, simple administration and an incentive to progress to energisation.

A second measure sits beside the fee. Ofgem proposes data centre queue management milestones that require developers to evidence a credible compute customer or end-user, procurement of long-lead electrical equipment, financial capability and technical readiness, with separate pathways for self-operated facilities and for projects built to lease or sell. A project that misses them can lose its queue position. Ofgem also proposes that NESO’s licence govern the fee level and threshold from here on, and that any adjustment apply to projects already in the queue. A holder that declines to post the difference would have three months to self-terminate free of the fee.

The consultation closed on 17 September 2026 and is marked “Closed (awaiting decision)”². Ofgem states that it intends to take decisions later in 2026 and to deliver them through changes to industry codes, licences and contracts. The numbers above are proposals, and Ofgem singles out the percentage of project capital costs, the 2.5 to 7.5 per cent band, as the element it most wants views on. The direction is already set: a place in the queue now carries a price in capital.

The data centre queue alone exceeds Britain’s peak demand

The reason for the fee is the size of the queue. Between November 2024 and June 2025, contracted demand in Britain’s connection queue rose from 41 gigawatts (GW) to 125 GW. Ofgem’s analysis puts around 73 GW of that queue in roughly 315 data centre projects¹, ranging from 1 MW to 1,500 MW. Peak electricity demand in Great Britain in 2025/26 was 45 GW. The data centres waiting for a connection ask for more than half again the country’s entire peak load.

Ofgem then weighs how feasible it is for this pipeline to materialise, and how much of it may be speculative or non-viable. At an average capital cost of £9.5 million per MW, the data centre pipeline implies £693 billion of investment, around 23 per cent of UK gross domestic product in 2025. The regulator also records that between May 2024 and August 2025 at least 9 GW of projects in the transmission queue changed their connection request from battery storage to data centre. A queue position had become an option worth holding, and holding it was cheap.

The regulator’s own framing is about who carries the risk of that option. Announcing the consultation, Ofgem’s Director for Energy System Design and Development, Eleanor Warburton, said that “consumers should not bear the risks created by speculative projects”³ taking up space in the system. The fee moves that risk onto the developer’s balance sheet, where an investor and an auditor can see it.

Exhibit 1

Nine-tenths of the queued data centre capacity sits in projects of 100 MW and more

Size band	Projects	MW	Share
Small, 0–10 MW	11	76	0.1%
Medium, 10–50 MW	47	1,370	1.9%
Large, 50–100 MW	51	3,492	4.8%
Extra-large, 100–500 MW	166	36,632	50.2%
Hyper, 500 MW+	40	31,408	43.0%
Fee at 40 MW+, per MW	£237,500 to £712,500

The 40 MW line falls inside the Medium band, so the fee reaches almost every megawatt in Exhibit 1. The 206 projects of 100 MW and above hold 68,040 MW between them, 93.2 per cent of the data centre queue. Those are the projects whose boards would sign for deposits in the tens of millions of pounds, and the projects that would supply most of the new capacity colocation and cloud buyers can contract in Britain.

NESO’s evidence puts the scarcity at specific points on the network

Ofgem frames its fee as queue health, a test of which projects are real. The system operator’s evidence adds the second dimension that matters to a buyer: where on the network the scarce capacity is, and what location does to cost. That evidence comes from NESO, the body that plans the transmission system.

In its 2024 Beyond 2030 network plan, NESO’s predecessor, the Electricity System Operator, found that locating an additional 5 GW of flexible demand behind transmission bottlenecks within Scotland could save consumers £5 billion⁴ and could avoid some network reinforcements, such as additional subsea circuits from Scotland to England or Wales. The benefit rises the further north the demand sits, because Scotland and the North of England combine large volumes of renewable generation with smaller network capability. The same megawatt of data centre load is a cost to the system in one place and a saving in another.

NESO’s letter of 25 September 2026 to the Scottish Parliament’s Economy, Tourism and Energy Committee cites the same finding and adds the current pipeline: 28 data centres totalling 8.864 GW are seeking to connect in Scotland⁵, 24 of them at transmission level, with transmission connection dates likely spread throughout the 2030s. The same letter sets out how planning will become spatial. The first Strategic Spatial Energy Plan will be published in draft for consultation in 2027, organised into 19 onshore and 19 offshore zones, with the final version due by the end of 2027 and updates on a three-year cycle.

Read together, the two sources describe a market in which supply is broadening and the connection point is the constraint. Mezyan has tracked the supply side in the United States, where solar out-generated coal for a month and private equity committed a record $63.8 billion to clean energy in one quarter⁶. The binding input for a data centre is a node on the network with headroom, a date at which it energises, and the terms on which it may draw power when the local system is stressed. Location sets all three, and location now carries a deposit.

