The Energy Transition | Ofgem publishes non-confidential responses to "first ready, first connected" connection proposals

This week we look at Ofgem's publication of industry responses to the ESO's connection reform proposals, the suggestion of innovation "way points" from electricity network operators, the government's £557 million investment into greener public buildings, and more.

Ofgem publishes non-confidential responses to "first ready, first connected" connection proposals

As reported previously, Ofgem has endorsed the Electricity System Operator's (ESO) proposed extensions to its proposed 'first ready, first connected' reforms to address the growing bottleneck in the grid connections queue, and invited views from stakeholders on the proposals. Ofgem has now published non-confidential responses to that request, which demonstrate concerns raised by both UK Power Networks (UKPN) and National Grid Electricity Distribution (NGED) about the legal ramifications of applying retrospective changes to the connections process.

The retrospective application of the ESO's 'first ready, first connected' approach to grid connections (which we have reported on here) has been seen as a welcome advancement, given the consensus on the need for urgent reform of the connections process. However, distribution network operators UKPN and NGED have highlighted the need for clarification on the legal implications of the reforms on projects which have an existing place in the connections queue.

UKPN has called for a "thorough review of the legal implications… of retrospective application to existing connection agreements" before the planned implementation of the reforms in January 2025. Similarly, NGED has suggested that legislative and regulatory changes may be needed to "mitigate the risk associated with the proposal". In their submissions to Ofgem's call for views on the ESO's proposals, both organisations recognised that a "key part of unlocking the benefits of [the] proposal rely on applying the new rules retrospectively". They did however emphasise that the possibility of legal challenges from stakeholders invested in projects which find their indicative connection date pushed back could scupper the ESO's ambitious plans. Such challenges could be contractual via an appeal to the Competition and Markets Authority, or by application for judicial review.

Ofgem has continued to call on all interested stakeholders to share their thoughts on the planned reforms with the ESO, and to engage with the code modification process in the coming months.

Electricity network operators announce innovation "way points" for achieving decarbonisation milestones

Electricity network operators have advocated the wider use of electricity storage facilities, greater cross-sector data sharing, and the creation of a strategic planning body for high energy users as "way points" for energy innovation. These suggestions are intended to help to enable the UK to reach its decarbonised energy grid and net zero targets.

The focus areas were raised within the Energy Network Association's (ENA) most recent Innovation Strategy Update, which sought the views of over 300 industry representatives and wider stakeholders.

Key findings from the report and focuses for future innovation include the need for:

• An agreement between regulators and energy network operators on a clear regulatory definition of energy storage to allow operators to own and operate storage to better meet flexibility demands, with a proposed target of 2034. Under the current system, operators are unable to leverage storage largely due to concerns around a potential conflict of interest.
• Improved data sharing between operators and other service providers across different sectors, to enable a whole systems approach to decarbonisation. Proposed measures include the development of new teams within networks and the potential anonymisation of data sharing across the energy sector by 2030.
• The creation of a strategic planning body for high energy users by 2028 to address the rapidly expanding and diverging physical infrastructure, such as industrial centres for hydrogen and the electrification of former gas facilities. The report recommends that an adaptive planning body be set up to accommodate the variation within the energy network.
• Increasing market access for smaller innovative businesses, including facilitating funding options, to improve innovation in the industry more widely.

Dan Clarke, head of innovation at ENA, said: “Exploring the timeline to 2050 reveals long lead times for commercialising innovative solutions and the large amounts of investment that infrastructure development requires…This means that we need to be sure we are pursuing the right innovative solutions and technologies today to ensure our energy networks are suited to tomorrow’s challenges."

£557 million government investment into greener public buildings

The government has announced an investment of £530 million to support schools, hospitals and other public buildings in increasing carbon heating and energy efficiency. Businesses with high energy use will also receive £27.5 million to support curtailing energy bills and carbon emissions.

The funding will allow heat pumps, solar panels and insulation to be installed to aid the reduction of fossil fuel use as part of the estimated £650 million annual saving for taxpayers as a result of net zero progress to 2037.

More than 1000 projects have received funding so far as part of the Public Sector Decarbonisation Scheme, including Royal United Hospitals Bath NHS Foundation Trust which received £21 million to install heat pumps, insulation, double glazing and LED lighting. We have previously reported on the Public Sector Decarbonisation Scheme here.

The announcement of the £27.5 million award for carbon intensive businesses forms part of the Industrial Energy Transformation Fund and aims to help businesses reduce their carbon emissions. One of the businesses receiving this funding is Pilkington UK, who will use the funds to relocate it glass manufacturing line, so that it only produces glass from one furnace, rather than two.

Minister for Energy Efficiency and Green Finance, Lord Callanan, said: "[b]y allocating over £557 million today, we are standing steadfast behind our public sector and local businesses, providing the help they need to make the switch to cleaner, homegrown energy."

Energy UK calls for energy assets to be insulated from REMA changes

Energy UK has responded to the government's second consultation on the Review of Electricity Market Arrangements (REMA), calling for all existing energy assets to be insulated from changes.

Energy UK believes that full grandfathering should apply to all existing assets where investment decisions were made on the basis of national pricing and there was uncertainty regarding the final REMA reform decisions. This approach would mean that existing assets (including contracts for difference (CfD), capacity market agreements and corporate power purchase agreements (CPPAs)) would be exempt from new decisions which stem from REMA. However, Energy UK states that the government must clarify how any grandfathering would occur as soon as possible and should include an analysis of the impact of different grandfathering options on investor confidence.

In its report, Energy UK commented on the four "challenges" set out in REMA. A primary concern of the trade association was the possible introduction of zonal power pricing, with members of Energy UK emphasising a need for increased clarity on the costs and benefits of zonal pricing. Whilst a minority of Energy UK members support zonal pricing, the preference of the majority is for an exploration of alternatives which are efficient but have reduced investment risks. The report highlights that the effect of a zonal pricing model on the CPPA market should also be considered.

The report also discussed the crucial role of the CfD scheme alongside CPPAs to enable a successful transition to net zero. The majority of Energy UK members noted a preference for an amended form of the CfD scheme, although Energy UK believes that further analysis of the CfD proposals is required before it can fully endorse any of the options. In addition, Energy UK supports the retention of the capacity market to ensure that supply is guaranteed and that there is capacity adequacy.

UK invests £86 million in super turbine development

The UK Research and Innovation (UKRI) Infrastructure Fund has approved an investment of £86 million in wind power R&D facilities, including the world's most advanced wind turbine test facility in Blyth, Northumberland. The funding hopes to speed up the development of new turbines by providing a more efficient facility to test turbine blades which, in turn, will reduce carbon emissions by 2.5 million tonnes.

The investment will fund the construction of a 150-metre blade test facility, with the potential to expand to 180-metre blades in the future. The ability to test larger blades allows for the increased production of more efficient machinery for offshore wind. The funding will help the UK to work towards its 2050 net zero commitment and for the industry to reach its goal of the UK producing 60% of offshore wind farm content from domestic projects.

UKRI Infrastructure Portfolio Director, Dr Adam Staines, said that "[t]he project in Blyth demonstrates that investment in the right infrastructure can reduce CO2, support greater energy independence and drive economic benefits that build world-class places to live and work."

This article was written with the assistance of Khushal Thobhani, Jessica Sawford, Charlotte D'Arcy, Luke Hopper and Hannah Bradley, trainee solicitors.