The Data Centre Covenant: strategic status as a route to grid capacity

The UK Government's new Data Centre Covenant, announced during the Chancellor’s Budget on 28 October 2026, targets 6 GW of AI data-centre capacity by 2030 and sets expectations for developers across five pillars: the energy system (credible capacity requests and bearing attributable system costs), community benefits (a Local Benefit Plan additional to section 106 and CIL), environmental performance (PUE of 1.3 or better and limited use of public water), jobs and supply chains, and security and resilience. In return, data centres that demonstrate sufficient strategic importance may receive targeted Government help to overcome development barriers, above all grid-connection constraints. This briefing focuses on that grid-connection offer and what it means for developers.

Grid connections: the key development

The most significant aspect for developers is the link between so-called “strategic status” and access to sought after electricity capacity. A new Ministerial Control Centre, chaired by the Minister for AI, will consider support for strategically important developments. Potential interventions include:

• Reservation and reallocation of capacity: reserving future network capacity and reallocating capacity released by projects exiting the connections queue. Released capacity may therefore not simply pass to the next project through the ordinary process. It remains to be seen how this reservation and reallocation process will interact with the ongoing Gate 2 to Whole Queue Process run by NESO, and how projects currently in development will be treated should their own development timelines slip. This will be particularly important for projects already holding contracted capacity. A connection position is rarely static: developers may need to satisfy development milestones, maintain planning and land rights, provide credit support and comply with changing network requirements in order to preserve it. Strategic status should therefore be viewed as a potential additional route to capacity, not as a substitute for protecting existing contractual rights and maintaining underlying project readiness.
• Pre-2030 capacity: working with NESO and network companies to identify capacity capable of supporting data-centre development before 2030. Developers should, however, distinguish between a headline connection date or contracted capacity and power that is genuinely available for use. Connections can be phased, with import capacity ramping over several years, and energisation may remain conditional on upstream transmission headroom, project progression, network reinforcement, outages, land rights, consents and completion of both developer and network works. An earlier connection date therefore does not necessarily mean that the project's full ultimate load will be available from day one.
• Transfer of connection contracts: supporting the transfer of pre-2030 data-centre connection contracts to strategically important projects. Existing agreements contain site-specific technical, commercial and liability terms, so any mechanism will need to fit within, or modify, the existing contractual and regulatory architecture. In practice, "transfer" may be considerably more complicated than transferring a reservation of megawatts, and the position of the existing connection contract holder will also need to be considered. Connection arrangements can comprise multiple interdependent agreements governing construction, connection, network use, credit support and termination liability, and may be tied to a particular site, point of connection and network design. The implementing mechanism will therefore need to address whether Government means contractual novation, transfer of capacity within the existing connection framework or some new form of regulatory reallocation. Holders of valuable early connection dates should monitor this closely.
• Temporary on-site generation: facilitating temporary on-site generation where a strategic project cannot connect quickly enough. This raises questions of technology and fuel, environmental permitting, planning, licensing exemptions, private-wire structures, the interface with the eventual grid connection and allocation of power-supply risk. Developers will also need to consider whether temporary generation can meet the resilience and availability standards required of the facility in practice. For hyperscale developments, an on-site solution may therefore need to operate alongside battery storage, UPS systems and ultimately grid supply rather than simply replacing the grid during the interim period.
• Developer self-build: greater ability to self-build connection infrastructure, offering more control over programme and procurement. The practical benefit will depend heavily on exactly where Government draws the contestability boundary. Under existing distribution arrangements, developers can already procure independent connection providers to undertake certain contestable works, whereas non-contestable activities remain with the regulated network operator. Self-build can therefore move some delivery risk away from the network operator, but it does not necessarily remove the network operator as a programme dependency: design approval, outages, commissioning, adoption and final energisation may still sit outside the developer's direct control. At transmission level, the proposed reforms potentially raise more fundamental questions around who can construct, own and operate high-voltage connection assets and under what licensing or exemption arrangements. 

Flexible connections and queue reform

The Covenant supports further development of flexible connection arrangements and "backstop operational control measures", which could allow additional demand onto constrained networks where data centre operators accept restrictions or interruption under defined conditions. This raises a fundamental commercial question: is an earlier but non-firm connection worth more than waiting several years for firm capacity? The answer will turn on the level and duration of curtailment, customer availability commitments, UPS and battery capability, on-site generation, workload flexibility, procurement arrangements and the timetable for conversion to firm capacity. That assessment also needs to flow through the project's contractual suite. If network access can be curtailed, developers will need to understand whether that risk is consistent with customer availability commitments and, where relevant, financing assumptions, rather than simply accepting an earlier connection in isolation.

The Covenant also supports Ofgem's proposed data-centre commitment fee and associated queue-management measures, designed to discourage speculative requests. The direction of travel is clear: developers requesting very large amounts of capacity will need to show that their projects are credible, deliverable and economically or strategically valuable.

The unanswered question: what is a "strategic data centre"?

Government has not yet precisely defined a "strategic data centre" or published the full eligibility criteria. Compliance with the general Covenant requirements does not currently confer any entitlement to an accelerated connection. Key points to watch include:

• the definition of strategic status and whether capacity or investment thresholds apply;
• the weight given to AI and sovereign compute;
• how deliverability and connection maturity will be assessed;
• who determines strategic status, and whether designation is project, operator or site-specific; and
• whether benefits remain discretionary or become embedded in formal planning and network processes.

What about projects already in development?

The Covenant does not appear, of itself, to reopen existing planning permissions or retrospectively rewrite existing connection agreements. However, developers already in the pipeline should not assume that the new regime is irrelevant to them. The Government expressly contemplates reallocating capacity and supporting the transfer of existing pre-2030 connection contracts, while the Covenant's enhanced requirements are the gateway to additional Government intervention for strategic projects. Existing projects may therefore have both an opportunity and a risk: the opportunity to seek strategic status or an accelerated route to power, and the need to understand how new capacity-allocation measures could interact with existing connection positions. Much will depend on the transitional arrangements and the forthcoming criteria for strategic status.

Key regulatory questions

Significant implementation detail remains outstanding, including how preferential reallocation will operate alongside the NESO connections framework; whether contract transfers will involve novation, reassignment of capacity or a separate allocation mechanism; whether designation can alter queue priority; the level, triggers and security requirements of commitment fees and their treatment of phased projects; the operational restrictions attached to flexible connections; which assets developers may self-build and on what adoption terms; and whether designation will create an enforceable route to assistance.

Comment

The Covenant recognises that access to reliable electricity capacity has become one of the principal constraints on data-centre investment. Its real significance lies less in its environmental and community standards than in the bargain behind them: projects demonstrating genuine strategic importance, deliverability and public benefit may in theory receive significantly greater help in obtaining the power and consents they need.
For developers with large existing connection positions, or those planning campuses of several hundred megawatts, the immediate priority is to protect existing connection positions, understand precisely what capacity is actually deliverable and when, and in parallel build the strongest possible case for strategic status. The winners may not simply be those with the earliest connection date, but those able to demonstrate both strategic value and credible delivery of the development behind the capacity request.

We will continue to monitor the forthcoming eligibility criteria and implementing mechanisms.

For further information, please contact a member of the Eversheds Sutherland Energy and Infrastructure team.