A power purchase agreement buys megawatt-hours, and the connection is a separate contract

Many companies answer questions about data centre electricity with their renewable strategy. A corporate power purchase agreement (PPA) is a commercial offtake contract with a generator. It buys a volume of electricity or its certificates, often with a fixed price that hedges cost, and it supports a market-based emissions claim. Those are real benefits, and in Mezyan’s reading all of them sit outside the grid queue.

A connection offer comes from a different counterparty under a different rulebook. NESO and the network operators issue it under the Connection and Use of System Code (CUSC) and the distribution licence conditions, the same instruments Ofgem proposes to amend to bring in the fee. The offer fixes the connection point, the capacity, the energisation date and the conditions attached to them. Every one of those terms stays as it was after a PPA is signed with a wind farm two hundred miles away. The local constraint stays too: the transmission bottleneck that makes a southern connection expensive carries the same power flows after the contract is signed.

The emissions standard is moving in the direction of time and place, which narrows the gap and leaves part of it open. The Greenhouse Gas Protocol’s consultation on Scope 2, the emissions from purchased electricity, proposed a new hourly matching and deliverability requirement for market-based reporting⁷, tying a clean-power claim to when and where electricity is used. Even at its strictest, that requirement asks whether the clean energy could physically reach the consumer’s market in the same hour. Which substation the consumer depends on, whether that substation has a date, and who pays when it runs short of headroom stay outside its scope. Mezyan has covered what the hourly rule means for an artificial intelligence (AI) buyer’s emissions figures in its analysis of where a vendor’s data centre lands in the buyer’s Scope 3⁸; the point here is narrower and financial.

Clean claims and capacity risk belong in different registers

A company that files its PPA under “energy risk, mitigated” has merged two exposures. The PPA manages the carbon intensity and the price of the electricity it buys. The connection determines whether the capacity it plans to use exists on the date it needs it, and at what cost. A colocation contract for 2029 capacity in a facility that still holds only a queued connection carries delivery risk that sits beyond any certificate’s reach. A developer with a signed PPA and an unenergised connection carries a deposit in the tens of millions that sits outside its offtake contract. The two lines need separate owners in the risk register, separate evidence and separate questions from the board.

A four-question connection test turns location into a governance question

Mezyan’s working answer is a short test that any board, investor or procurement team can apply to a data centre exposure, whether it builds the facility or buys capacity inside one. Each question has a document behind it, which is what makes it auditable.

Exhibit 2

The connection test: four questions that sit outside a PPA

Question	What to ask for	What the answer shows
Where	The grid connection point and the planning zone it falls in	Whether the site sits behind a bottleneck or in the north, where NESO finds demand saves money
When	The contracted energisation date, and whether capacity is firm or conditional	Whether promised capacity exists on the date the business plan uses it
What is at stake	Security posted, milestone dates and the forfeiture triggers	The capital at risk until energisation, and what forfeits it
Who absorbs the constraint	Flexibility or curtailment terms, on-site supply and how they pass through to customers	Whose service degrades, and who pays, when the local network is stressed

For the developer’s board, the deposit is a capital decision with a clock

For a developer or an investor in one, the commitment fee converts a queue position into a balance-sheet item. At the top of the range, a 300 MW campus would secure £213.75 million at offer acceptance. Connection dates spread across the 2030s mean that security can sit posted for years, and the forfeiture triggers sit in the milestone plan: evidence of a compute customer, long-lead equipment orders, financing and technical readiness, each by a set date. A board approving a project in the queue is approving a contingent loss that depends on milestones its management controls only in part. The prudent model sizes the fee at 7.5 per cent, maps each forfeiture trigger to a named milestone owner, and tests the plan against a later energisation date. Ofgem’s proposal that a future fee change applies to the existing queue adds one more scenario to run: a top-up demand with a three-month window to post it or exit.

Location enters the same decision. A project in a zone NESO wants to fill and a project behind a southern bottleneck post the same fee per megawatt today, and they face very different odds of an early date and a smooth milestone path. The Strategic Spatial Energy Plan’s zones, published in draft in 2027, will put that difference on a map. Boards that place projects with the zones in view will hold queue positions that keep their value.

For the buyer of colocation and cloud capacity, location is a supplier risk

A company that buys capacity in a British facility sits downstream of the operator that posts the deposit. For that buyer the fee works through the supply chain: as proposed, it raises the cost of holding speculative capacity, puts projects that fail to evidence a customer at risk of losing their queue position, and favours operators whose sites sit in the right zones with firm dates. A buyer that signs for future capacity before asking where and when the facility connects is buying an option it has yet to value.

