Britain’s energy regulator, Ofgem, on Wednesday launched a consultation on a proposed commitment fee for data center projects as part of wider reforms intended to ensure network capacity is reserved for projects that are ready and able to connect.

The proposal would introduce a new Data Centre Commitment Fee, to be paid by large data center developments when they accept a connection offer, Ofgem said in a statement. The fee would be refunded once the project reaches grid connection status, but it would be forfeited if the project exits the grid queue early.

Ofgem said the fee would fall within a proposed range of £237,500 to £712,500 per megawatt (MW), equivalent to roughly 2.5% to 7.5% of average project costs.

“The proposals are aimed at tackling speculative projects from securing scarce network capacity without any firm intention to connect, ensuring the queue enables investment ready, viable projects,” Ofgem said.

The regulator said the idea of a commitment fee for data centers follows a surge in connection applications over the past two years, driven largely by demand from data center projects. That rise has added pressure to a queue that determines which projects can secure access to the grid, a step that is often essential before construction and operations can move forward.

“Ofgem is concerned that a significant number of projects in the queue may not ultimately proceed, potentially delaying viable developments and creating misleading signals about future network investment needs,” the regulator said.

Last year, Ofgem approved a $32 billion (£24 billion) investment program to maintain essential gas distribution networks and expand the power grid in a move designed to boost energy security and allow more renewables into the electricity system.

However, demand and applications for grid connections have climbed sharply over the past year, with much of the increase driven by planned data centers. The consultation is part of an effort to keep that process aligned with available network capacity as the system continues to manage competing connection requests.

“The connections system must work for consumers and for the projects that are ready to invest, build and connect,” said Eleanor Warburton, Ofgem’s Director for Energy System Design and Development.

“Where speculative projects take up space in the queue, they can delay other schemes and create uncertainty about future network needs,” she said.

By Tsvetana Paraskova for Oilprice.com