Ofgem Approval of New Queue Management Rules in the UK

Introduction

Following the consultation launched by National Grid ESO in July 2023, Ofgem has now agreed a major change to the way the pipeline of projects wanting to connect to the electricity transmission network is managed, allowing non-viable or stalled projects to be removed to speed up the process.

The change is a big step away from the existing ‘first-come, first-served’ system, which has led to a long queue of energy projects which could generate almost 400 GW of electricity.

The new Queue Management milestones will be implemented by National Grid ESO from 27 November 2023 and will be introduced to both existing and future grid connection agreements. The Queue Management milestones will allow National Grid ESO to terminate stalled projects that are blocking the queue for high-voltage transmission lines and means ready-to-go generation and storage to enable net zero can be fast-tracked.

If you have development projects in need of grid connections, particularly connections direct to the transmission network, find out more about the proposed changes to the application and queue process: CMP376 Decision final 131123 (ofgem.gov.uk)

If you have any further queries please reach out to Andreas Gunst , Aditi Tulpule or Sophie Linnell .

On 13 November 2023 Ofgem published its decision in relation to CMP376, that the “WACM7” code modification which aims to tackle problems in the process related to connection to the transmission system should be made. The modification will introduce a Queue Management process into the Connection and Use System Code (CUSC).

As a result, milestones will be introduced into Users’ CUSC connection contracts, that must be complied with to demonstrate progression towards completion of the project. Failure to meet these prescribed milestones on time will grant National Grid ESO (NGESO) connection contract termination rights.

Queue Management will be introduced to:

???????? new Users entering into agreements from 27 November 2023; ?

???????? existing connection contract Users or Users with an offer to connect where the completion date is two years or more from the 27 November 2023; and

???????? those with a connection contract where the completion date is on or before the date two years from the 27 November 2023 where NGESO has reason to believe that the User’s project is not progressing in accordance with nor is reasonably aligned to the construction programme in the CUSC construction agreement, and the User is unable to demonstrate such progression to the reasonable satisfaction of NGESO.

Julian Leslie, Chief Engineer and Head of Networks at the ESO said:

“We warmly welcome these new rules approved by Ofgem enabling us to proactively terminate zombie projects in the connections queue. This is a milestone moment in the ESO's efforts to lead the transformation of the grid connections process, making it fit for purpose for a modern network that is rapidly evolving and decarbonising.”

Background

Ofgem has reported that an increasing number of connection applications to NGESO over recent years has resulted in a tenfold increase in connection offers made per year with an increase of 80% in the year to May 2023 alone.

The market believes that the form of existing CUSC connection contracts places limited obligations on Users to progress on time in line with their construction programme, whilst also only granting NGESO limited contractual rights to terminate CUSC connection contracts where projects are not progressing. This factor, along with the prioritisation of connection dates by reference to when contracts are made, incentivises Users to submit connection applications early to secure a queue position ahead of others with the aim of retaining that position, even if the project itself is still speculative or even non-viable.

Milestones

Milestones will be introduced with specific deadlines based on, and calculated back from, the User’s Completion Date into the CUSC construction agreement. Milestones are categorised as either Conditional Progression Milestones (M1 – M3) or Construction Progression Milestones (M5 – M8).

The Conditional Progression Milestones relate to requirements to submitting and obtaining planning permission and obtaining land rights for the relevant project. The Construction Progression Milestones refer to establishing a construction programme, submitting a design for the contestable works, demonstrating the required project commitment and commencing project construction.

The User is responsible for providing suitable evidence to demonstrate that they have met the relevant Milestones in order for the Milestone to be considered to be achieved, by reference to the evidential requirements set out in the Queue Management provisions in the CUSC.?

Other than in the case of exceptional circumstances, if insufficient evidence is provided to demonstrate that a Milestone has been met in the requisite timeframe, a User’s project will be categorised as “Termination”. NGESO will notify the User of this, and that the remedy period has started, (60 days within which Users are given an opportunity to provide satisfactory evidence that the Milestone has been met). If such evidence is provided by the User during this period, the project will be re-categorised by NGESO as being ‘On track’.

If at the end of the 60 day remedy period, the User has not provided satisfactory evidence the status will remain as ‘Termination’ and the following will apply:

???????? In the case of ‘Conditional Progression Milestones’ (M1-M3), NGESO will terminate the CUSC connection contract.

???????? In the case of ‘Construction Progression Milestones’ (M5-M8), NGESO may terminate the CUSC connection contract – it being a matter for NGESO’s discretion.

The following exceptions apply to both Conditional Progression Milestones and Construction Progression Milestones:

a)???? where the User is prevented from completing works as a result of Force Majeure;

b)???? where the User is not able to meet a User Progression Milestone due to an event of Force Majeure;

c)???? where delays caused by a party (other than the User, NGESO or a relevant TO) can be demonstrated to have an impact upon the User meeting a Milestone and the User could not have avoided these delays or their impact by the exercise of Good Industry Practice;

d)???? where a User is not able to meet a User Progression Milestone due to Planning appeals and third-party challenges in relation to the User’s Consents; and

e)???? any delay in the achievement of a User Progression Milestone by the User which is caused by a relevant TO or NGESO.

In the case of an exemption, the User is to provide written evidence to NGESO supported by confirmation from the User’s board of directors or equivalent. If NGESO is satisfied the exception is met, the delay will not result in the User’s project being categorised as “Termination” and NGESO will issue a new Milestone Date for the missed Milestone.

Next Steps

Further guidance on the implementation of CMP376 and Queue Management is awaited from NGESO. From 27 November, NGESO will be contacting all customers with an existing or in-flight connection agreement to give the option of either having Queue Management Milestones applied to their existing connection date or submitting a modified application where Queue Management Milestones will apply to a new connection date.

The introduction of Queue Management means that developers of projects will have to think carefully about the right stage at which they apply for a grid connection and the rate at which they anticipate obtaining the applicable planning permissions and land rights for their projects. The approach to submit connection applications early to secure a queue position ahead of others with the aim of retaining that position, even if the project itself is still speculative, will no longer be viable and developers seeking to rely on this approach may find their grid connections being terminated by NGESO.

If you have any further queries please reach out to Andreas Gunst, Aditi Tulpule or Sophie Linnell.