Swiss companies meet this as importers. The Federal Council reported in May 2026 that Swiss data centres used 2.1 terawatt-hours in 2024, about 3.6 per cent of national electricity⁹. Compute bought from cloud and colocation providers can run far outside that perimeter, under connection rules set elsewhere. A Swiss group whose AI or cloud roadmap depends on new British capacity inherits the British queue, whatever its renewable certificates say.

Today, the grid location of the capacity a company depends on sits outside the mandatory datapoints of the European Sustainability Reporting Standards (ESRS) and of Swiss climate disclosure rules. The question belongs where Mezyan argued climate risk belongs: in financial materiality. Mezyan’s analysis of Swiss under-reporting of climate transition risk¹⁰ found that this is the axis where disclosure most often falls short. Grid scarcity priced in capital is a transition risk in the plainest sense: a policy change in the energy system that moves cost and timing onto a company’s balance sheet. An assurance provider who asks how a company has assessed it will look for the four answers in Exhibit 2, documented, and for the evidence trail behind the figures¹¹.

Five moves this week put grid location on the board’s agenda

• Ask every colocation and cloud provider for the connection facts behind the capacity the company uses or has reserved: the grid zone, and whether the connection is energised, contracted firm or still queued, with the contracted date.
• Split power claims from capacity risk in the risk register. Give PPAs and certificates one line, owned by sustainability and procurement, and give connection and delivery risk a separate line, owned by the chief financial officer (CFO) or the chief information officer (CIO).
• Developers and data centre investors: model the commitment fee at 7.5 per cent and map every forfeiture trigger to a milestone owner and a date before Ofgem decides.
• Add the four questions to the transition-risk assessment in the double materiality work, and record the source document for each answer.
• Watch two dates: Ofgem’s decision, due later in 2026, which fixes the fee level and threshold, and the draft Strategic Spatial Energy Plan in 2027, which maps the zones.

The renewable contract answers what the electricity is made of. The connection answers whether the capacity arrives, when, and at whose risk. Mezyan maps both for boards and procurement teams, from the grid zone behind each data centre exposure to the evidence an assurance provider will ask for. Book a Mezyan review of where your compute physically connects and what your power claims cover.

This article has been reviewed by Haider Alleg, Managing Partner at Mezyan Foundation.

References

1. Ofgem. Proposed data centre connection reforms: Curate – Demand Connections Reform, consultation document, 29 July 2026. https://www.ofgem.gov.uk/sites/default/files/2026-07/Proposed-data-centre-connection-reforms-curate-consultation-document.pdf
2. Ofgem. Proposed data centre connection reforms, consultation page. https://www.ofgem.gov.uk/consultation/proposed-data-centre-connection-reforms
3. Ofgem. Ofgem acts to free up grid capacity by tackling speculative data centre projects, press release, 29 July 2026. https://www.ofgem.gov.uk/press-release/ofgem-acts-free-grid-capacity-tackling-speculative-data-centre-projects
4. Electricity System Operator (now NESO). Beyond 2030: A national blueprint for a decarbonised electricity system in Great Britain, 2024. https://www.neso.energy/document/315516/download
5. National Energy System Operator. Letter to the Economy, Tourism and Energy Committee, The Scottish Parliament, 25 September 2026. https://www.parliament.scot/-/media/files/committees/session-7/economy-tourism-and-energy-committee/correspondence/2026/national-energy-system-operator-followup-to-data-centres.pdf
6. Mezyan. Solar Passes Coal as Private Capital Floods Clean Energy. https://mezyan.ch/solar-passes-coal-private-capital-clean-energy/
7. Greenhouse Gas Protocol. GHG Protocol opens public consultations on Scope 2 and electricity-sector consequential accounting, 20 October 2025. https://ghgprotocol.org/blog/release-ghg-protocol-opens-public-consultations-scope-2-and-electricity-sector-consequential
8. Mezyan. Your AI Vendor’s Data Centre Lands in Your Scope 3, Not Theirs. https://mezyan.ch/ai-scope-3-emissions-vendor-data-centre/
9. Swiss Federal Council. Media release on data centre electricity consumption, 7 May 2026. https://www.admin.ch/de/newnsb/GV-_d7OgIlqjfQDGZqbkN
10. Mezyan. Swiss Companies Are Under-Reporting the Climate Transition Risk That Hits Their Balance Sheets. https://mezyan.ch/csrd-double-materiality-swiss-companies-transition-risk/
11. Mezyan. Five Questions That Pressure-Test Carbon Data Before a Buyer, Bank, or Auditor Does. https://mezyan.ch/verify-carbon-data-five-questions/