Availability of Electricity Network Connections: Update on Key Reforms and Initiatives

The scarcity of electricity grid connection capacity available in areas across Great Britain (and beyond) is fast rising to the top of the agenda for businesses across a broad range of sectors. The findings of the Electricity Networks Commissioner, appointed by the Government to report on these challenges, have recently been published. This has come on top of a very wide range of other shorter and longer term initiatives seeking to tackle various aspects of the issue of grid capacity. In this Law-Now we bring together a summary of the Electricity Networks Commissioner’s key recommendations and a roadmap of the key elements of these other initiatives. Clearly the next step in this process will involve a coordinated response to this and, amongst others, this will include the implementation plan that NGESO intends to develop and publish by November 2023.

Background

There has been a huge increase in the total amounts of electrical capacity for which electricity network operators have received connection applications in recent years, with costs and lead times for new and modified connections spiralling as a result. It is now common for developers seeking new or modified network connections to face lead times of more than five years, and, in some areas, more than ten. Among the issues this brings across a huge range of power consuming and power generating/exporting sectors, constraints on electricity network infrastructure have been identified as one of the most challenging obstacles to the realisation of the UK’s 2050 net zero ambitions, with many crucial decarbonisation objectives being reliant on significant further growth in grid connections.

In light of the urgency and importance of the issue, the Government appointed an Electricity Networks Commissioner (the “ENC”) – Nick Winser – in July 2022 with a view to finding ways to accelerate the delivery of critical electricity network infrastructure. An overview of the ENC’s findings, and a detailed supporting report produced by the Energy Systems Catapult (together the “ENC Report”), was published by the Government on 4 August 2023, together with a Government response. The network planning, consenting and land rights aspects of the ENC Report have been discussed in a separate recent Law-Now article. In the second section of this article, we consider some of the key regulatory measures proposed in the ENC Report.

More broadly, a range of actions are already in train within the energy industry with a view to mitigating grid capacity shortages –the key initiatives are summarised in the Appendix to this article.

Finally, and by way of further overlay, in its May 2023 open letter on electricity connection reform (the “Ofgem Open Letter”), in addition to expressing its support for a number of these shorter-term initiatives, Ofgem also notes the need to go further, and contemplates some more radical measures that could be pursued later down the line. In a similar vein, National Grid Electricity System Operator Limited (“NGESO”) published a consultation (the “NGESO Consultation”) on 13 June 2023 with respect to options for the design of the electricity transmission connections regime going forward. We discuss these two aspects in the third section of this article. 

The actions and reforms needed to address electricity network challenges span a wide range of subject matter. By way of a “map” to situate all the relevant initiatives and proposals within their broader context, the three areas where interventions are needed have been categorised by Ofgem in the following way:

1. Strategic network investment – The scale of the increase in requirements for grid connection capacity will inevitably necessitate substantial reinforcement and extension of the electricity networks.
2. Efficient and flexible network management – At the same time, network operators will need to make the most of existing electricity network infrastructure, e.g. via procurement of ancillary services to manage constraints.
3. Fit for the future connections process – The existing first come first serve “connection queue” policies of network operators have sometimes incentivised speculative connection applications, and a situation in which a significant proportion of developments with respect to which contractual grid connection arrangements are entered into ultimately do not progress. Ofgem and industry are looking at ways to move away from this existing “first come first served” orthodoxy towards a connections regime that is more responsive to current pressures. 

The recommendations in the ENC Report largely relate to the first of these categories, whereas the focus of both the Ofgem Open Letter and the NGESO Consultation is largely on the third category.

Network investment – ENC Report

The ENC was asked to investigate and report on how to accelerate the UK’s deployment of strategic electricity transmission infrastructure, in the context of a delivery process that currently routinely takes twelve to fourteen years (from identifying the need for new infrastructure through to building and commissioning it). The approach taken by the ENC to assess and find potential efficiencies in this process, in consultation with stakeholders at each stage, included: (1) process mapping and identification of areas for improvement; and (2) understanding the minimum time required for each stage of the process. This enabled the ENC to sketch out a new notional delivery process with a total end-to-end delivery time of seven years. We briefly consider below some of the key measures proposed in the ENC Report for achieving this streamlined delivery process.

Network planning, design and consenting

The ENC Report places a strong focus on centralised planning, with a key role to be played by the Future System Operator (“FSO”) that is expected to be established under the Energy Bill (that is, at the time of writing, making its way through Parliament). It is proposed that a new overarching Strategic Spatial Energy Plan (“SSEP”), implementing Government policy and taking a system-wide view across energy vectors, should be created to provide a reference point for sector-specific network plans, including the Centralised Strategic Network Plan (“CSNP”) (see row 4 of the table in the Appendix).

