Ofgem data centre crackdown risks ‘driving AI investors away’ from UK
Ofgem’s plans to crack down on speculative data centre projects have prompted warnings that new grid connection fees could make Britain a less attractive destination for AI investment, even as the industry backs efforts to clear stalled schemes from the queue.
The regulator has launched a consultation on proposals to free up electricity grid capacity by removing speculative data centre projects from the connections process, after applications for new connections surged from 41GW to 125GW in less than a year.
The plans include a refundable commitment fee of between £237,500 and £712,500 per MW for large data centres, alongside tougher requirements for developers to prove they have the funding and commercial progress needed to keep their place in the queue.
Matt Evans, chief operating officer and director of market programmes at techUK, told City PM that removing speculative projects was essential but warned the fees must not discourage genuine investment.
“Britain is in a global race to attract investment into our compute infrastructure,” he said. “Ofgem is right to want speculative applications out of the connections queue so that real projects can get connected faster.”
But Evans cited “a fine balance” between discouraging speculation and keeping Britain competitive.
“The cancellation fee levels on the table risk adding another cost to a market that already faces some of the highest electricity prices and slowest planning timelines in the developed world,” he said.
“We need a connections process that clears the queue of speculation, boosts our sovereign compute capacity and helps drive reindustrialisation rather than clearing the UK from investors’ shortlists.”
Calls for a ‘strategic approach’
Some 315 data centres projects account for at least 73GW in the current connections pipeline. But Ofgem is concerned that many schemes may never be built, delaying projects that are ready to connect.
City PM analysis earlier this year found more than 60 planning applications for new data centres were submitted across England and Wales in 2025, up 63 per cent on the previous year as developers rushed to capitalise on demand for AI computing power.
Charles Wood, deputy director of policy at Energy UK, said the reforms should help ensure grid capacity is reserved for projects most likely to go ahead.
“We can continue to be a global leader in AI and technology, but only through a strategic approach to ensure funding is directed to realistic projects that offer real growth potential,” he told City PM.
Yet grid constraints and rising construction costs have already slowed several schemes, while operators increasingly face long waits for electricity connections.
Earlier this month, one of the UK’s flagship AI infrastructure projects was forced to begin sourcing its own energy supplies after discovering it would not be granted grid connection in time for its eagerly anticipated opening.
Nscale, the British AI unicorn backed by Nvidia, is now looking beyond conventional electricity connections for its flagship £2bn data centre in Essex, City PM reported, after it discovered that grid delays meant would not have power by the time the project is completed.
The Essex facility, which Microsoft has signed up to as an anchor customer, forms part of the government’s push to establish Britain as a global AI infrastructure hub.
“The UK is in a global race for compute capacity,” Evans said, pointing to competition from markets across Europe, the Middle East and the US that are also offering land, power and incentives to hyperscale developers.
His warning comes as Britain faces growing pressure to keep pace with soaring global investment in AI infrastructure.
Amazon, Microsoft, Google and Meta are together expected to spend more than $700bn on AI infrastructure this year, with countries competing to attract a share of that investment.
At the same time, the industry’s rapid expansion has sparked growing political scrutiny. Government emissions forecasts for AI data centres were recently revised upwards by around 100-fold, while data centres now consume around six per cent of UK electricity.