UK Plans Fees to Weed Out Speculative Data Center Projects

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(Bloomberg) — The UK’s energy regulator is proposing new rules to stop speculative data centers from clogging up the grid connection queue by requiring hefty upfront financial commitments and tougher project milestones.

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Ofgem’s proposals would require data center projects to provide “significant” fees or other financial guarantees, such as letters of credit, performance bonds or cash deposits, according to an emailed statement from the regulator. 

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Britain’s congested electricity grid has become a constraint on economic growth, the energy transition and the government’s artificial intelligence ambitions, and the proposal aims to ensure that only realistic projects with a firm intention to connect are given access to scarce network capacity.

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The proposed fee would range from £237,500 ($315,840) to £712,500 per megawatt, equivalent to about 2.5% to 7.5% of a project’s estimated capital expenditure. That means a 500-megawatt data center could be required to post financial security of up to £356 million, although the money would be returned if the project is completed and energized.

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“Where speculative projects take up space in the queue, they can delay other schemes and create uncertainty about future network needs,” said Ofgem’s Director for Energy System Design and Development Eleanor Warburton.

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The proposals are open for consultation until Sept. 16, with Ofgem aiming to take a final decision later this year. They would apply to both existing and future projects in the grid connection queue, although Ofgem has proposed exemptions for projects due to energize within six months of the rules taking effect, as well as grace periods for developers that already hold connection offers.

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The plans come after a surge in applications from power-hungry data centers has created a bottleneck that may delay investment and slow the rollout of new infrastructure. Forty of the 315 data center projects in the connection queue are seeking more than 500 megawatts each — equivalent to the demand of roughly two million homes, according to government estimates. Altogether, the projects are requesting 73 gigawatts of capacity, almost double the UK’s peak electricity demand.

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Under the proposal, only data centers seeking connections of at least 40 megawatts would be subject to the financial commitment, a threshold Ofgem says captures almost all of the capacity currently in the queue, while avoiding unnecessary burdens on smaller projects.

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(Updates with details about fees in fourth paragraph, quote in fifth paragraph and other details from sixth paragraph.)

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