The ENC Report also proposes:

• the development of standard Electricity Transmission Design Principles (“ETDP”), and an automated corridor routing process (using the ETDP), to help to streamline the design and consultation phases of network infrastructure delivery;
• certain substantial reforms to the planning and land rights environment for transmission network operators (building on initiatives referred to in row 5 of the table in the Appendix); and
• standardisation of community benefits.

More details on these aspects are provided in our recent Law-Now article on the network planning, consenting and land rights aspects of the ENC Report.

Role of the regulator

The ENC Report proposes that regulatory approval should be removed from the critical path for the delivery of new connection infrastructure. While Ofgem had proposed in the Ofgem Open Letter that ongoing updates to its electricity transmission network price controls, including the introduction of the Accelerating Strategic Transmission Investment (“ASTI”) regime (see row 1 of the table in the Appendix), should lay the necessary groundwork for effective anticipatory investment by transmission licensees, the ENC calls for further and faster progress.

The ENC Report envisages that Ofgem will be involved in the development and approval of a number other stages in the network infrastructure delivery process, including the SSEP, CSNP and ETDP. This will in turn remove the need for Ofgem to “reinvent the wheel” in its regulatory approval process on aspects that have already been determined at these earlier stages. The ENC Report anticipates that this change in regulatory approach could reduce the lead time for the development of network infrastructure by up to a year.

It will be interesting to see how Ofgem responds to this proposal, given the need to balance its various duties e.g. its duties to protect the interests of consumers in its administration of network price controls, and how this will balance with the proposed net zero objectives.

Onshore transmission contestability

The ENC Report advocates caution in rolling out proposed regimes to extend the circumstances in which parties other than licensed transmission network operators can provide electricity transmission network infrastructure (see row 2 of the table in the Appendix). It is suggested that any such proposals should be delivered in phases (firstly applied in relation to offshore projects, and subsequently onshore projects), with each phase not to commence until a set criterion (established by Government) is reached.

One rationale provided for this view is that licensed monopolies will need to retain their existing roles in order for the energy system to see the benefits of the measures proposed in the ENC Report. Long-term agreements and scale are likely to be important in dealing with the substantial current pressures on global supply chains for transmission equipment and shortages in personnel with necessary engineering and technical skills. It is envisaged that it will be more appropriate to introduce greater contestability in transmission network infrastructure as these pressures ease.

The suggestion to delay harnessing the full potential of the transmission network competition regime provided in the Energy Bill may represent an interesting divergence from the direction of Government policy proposals to date.

Data sharing

A range of spatial, environmental, economic, social, technical, and commercial data that will be critical to enabling the transmission infrastructure delivery process is collected by numerous individual parties, without routine sharing (for example due to commercial sensitivity). The ENC Report notes that this is resulting in duplication of collection efforts, maintenance, governance, and risk of inconsistency. Recommendations in this regard in the ENC Report include the instigation of coordinated data sharing across the industry, with the FSO taking a lead role, and the establishment of necessary governance mechanisms, platforms, tools, obligations, processes and practices.

Participants across the energy value chain have for many years been calling for increased visibility of the nature and extent of the assets connected to the transmission and distribution networks and the areas with greater availability of connection capacity (see row 14 of the table in the Appendix). The ENC Report may prove an effective catalyst in driving forward the adoption of vital comprehensive databases and systems.

Other recommendations

Other proposals set out in the ENC Report include:

• the establishment of governance bodies, including an Energy System Delivery Board and a Change Management Committee, to drive forward progress on the recommendations in the ENC Report;
• review of the existing arrangements for transmission outage planning; and
• expedited conclusion of Ofgem’s Future Systems and Network Regulation consultation.

DESNZ Response to ENC Report

In a response letter published alongside the ENC Report, DESNZ welcomed and highlighted the recommendations for industry, acknowledged that the direction of the ENC Report is broadly in line with the approach being taken by Government, and confirmed that it will target the “specific priority areas” outlined in the ENC Report for focus in the immediate term. DESNZ has committed to publishing an Action Plan this year in response to the recommendations of the ENC Report.

