The Energy Transition | Ofgem announces preliminary approval of grid connection reforms

This week we look at the continuing progress of grid connection reforms, NESO's proposed fee for stalled projects, increased Capacity Market targets, and more.

Ofgem announces preliminary decision to approve grid connection reforms

On 14 February, Ofgem announced that it is minded to approve the package of proposed reforms to the grid connections system, known as TMO4+. This decision comes after the National Energy System Operator (NESO) submitted its final methodologies to Ofgem for approval on 20 December.

The proposed new system has been designed to prioritise projects which are "ready" and "needed" by fast-tracking them through the connections process. Commenting on Ofgem's preliminary decision to move ahead with the reforms, energy secretary Ed Miliband said:

"We have enough energy projects in the grid connection queue to deliver clean power by 2030, but many are stuck behind speculative schemes, leading to delays of up to 10 years."

"Our Clean Power Action Plan will fix the broken 'first come first served' system and these changes will mean a targeted approach which priorities quicker connections for the right projects in the right place, so Britain can accelerate towards a new era of clean electricity."

Ofgem is now consulting on its minded-to decision and the licence changes needed to implement the TMO4+ reform package. The consultation closes on 14 March and Ofgem's final decision is expected by the end of March.

NESO proposes penalty fee for stalled projects in connections queue

The National Energy Systems Operator (NESO) has proposed a penalty fee for developers whose projects do not meet specific milestones while in the connections queue. The proposal forms part of the wider suite of proposed TMO4+ connection reforms which aim to streamline the connections queue.

Under this proposal, developers may be required to pay a Progression Commitment Fee (PCF) of up to £10,000/MW if they wish to keep their projects in the connections queue. The PCF would apply to projects that have successfully joined the Gate 2 queue, but have not yet reached Queue Management Milestone 1 (the requirement for which is to initiate statutory consents and planning permission).

NESO has suggested that the PCF will "remain dormant providing [the queue] remains in good health". A "trigger metric" will track the health of the queue by measuring the cumulative project MWs that are terminated from the Gate 2 connections queue after failing to meet Milestone 1.

If a defined "trigger threshold" is exceeded, NESO will then decide whether or not to activate the PCF and it has suggested that Ofgem should have the authority to override its decision. If the PCF is activated, projects which have accepted a Gate 2 offer but have not passed Milestone 1 will be given a minimum three months' notice to exit the queue without penalty. Should a developer wish to keep its project in the queue beyond this period, the value of the PCF will then increase from £0/MW to £2,500/MW, and continue increasing by £2,500/MW at six month intervals, up to a maximum cap of £10,000/MW. Developers will only be required to pay the PCF upon termination of the project or reduction in project capacity.

NESO has suggested that money raised from developers will be redistributed to network users via transmission network use of system (TNUoS) charges. Some developers have suggested that the TMO4+ reforms will effectively streamline the queue, without the need for the PCF.

NESO expects to consult on the proposed PCF in March, with a final decision made in mid-June 2025 and, if approved, expected implementation will be in Q1 2026.

DESNZ confirms increased targets for upcoming Capacity Market auction

Ed Miliband, in a letter to NESO, has confirmed adjustments to the Capacity Market auction parameters for both the T-1 and T-4 auctions.

For the T-1 auction scheduled for delivery in 2025/26, the target capacity has been set at 7.5 GW, representing an increase of 1.0GW from targets published in July 2024 "to account for technical considerations and anticipated non-delivery issues".

For the T-4 auction scheduled for delivery in 2028/29, the target capacity has been set at 43.7 GW, which is an overall reduction of 0.3GW. The target was initially increased to similarly account for technical considerations and non-delivery issues but then recalculated given the recent agreement with Drax Power Station to award CfDs to all four biomass plants, commencing April 2027. Further, 1.0 GW has been set aside "for a future auction", ensuring flexibility in capacity procurement.

Energy sector to support over 1,200 apprenticeships in 2025

Energy UK has reported that its members are "leading the way in developing the next generation of energy professionals", by offering apprenticeship schemes covering areas such as low-carbon heating installation, smart metering and grid and transmission infrastructure.

It observes that, in order to achieve the UK's net zero targets, there is a growing demand for skilled workers within the energy sector and that apprenticeships, which typically close the skills gap and require fewer qualifications than other routes into the energy sector, can assist with this. In 2025, members of Energy UK such as NESO, Centrica, Drax Group, Scottish Power and SSE will offer more than 700 apprenticeships.

Government consults on the extension to the UK Emissions Trading Scheme

The UK Emissions Trading Scheme Authority is inviting feedback on the extension of the scheme beyond its current phase, which expires on 31 December 2030, and the duration of the potential next phase. For more information and to submit feedback, please visit this link before submissions close on 9 April 2025. 

This article was written with the assistance of Rosie Shaw, trainee solicitor, Tomi Agbonifo, paralegal, and Sumaiya Hafiza, solicitor apprentice.