The Energy Transition | Ofgem streamlines Strategic Innovation Fund

This week we look at Ofgem's streamlining of the Strategic Innovation Fund, DESNZ backing an ESO trial of a "digital spine" of energy system data, Ofgem's approval of transitional connection processes, and more.

Ofgem streamlines Strategic Innovation Fund to accelerate clean energy transition

Ofgem has announced changes to the Strategic Innovation Fund (SIF) to streamline the funding process. The SIF, a collaboration between Ofgem and Innovate UK, aims to accelerate the transition to clean energy through the funding of transformative projects geared towards solving key network challenges.

The changes follow extensive engagement with stakeholders and are intended to provide innovators with more opportunities to apply or re-apply for funding, allowing for quicker access to financial support. The proposals include the introduction of three application windows annually, replacing the current single window. Projects will also be allowed to apply directly to any of the three development phases - Discovery, Alpha, or Beta - based on their current progress, rather than having to always start at the earliest stage. This adjustment allows projects to complete the SIF process in 23 months, an improvement from the previous minimum of 31 months.

Jodie Giles, SIF Programme Director at Innovate UK, noted that the enhanced application process will "increase the frequency of application cycles and streamline our processes", and highlighted the aim to "accelerate the delivery of transformative solutions and drive forward the energy transition with greater efficiency and flexibility".

Ofgem Deputy Director of Strategy, Marzia Zafar, emphasised the necessity of innovation in achieving the UK's clean energy goals, highlighting the need for advanced technologies like smart devices, energy storage solutions, and digital tools powered by machine learning. Commenting on the proposals, Zafar stated that "[w]hat these changes mean is that great innovation will be funded and rewarded seamlessly."

Launched in 2021, the fund is expected to invest £450 million by 2026. Previous funding rounds have already seen the SIF used to fund various energy innovation projects. In March, £8.5 million was awarded to 44 projects focused on boosting heat pump adaptations, hydrogen production and grid flexibility. In July 2023, £95 million was allocated to 10 projects, including energy network risk predictors which utilise artificial intelligence, and innovative circuit breakers for integrating offshore wind power into the grid.

These changes are part of Ofgem's broader strategy to facilitate the UK's transition to net zero by 2030 and ensure that groundbreaking innovations are funded efficiently and effectively.

DESNZ backs the ESO to trial a "digital spine" of energy system data

In a government response to a study considering the feasibility of data sharing infrastructure, the department for Energy Security and Net Zero (DESNZ) has confirmed that the Electricity System Operator (ESO) is considered best placed to trial a "digital spine" for energy system data sharing.

The concept of a digital spine was first put forward in the Energy Digitalisation Taskforce's January 2022 key recommendations. The response defines the spine as a data sharing infrastructure with "a minimum set of responsibilities, governance, functions and processes for secure interoperable data sharing across the energy system". DESNZ has identified that the spine would be a positive step towards the digitalisation of the energy system and could help to combat certain challenges within the energy sector. These include the current "disconnected" approach to the development of digital infrastructure, the lack of common data sharing practices and poor data interoperability.

The importance of data sharing was emphasised in the government's response, which noted that "without secure system-wide access to data, the UK’s ability to decarbonise the power sector by 2030 is at risk" and that "a revolution…must take place". The ESO has welcomed the report, and confirmed that the work is already underway to develop this infrastructure. A spokesperson for the ESO commented that, "through enhanced data integration, we can create a resilient and adaptive energy grid for the future that through greater efficiencies and coordination, will help to lower energy bills, improve our energy security, and deliver [Great Britain]’s net zero ambitions."

Ofgem will now look to publish a consultation on the governance of data sharing in the coming winter months and a further update in 2025. The ESO will now liaise with the National Cyber Security Centre, and has committed to deliver a pilot by the end of 2024.

Net zero industry developers secure £887,000 for green hydrogen generation project

As part of a consortium of industry developers (including Celtic Sea Power, ORE Catapult and Wales and West Utilities), Dolphyn Hydrogen has secured a £887,000 grant to develop the Milford Haven: Hydrogen Kingdom (MH: HK) project.

The project will see the production of green hydrogen powered by co-located floating offshore wind generation in the Pembrokeshire Demonstration Zone (PDZ), a 90km2 area off the coast of Pembrokeshire. The funding comes from Innovate UK's Launchpad: Net Zero Industry, South-West Wales Programme, and will go towards delivering the £2.1 million MH:HK project initiative.

In June of this year, Dolphyn Hydrogen announced it had produced hydrogen from seawater in a marine environment in the UK for the first time. The MH:HK project looks to build on this development and develop pipeline connections for hydrogen to the shore and onwards to offtakers, making use of the fact that it is generally cheaper to transport hydrogen rather than electricity ashore, especially over long distances.

Wales and West Utilities, whose 100% hydrogen pipeline – Hyline Cymru – will transport the hydrogen to the onshore infrastructure, has suggested that the project could provide a route to market for 16TWh of hydrogen production capacity. Tim James, Infrastructure Development Director at Celtic Sea Power, remarks that hydrogen is anticipated to play a crucial role in Wales, and that "the MH: HK project will provide credible evidence to support this, whilst increasing confidence in the Celtic Sea Offshore wind and wave energy pipeline".

Ofgem approves transitional connections process prior to TM04+ reforms

Ofgem has responded to proposals for grid connection reform submitted by the ESO and the three Transmission Owners (TOs) and has approved the implementation of transitional arrangements to the connections process until a decision is made by the regulator on the TM04+ (First Ready, First Connected) reforms.

In their proposals, the ESO and the TOs outlined two potential reform pathways, with the first being to maintain the existing process whereby applicants would continue to receive standard connection offers containing a connection date and queue position as well as securities and queue management milestones. The second option was for customers to receive a transitional offer which would resemble the offers expected to be issued on entry into Gate 1 under the connection process as reformed by TM04+. This transitional offer would provide only an indicative connection point and completion date, without any detail on transmissions works and programme or queue position. Under the transitional approach the ESO would not request securities or apply queue management milestones.

The ESO and the TOs' proposals noted a preference for the second option which has now been approved by Ofgem. Ofgem considered that maintaining the status quo would result in an inefficient use of ESO and TO resources by requiring a significant level of detail to be provided for offers that would likely be significantly altered upon the subsequent introduction of the reformed process. The regulator also had concerns that this option would cause confusion for customers who received a full connection offer with a firm connection date and connection point, as well as securities and queue management milestones, only to lose these positions if they fail to meet the Gate 2 criteria following the reforms.

Jack Presley Abbott, deputy director, system planning and connections at Ofgem, added that the business-as-usual option "would also further increase the size of the connections queue – a queue that is already bigger than what the GB energy system is expected to require by 2050, even under the most demanding scenarios".

Should Ofgem approve the proposed TM04+ connections reforms, transitional projects will be able to apply for a Gate 2 offer with a confirmed connection date and connection point as well as queue management milestones. If any of the code modifications are rejected or significantly delayed, transitional offers will include fallback terms to provide customers with a standard full connection offer in due course.

The ESO and the TOs will now aim to apply the transitional approach to new connection applications made from 2 September 2024 until the TM04+ reforms are implemented. The transitional changes will lapse by 31 March 2025 or on approval/rejection of grid reform (if earlier).

We have previously reported on the impact of the TMO4+ proposals in more detail here.

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