ESO proposes the retrospective application of the 'first ready, first connected' approach for GB grid

It is almost universally acknowledged that in Great Britain (as in many other European jurisdictions) grid connection delays are now the biggest barrier to the country achieving net-zero.

In recent years, the connections queue has been growing at an exponential rate, with average delays of over five years for projects applying to connect to the transmission system. Ofgem expects the total queue size to rise to 800GW by the end of 2024, which is quadruple the amount of electricity generation that the UK is predicted to need by 2050.

The problem has become so acute in recent years that many developers are now seeing more value in developing projects outside Britain. Meanwhile, projects that are ready and waiting to connect have little prospect of doing so sooner than their prescribed date – and some projects are understood to have been offered the chance to bring forward their connection date by just one year if they accept a curtailment factor of over 90%.

Rethinking the "first to contract, first to connect" principle has been a key part of a broader package of grid connection reforms and initiatives envisaged by the government and Ofgem's Connections Action Plan (CAP). These reforms have already introduced a new right for the Electricity System Operator (ESO) to pro-actively manage the connection queue, including the right to terminate the connection agreements of "zombie" projects causing delays. This addresses an industry consensus that many of the projects in the queue were – in reality – not viable.

The radical nature of TMO4+

In June 2023, the ESO recommended the implementation of the initiative known as the Target Model Option Four (TMO4). The TMO4 model would overhaul the connections process, which had been based on the "first to contract, first to connect" principle, but under TMO4 would instead be based on the principle of "first ready, first connected". Accordingly, under TMO4 new projects would enter the connections process at a first gate (known as "Gate 1") but would need to satisfy criteria to arrive at a second gate (known as "Gate 2"), at which point they would obtain a queue position and a connection date. Prior to reaching Gate 2, projects would only receive an indicative connection date: the certainty afforded by progressing to Gate 2 therefore, would incentivise projects to deliver against relevant milestones. 

The ESO has now published the next stage of the reforms, TMO4+, which aim to remove stalled projects, better utilise existing network capacity and enable earlier connection dates for viable projects. The ESO suggests that these reforms could more than halve the size of the connection queue, enabling earlier connection dates for projects satisfying the Gate 2 criteria.

The tone may be "business as usual" but TMO4+ represents a far more radical reform than had originally been anticipated, given that it will apply not only to new projects applying for network connections but also retrospectively to projects already in the connections queue.

Retrospective application could have a significant impact on projects already benefitting from a place in the queue, as a project's indicative connection date may be pushed back if other (including newer) projects progress faster, irrespective of when they originally applied and notwithstanding that "queued" projects may have been waiting five years or more for the opportunity to connect. On the other hand, those projects that are ready to connect will welcome the reforms, as TMO4+ may well result in projects being offered earlier connection dates than previously agreed.

The proposals have been warmly endorsed by Ofgem in an open letter to industry as having the potential to "significantly contribute to achievement of the CAP objectives and overall vision".

Implementation of the reforms

The ESO's intention is for the new proposals to take effect from 1 January 2025 to deliver the chancellor's Spring Budget statement promise of a "new stringent connections process from January 2025". To align with that date, the ESO will also phase the introduction of TMO4+ to projects already in the connection queue.

In the transitionary period prior to implementation of the reforms, projects in the existing queue will be given an opportunity to demonstrate that they have met the Gate 2 requirements. Where projects meet the criteria, they may request an accelerated connection date based on the revised queue, but where they do not, they will be moved back to the Gate 1 indicative connection date and connection point.

Osborne Clarke comment

Implementation of the TMO4+ proposals will require changes to industry codes and licence conditions, and the ESO will shortly submit urgent Code Modification Proposal applications to Ofgem so that the changes can be approved. In light of Ofgem's recent endorsement of the proposals, we anticipate that these applications will be streamlined to avoid delay.

The TMO4+ proposals represent a turning point for the energy industry as it seeks to address the bottleneck in the grid connection process. Given the consensus on the need for urgent reform, this latest contribution to tackling grid connection constraints will be seen as a welcome advancement. That said, the retrospective application of the reforms has come as a surprise to many. Stakeholders of projects already in the connections queue will be concerned about the uncertainty of their project connecting sooner or later than anticipated.

In its open letter, Ofgem invites views from stakeholders on these proposals and the ESO notes that it will be engaging with stakeholders in the coming months. Responses to Ofgem should be sent by email to connections@ofgem.gov.uk by no later than 6 May.

The ESO has indicated that it may hold webinars and workshops in May to provide further information and to inform its views, with the code modification processes (including working groups and consultations) likely to run in the period of May to September.

Given the significance of these reforms, we recommend that interested parties engage with the events and formal consultations expected from ESO and Ofgem in the coming months.

Khushal Thobhani, a Trainee Solicitor at Osborne Clarke, contributed to this Insight.