Ofgem’s proposed ITO licence: a catalyst for UK data centre growth?

By Jamie McAinsh, Chief Commercial Officer, Aurora Utilities

In June, Ofgem published proposals exploring the introduction of a new Independent Transmission Operator (ITO) licence. While the concept may sound technical, the implications could be significant for some of the UK’s fastest-growing sectors, particularly data centres, renewable energy projects, and the wider economy.

For developers facing long waits for transmission connections, the proposal raises an important question: could opening transmission delivery to greater competition do for data centres what Independent Distribution Network Operators (IDNOs) did for housing and commercial development two decades ago?

Understanding the ITO proposal

An Independent Transmission Operator would, in simple terms, perform a similar role at transmission level to that already carried out by IDNOs within distribution networks.

The easiest way to understand the distinction is through a road network analogy. Distribution networks are the A roads, B roads, and local roads that connect homes and businesses. Transmission networks are the motorways – the high-capacity infrastructure responsible for transporting large amounts of power across the country.

That distinction matters because many of today’s largest developments, particularly hyperscale data centres, no longer connect at distribution level. Their power requirements are so significant that they must connect directly to the transmission system.

The scale of the challenge is significant. According to Ofgem, the GB demand connections queue grew from 41GW in November 2024 to 125GW by June 2025, with data centres accounting for a substantial proportion of that increase.

As a result, developers are increasingly encountering lengthy connection times and growing uncertainty around project delivery.

The ITO proposal seeks to address this by introducing competition and private investment into parts of the transmission connection process, potentially creating additional routes to deliver critical infrastructure.

Why this feels familiar

The debate around ITOs echoes a challenge the UK has faced before. In the early 2000s, ambitious housing targets collided with grid connection constraints. Housebuilders argued that projects were being delayed because the existing distribution network operators simply could not process connections quickly enough.

The solution was the creation of the IDNO model.

By allowing accredited independent providers to own and operate electricity networks, the market introduced competition into a previously monopolised area. The result was a sector focused on delivering projects efficiently, coordinating stakeholders effectively, and bringing developments through to energisation with greater certainty.

Twenty years ago, competition at distribution level helped unlock housing development by introducing new delivery capability into the market. Today, the UK faces a comparable challenge at transmission level, with rapidly growing demand from data centres, AI infrastructure, and renewable energy projects testing the capacity of existing delivery models.

Today, the pressure is coming from a different source. Instead of housing developments, it is large-scale data centres and renewable energy projects seeking access to transmission capacity.

What could an ITO license mean for data centre developers?

For data centre developers, the potential benefits are clear.

Many projects are now transmission-connected by necessity. However, the limited number of transmission operators means resources are stretched, and connection delivery is competing with a wide range of other priorities.

An ITO model could create additional delivery capability, bringing private capital, specialist expertise, and stronger incentives to  coordinate projects efficiently and overcome delivery challenges that might otherwise delay energisation.

While it would not create additional network capacity in itself, it could improve delivery certainty by increasing the industry’s ability to bring strategically important projects through to connection.

This is particularly important as the UK competes globally for investment from hyperscalers and AI infrastructure providers, where investors increasingly value confidence in connection delivery as highly as the connection date itself.

The issue has become so acute that the UK Government recently proposed prioritising strategically important projects such as AI data centres after demand for transmission connections increased by 460% in just six months.

In that context, the proposed licence is about more than network regulation. It is increasingly becoming a question of economic competitiveness.

The IDNO precedent

The proposal points to the success of the IDNO model as evidence that competition can deliver positive outcomes without compromising standards.

According to the Independent Networks Association (INA), IDNOs now serve around 1.5 million customers across Great Britain. Research commissioned by the INA and undertaken by the London School of Economics found that around 90% of new electricity connections are now facilitated by IDNOs, demonstrating how competition has become the established delivery model for new electricity infrastructure rather than the exception.

The model has expanded well beyond residential developments into industrial and commercial schemes, EV charging infrastructure, and data centre projects.

