ESO faces uphill battle to cut connection queues

The UK’s grid connection queue is wildly overcrowded. There is now over to 340GW worth of projects – in various stages of development – waiting for a connection.

Aurora Energy analysts estimate the UK only needs a little over 200GW to hit its goal of net zero by 2035. But at present, the 2035 goal looks unachievable, not least because the waiting time for a grid connection is up to 15 years. Unless these waiting times are drastically reduced, the queue will delay decarbonisation, make more projects unviable for developers and raise costs for the consumer. 

Part of the problem is simply the sheer volume of new green energy projects eager to secure a grid connection. The regulator, the planning authorities and the UK’s physical grid infrastructure were never designed to handle hundreds of individual energy projects spread across the country. In July, the Local Government Association said there were 1,150 green energy projects that have received planning permission, but could not proceed because of the uncertainty around grid connections. 

The application system’s design has not helped. In fact, it has actively hindered progress. Of the hundreds of gigawatts in the connection queue, a significant volume consists of projects that are somewhere between poorly planned and simply unrealistic. Established renewable generators speak with frustration of finding their ready-to-progress developments blocked by such projects. “We had a 50MW project ready to proceed, but it was blocked by a two-man band battery developer that had been allocated 400MW of connection capacity even though they didn’t even have any land rights or planning permission,” says Harmony Energy CEO Peter Kavanagh.

To their credit, the authorities are well aware of the problems and are moving to fix them. In early 2023, the ESO announced a five-point plan to speed up the connection queue. Some of the solutions could have a real impact, others less so. Ofgem and the ESO agreed an amnesty that ran until April, during which projects could drop out of the queue without the usual charges. The ESO received less than 9GW of interest, which in a queue of almost 300GW has made little difference. The energy industry is unsurprised. In a world where developers have to wait 15 years for a grid connection, those in possession of one understandably see it as a valuable asset. Even developers who would prefer to drop out of the queue may opt to hold on in case they can trade the connection or be paid to hand it back. 

Learning the two-step

The ESO’s move to develop new contractual terms holds far more promise. Developers point out that any project applying at the distribution network operator (DNO) level requires a letter of authority from the relevant landower. Projects operating at the National Grid Transmission level, however, do not. “People are securing connections for huge projects and then they are trying to find landowners that will do business with them,” says Kavanagh. “It should be the other way around, because these projects aren’t going to be built quickly, which hurts the UK consumer and UK energy security.” 

Rather than simply handing out grid connections on a first-come first-served basis, the ESO has created a two-step process that requires successful applicants to provide updates on the planning process. Those that fail to make sufficient progress with planning and permitting will fall further back, making way for developers with a better chance of completion. The ESO says the first-step offers have been applied to new agreements since June, and the second-step offers will be made following studies by the Transmission Operators.

“The trouble is the queue is still pretty massive. It will prevent the situation from getting worse, but by itself it’s not enough to make things significantly better.” 

In addition, the ESO is updating its Construction Planning Assumptions (CPAs). Until recently, the CPAs assumed the great majority of connection applications would complete. This assumption is now totally inaccurate. In reality, only 30-40% of projects actually complete the connections process. Updating its CPA modelling will reduce the amount of transmission work needed, and bring forward connection dates. 

Ashutosh Padelkar, GB Research Associate at Aurora Energy Research, says the two-step process will work. “The trouble is the queue is still pretty massive,” he says. “It will prevent the situation from getting worse, but by itself it’s not enough to make things significantly better.” 

Many developers would like to see a far more stringent approach, where projects that cannot demonstrate that they have land rights should be moved off immediately. This is unlikely. But the ESO is hoping to change the contract framework – its Connection and Use of System Code (CUSC) – to give the ESO rights to terminate a project if it is not progressing or hitting certain milestones. The relevant proposal – code modification proposal 376 – is now with the Ofgem for approval. 

