The UK Grid’s Data Centre Queue: Nick Curum Questions Ofgem’s Proposed Solution

In a recent LinkedIn post, Nick Curum discusses the significant backlog of data centre projects seeking grid connections in Britain and analyzes the effectiveness of proposed solutions by Ofgem, the UK’s energy regulator. Curum highlights a critical imbalance between the capacity queued for Britain’s electricity grid and the nation’s peak demand, pointing out that a substantial portion of this queued capacity is speculative rather than representing immediate, confirmed demand.

Curum’s analysis begins by laying out the stark figures: “73 GW is queued for Britain’s grid. The whole country peaks at 45 GW.” He further elaborates on the nature of this queue, stating:

“315 data centre projects are holding that capacity, from 1 MW to 1,500 MW each. Holding a place has been close to free. So it has been held the way anything free gets held: heavily, and just in case.”

The post details how Ofgem’s own data indicates that a significant portion of these projects, as of a February reading, had not yet reached a final investment decision, suggesting that much of the queue represents optionality rather than concrete demand.

Ofgem’s Proposed Commitment Fee: A Double-Edged Sword?

To address the issue of speculative projects clogging the grid connection queue, Ofgem has proposed a commitment fee for developers. This fee ranges from approximately £237,500 to £712,500 per MW, which Curum notes represents roughly 2.5% to 7.5% of a project’s total cost.

However, Curum argues that this proposed fee may inadvertently create new challenges, particularly for smaller players in the industry. He posits:

“A hyperscaler can carry 7.5%. A 20 MW independent cannot.”

This observation suggests that the fee, intended to filter out speculative applications, might disproportionately penalize smaller, independent data centre operators who may not have the financial scale of hyperscale providers. According to Curum, the fee mechanism might be more effective at distinguishing between large and small projects than at separating genuine demand from speculative interest.

Concentration Risk and the Boardroom Parallel

Curum warns that the proposed solution could lead to a more concentrated queue, where a smaller number of larger projects remain. He suggests that this concentration itself could introduce new, unaddressed risks.

Drawing a parallel to common corporate practices, Curum relates the grid queue issue to how many company boards manage projects. “Most boards run a smaller version of this,” he writes. “Approved projects nobody has started, holding budget, costing nothing to keep.” This analogy underscores the behavioral aspect of resource allocation, where the absence of a cost for holding onto an option can lead to its indefinite reservation.

The core of Curum’s critique is that the proposed fee does not adequately address the fundamental issue of why these projects are held speculatively in the first place. He poses a rhetorical question to his audience: “Where have you seen a queue only start moving once holding a place cost something?” This prompts reflection on the efficacy of financial disincentives when the cost of inaction is perceived as zero or negligible.

Curum concludes by noting that the consultation period for Ofgem’s proposal closes on September 16th, encouraging readers to consider these points for their own capital allocation and portfolio management decisions. He also promotes his own work on how boards make decisions, linking to his external content.