The underlying principle is straightforward:  organisations whose commercial incentives are aligned with successful project delivery tend to coordinate stakeholders effectively, resolve delivery challenges more quickly, and maintain a strong focus on achieving energisation as efficiently as possible.

The argument is that if a similar framework can be successfully replicated at transmission level, it could unlock more projects, attract more investment, and support wider economic growth.

With any significant reform comes understandable caution. However, it is worth considering that any future players introduced through an ITO regime would still operate within a highly regulated environment.

Technical specifications, engineering standards, and Ofgem oversight would remain firmly in place. Robust regulatory guardrails would ensure that safety, performance, and network resilience remain paramount.

If we stay where we are, the risk is that the UK loses investment to international markets. Some projects are already being offered connection dates stretching into the 2030s as connection queues become increasingly congested, creating a growing risk that global investment will be directed elsewhere.

The UK already has a blueprint for transmission competition

The proposal remains at an early stage and significant work must be carried out before any licence could be implemented. Legislative changes, regulatory frameworks, and industry consultation will all be required.

However, there are positive signals that this can be done successfully. The UK has already demonstrated that transmission infrastructure can be built, owned, and operated successfully by parties other than the incumbent transmission operators. The proposed ITO model would not be entering completely uncharted territory. Alongside the well-established Offshore Transmission Owner (OFTO) regime, Ofgem has also developed the Competitively Appointed Transmission Owner (CATO) framework for certain new onshore transmission assets, reinforcing the principle that competition can successfully play a role within transmission infrastructure.

The OFTO regime was introduced in 2009 specifically to introduce competition into transmission infrastructure delivery and ownership, attracting private capital while reducing costs for consumers. Government reviews have subsequently concluded that the regime remains the most cost-effective approach to delivering offshore transmission infrastructure.

When an offshore wind farm is built, the developer typically constructs the transmission assets needed to bring electricity from the wind farm to shore. Once operational, those transmission assets are sold to an independent, licensed OFTO, which then owns, operates, and maintains them for the long term.

The proposed ITO model would not be identical to OFTOs, but it follows a similar principle: opening parts of transmission delivery to independent organisations while retaining strong regulatory oversight. While the circumstances are different, the OFTO model demonstrates that competition and independent ownership can operate successfully within critical transmission infrastructure.

While the OFTO regime applies to offshore assets, the principle of introducing competition into transmission infrastructure has also been explored onshore through the CATO regime., CATOs were designed to allow independently licensed organisations to competitively bid to build, own, and operate certain new, high-value onshore transmission projects where this could deliver better value for consumers. The proposed ITO model would not be identical to either OFTOs or CATOs, but it follows the same underlying principle: opening parts of transmission delivery to independent organisations while retaining robust regulatory oversight.

Together, these existing models demonstrate that competition within critical electricity infrastructure is not a new concept, but an established approach that can attract private investment, increase delivery capability, and support better outcomes for consumers.

Looking five years ahead, the opportunity could be substantial.

Ofgem has indicated that around 50GW of data centre demand is currently seeking grid connections across Great Britain, illustrating the scale of infrastructure challenge that will need to be addressed if the UK is to realise its AI and digital growth ambitions.

Achieving that goal will require not only additional generation capacity, but also a transmission system capable of  providing greater certainty over how and when strategically important projects will be delivered. Expanding the routes to market for transmission infrastructure could become an important part of achieving that certainty.

If competition transformed the delivery of new distribution networks over the past two decades, Ofgem’s proposed ITO licence raises the possibility that the same principles could now strengthen Britain’s transmission network; improving delivery certainty for the strategically important infrastructure on which future economic growth depends.

For developers waiting for critical connections, that prospect will be watched very closely indeed.

….

The author, Jamie McAinsh, participated in Ofgem’s industry working group on the proposed ITO framework as a representative of members of the Independent Networks Association (INA), contributing industry perspectives throughout the consultation process.