The Energy Transition | UK transmission project delivery could be halved and FSO set-up costs estimated as £390 million

This week we look at National Grid ESO proposing a "radical" new approach to connections, Ofgem's consultation on funding the Future System Operator, government funding for heat pump technology, and more.

Transmission projects delivery time could be halved according to the government's Electricity Network Commissioner

The government's Electricity Network Commissioner, Nick Winser, has informed ministers that the current transmission project delivery time of 14 years could be halved.

Appearing before the House of Commons Environment Audit Committee, Mr Winser revealed the findings of his transmission network review. This is due to be published in full later this year following its submission to the Department of Energy Security and Net Zero (DESNZ). Mr Winser told the committee that reducing the delivery time "would line up much better with delivery of assets like offshore wind".

He highlighted the difficulty, however, of securing consent for 17 major infrastructure projects, which he has previously stated will be necessary to accommodate this timescale change. He stressed the importance of reducing the time spent on work that happens prior to planning applications being submitted, which he referred to as being responsible for the current "ballooning of timescales".

Mr Winser said the government's consultation on "Planning for new energy infrastructure: revisions to National Policy Statements (NPS)" would be "absolutely critical" in reducing these timescales. This consultation, which ended on 23 June 2023, focused on strengthening the electricity network's NPS to include more detail on the role of strategic planning, which considers the network as a whole, rather than as individual transmission projects.

He also told ministers that Ofgem needs to "take a broader view" on the costs of not meeting net zero targets, such as increased congestion on the system, as well as considering capital costs.

Costs of setting up Future System Operator could reach up to £390m

Ofgem has announced that the costs of setting up the Future System Operator (FSO) could reach up to £390 million. The regulator shared these cost estimates in a consultation, published on 21 June 2023, on proposals on funding arrangements needed to deliver the FSO.

In April 2022, DESNZ and Ofgem announced their plans to create the FSO as an independent system operator of gas and electricity systems in 2024. They proposed that the FSO would assume the current responsibilities of the Electricity System Operator (ESO), an affiliate of National Grid, as well as the long-term forecasting and strategic planning duties in the gas market currently performed by National Gas Transmission (NGT).

The ESO, National Grid, and the NGT have together provided Ofgem with an estimate of the costs needed to enable the establishment of the FSO and reallocate their roles.

Total costs of between £180 million and £210 million have been estimated up to "Day 1" of the transition, being the time when the FSO is owned by government but still holds transitional service agreements with ESO, the National Grid, and NGT. Ofgem's consultation suggests Day 1 cost recovery proposals, such as:

• allowing the National Grid and NGT to recover "economic and efficient separation and transformation costs";
• setting out defined "Cost Recover Principles" that will state what National Grid costs would be permitted; and
• introducing a reporting framework over the ESO and National Grid's separation plans and spending to ensure ongoing transparency.

The costs are then estimated to rise to £300 million and £390 million by "Day 2" of the transition, being the time when FSO exits the transitional service agreements and has its own standalone capabilities.

UK government awards funding to boost heat pump uptake

A consortium of business led by smart energy company Chameleon Technology has received government funding to develop heat pump optimisation technology as part of the Total Home Optimisation Management (THOM) project. 

THOM makes up part of the government's Heat Pump Ready Programme, a wider initiative that aims to increase public awareness of the cost-saving and environmental benefits of heat pumps. The consortium was awarded £763,000 by DESNZ to increase consumer confidence and adoption of the technology.

Skills shortages in heat pump installation are currently a significant barrier to decarbonising home heating. The THOM project aims to mitigate this by streamlining the installation process through the development of tools that give consumers smart insights into their energy and heating needs.

As part of this, Chameleon Technology and its partners are creating an app that provides simple guidance for heat pump installation. The app will also combine smart meter, router and smart thermostat data to provide accurate insights into home energy consumption.

If successful, THOM could play a key role in achieving the government's target of installing 600,000 heat pumps a year by 2028 – as set out in the June 2022 Energy Bill – as well as contributing to its broader net zero targets (as previously reported here).

National Grid ESO proposes a 'radical' new approach to connections

National Grid ESO has launched a new consultation on its long-term reforms to the grid connections process. This will complement the five-point plan it published in May, which we reported on here.

The consultation lays out different design models for a reformed connections process to ease the backlog in the connections queue and seeks industry feedback on the redesigned process. The model preferred by the ESO, which it has described as "radically different", is the introduction of an annual application window with a batched assessment of projects and gates through which projects can only proceed if they meet certain milestones, such as planning approval.

Other suggestions made within the consultation include:

• a requirement for developers to submit a “letter of authority”, demonstrating land has been identified and its owner engaged; and
• setting aside some additional capacity within each window to be allocated by the electricity distribution networks.

Julian Leslie, head of networks at ESO, said the recommendations would provide “significant overall cost savings for consumers through coordinated network design and significantly reduced times to connect through more efficient management of contracts and capacity”.

ESO believes the "go live" for the reformed process will be mid to late 2025. It is, however, seeking to engage with DESNZ and Ofgem to explore whether earlier implementation is possible under variations to the standard industry governance processes for code changes.

The consultation closes on 28 July.

Ofgem requests performance data to calibrate DSO targets

Ofgem has published an open letter asking District Network Operators (DNO) to submit projections of their outturn performance against three new performance metrics for the regulatory years 2023/24 to 2027/28.

The performance metrics were announced in the RIIO-ED2 Final Determinations published in November 2022 (which we reported on here) and are as follows:

• flexibility reinforcement deferral, which will drive DNOs to use flexibility and address network constraints when it is the most economic solution;
• secondary network visibility, which will promote visibility and accuracy of utilisation of pole and ground mounted transformers; and
• curtailment efficiency, which will incentivise DNOs to limit curtailment of users on curtailable connections in response to a constraint on the distribution system.

Ofgem has decided not to implement targets for the outturn performance metrics in year one of RIIO-ED2, which began in April. Instead, it will use the data gathered from this exercise to inform targets, which will be applied, alongside financial rewards and penalties, from year two onwards.

Ofgem is also seeking views on sensitivities and the margin of error within the information submitted, any difficulties licensees are experiencing and on how this can be managed when setting targets, deadbands and maximum reward and penalty scores.

Following receipt of the data, Ofgem plans to arrange a series of working groups in late summer, to discuss proposals for outturn performance metrics target setting. Ofgem also plans to consult on the draft targets, deadbands and maximum reward/penalty scores, before publishing a decision in winter 2023.

This article was written with the assistance of Sophie Myatt and David Herron, trainee solicitors.