But even if approved, the ESO estimates it will take five years or more to insert these terms into new connection contracts and any existing contracts that opt for modification. This leaves a very large question mark over whether it would be practicable to amend older contracts, which account for the vast majority of the connection queue. Moves to re-write or renegotiate contracts could lead to industry pushback and legal complaints. That runs the risk of creating more bureaucracy and red tape, not less. Analysts suggest there is the possibility of paying developers to leave the queue, which could definitely help. But this would also likely require regulatory approval, and the creation of a system to carry out the process in the most efficient and cost effective way. 

This touches on a key aspect of the current situation – the need for real progress at real pace. “What we really need is implementation,” says Tom Faulkner, Head of Assets & Infrastructure and Networks at Cornwall Insights. “And if the measures being proposed require new policies or legislation, that needs to be done quickly because all these things take time”. 

The improvements 

Of the five points in the ESO plan, the amnesty is the least effective measure and the new two-step process the most effective. The other three measures are each likely to prove useful, but not transformational. The ESO is changing how it treats storage on the network. The old modelling assumed that battery storage assets are used 24/7 and would import energy during times of the most constraint. Modelling that reflects how storage is actually used will likely reduce the volume of physical infrastructure that needs to be built or upgraded. This is good news for storage assets, but flexible assets – including batteries – make up only around 60MW of the connection queue, according to Aurora analysts.

If the ESO’s five-point plan is implemented, 70% of pipeline projects that have a connection date after 2026 will be able to connect between two and 10 years earlier

More good news on the storage front comes in the shape of intermittent connections. This would allow storage assets to connect sooner, with the key caveat that this connection will be removed during periods of system stress – and without compensation. Developers say intermittent connections could be helpful, although there would need to be clarity in order to make sure intermittency does not render projects harder to fund.

If the measures that make up the ESO’s five-point plan are all implemented, the grid operator estimates that 70% of pipeline projects that have a connection date after 2026 will be able to connect between two and 10 years earlier. This is a wide band, and for developers the benefits of shaving successive years off their queue times are not linear. For many developers, the current 15 year wait is too long to plan project financing. Firms with sites where the waiting time is 15 years will often write the value down to zero. But a 12 or 13 year wait is similarly problematic from a financing perspective. Different developers have different risk profiles, and the UK is far from the only country where projects can wait a decade to be connected. But getting the wait time closer to five years should be the goal, says Kavanagh.

The ESO is also in the process of developing additional solutions in discussion with key stakeholders like DESNZ and Ofgem. As part of the ESO’s broader reform of the connections process, the operator published a consultation document in June laying out four potential Target Model Options (TMOs.) The ESO believes its preferred option – TMO4 – would reduce waiting times even further, allowing projects to connect “significantly earlier” than under just the five-point plan arrangement. 

TMO4 would see grid applications processed on a “batched basis” during a set time window, allowing the ESO to better take into account network design and associated investment when processing applications. This coordinated design process would lower costs, bring the transmission network’s environmental and community impacts to the fore and introduce innovation by facilitating competition in the design and delivery of related infrastructure. One of main reasons the ESO prefers TMO4 is that it fits with the grid operator’s shift to Holistic Network Design (HND) and its Centralised Strategic Network Plan (CSNP).

As the name implies, HND is a single, integrated design that will facilitate – among other things – the connection of 23GW of wind and deliver £5.5bn in consumer savings, according to the ESO. The CSNP, meanwhile, will ensure that the grid operator is strategic in planning and investing in the wider transmission network. The downside is that of all the options, TMO4 represents the biggest change from the current connection process and will take the most time and effort to implement. Once again, the issue of expediency rears its head.

There are many reasons to be optimistic with the authorities’ collective overall approach. The energy industry speaks approvingly of the ESO’s move to holistic design and strategic central planning. Ofgem’s Accelerated Strategic Transmission Investment (ASTI) framework, which aims to speed up the consenting and funding process for significant transmission infrastructure, also comes in for praise. The government’s Energy Bill will create a Future System Operator (FSO). This new body will be responsible for the planning of the nation’s electricity and gas systems, and ideally the systems for emerging technologies like green hydrogen and carbon capture. There is no doubt that the UK grid is being redesigned to reflect a greener and more flexible future. But time is a factor for decarbonisation and 2035 is only getting closer.