Longer-term proposals on network connections – Ofgem Open Letter and NGESO Consultation

In addition to showing support for existing industry initiatives (as summarised in the Appendix), the Ofgem Open Letter sketched out options for longer-term electricity connections reform, ranging from incremental to radical in nature. While Ofgem envisages that any change in approach would be by way of gradual steps, it is worth noting that the ultimate outcomes contemplated by Ofgem (which could be implemented alone or in combination) are very different from the “connection queue” approach in place today, and include:

• A gated process whereby applicants must (at one or more stages) meet certain substantive criteria (such as obtainment of planning consent) in order to qualify for a connection offer, or for a full connection offer.
• An application window process (at one or more stages) such that connection applications can be submitted only within the relevant window.
• A market-based auction or trading process by which queue position can be allocated (rather than a simple first-come-first-served mechanism).
• At the most extreme end, a centrally planned approach whereby an appropriate allocation body designates the capacity available in each area for each type of project based on system and/or societal need, and seeks suitable project developers to connect accordingly.

A number of these options are also considered in the NGESO Consultation. NGESO is minded to adopt a two-gate approach, with the first gate passed via an annual application window and the condition for passing the second gate being submission to NGESO of a copy of appropriate awarded planning consent. A “backstop” connection date would be provided in the applicant’s connection offer after the first gate, but the applicant can improve on this by reaching the second gate faster than other applicants. While administratively complex to implement, NGESO sees the advantages of an approach of this kind as including the facilitation of efficient anticipatory investment and for NGESO overall the simplification of managing the allocation of connection offers. However, it remains to be seen how the additional time, complexity and inflexibility associated with a two-gate process with an initial application window will be viewed by connection applicants.

Gated processes are familiar to students of renewable subsidy regimes over the years, which even when awarded at an early stage, tend to have eligibility requirements before a project can apply.  An inevitable discussion point in this area – which would certainly be relevant to access to connection offers – is the level of investment/barrier to entry that the relevant gating would create. Given such investment would inherently need to be conducted without a secured connection offer, the risk factors created by this chicken and egg situation will be an area of scrutiny.

Both Ofgem and NGESO acknowledge that there is a great degree of uncertainty on the most appropriate longer-term direction for connections reform, and any proposals will need to align with wider energy sector reforms occurring in parallel, such as the Government’s Review of Electricity Market Arrangements (known as REMA) (see our previous article on this here) and the introduction of the FSO.

For example, the Energy Bill envisages that the statutory duties of the FSO will be wider-ranging than the equivalent existing statutory duty of electricity transmission network operators to develop and operate an economic and efficient system. It is envisaged that the FSO’s duties will include a duty to promote the achievement of the Government’s statutory target to achieve net zero by 2050. Since it is envisaged that the FSO will take over from NGESO the role of contracting party under electricity transmission connection arrangements, it will be interesting to see the knock on impacts that such changes to the fundamental building blocks that dictate how NGESO/the FSO are required to behave might have on the manner in which it feels it should allocate connections going forward.

Ultimately, the extent to which any degree of tinkering with the connection queue regimes, no matter how radical, will actually relieve the lead time issues experienced by connection applicants remains to be seen. At a certain point, if demand in an area outstrips supply by a great enough margin, network reinforcement will still surely be inevitable. The question is whether any amendments of this kind to connection queue regimes will relieve pressure on network operators enough that they can keep up with demand for network development.

Next steps

NGESO now intends to develop an implementation plan in light of the NGESO Consultation responses, to be published by November 2023.

As anticipated in the Powering-Up Britain policy package (see our previous article on this here), the Ofgem Open Letter notes that Ofgem has commenced collaboration with the Government on developing a joint action plan on electricity connection reforms. In its response to the ENC Report, as mentioned above DESNZ noted its intention to publish this Action Plan before the end of 2023. It is anticipated that this action plan will review and build on existing industry initiatives and sketch out some of the longer-term proposals and recommendations considered above in greater detail.

DESNZ has also resolved to consider options for the sorts of governance bodies contemplated in the ENC Report to drive forward recommended measures therein.

APPENDIX

Progress to date and shorter-term initiatives

The Government and Ofgem jointly published an Electricity Networks Strategic Framework paper in August 2022 (see our previous article on this here). Since then:

• NGESO, through initiatives including its five-point plan on transmission connection reform (see our previous article on this here); and
• network operators more broadly, via their industry body, the Energy Networks Association (“ENA”), through initiatives including its action plan on improving and accelerating customer connections, 

have been driving key industry initiatives in the connections reform space to date such as improved connections queue management and enhanced network modelling assumptions. Meanwhile, Ofgem has led reforms in the contexts of investment and flexibility.

In the table below, we collate some of the most important existing workstreams on improving access to electricity network capacity and briefly indicate their current status.

The initiatives summarised here have been loosely grouped against Ofgem’s three categories described in the Background section - though of course there are some overlaps between the measures and the categories.

Article co-authored by Kate Merrill, Trainee Solicitor at CMS