First ready, first connected: Reshuffling the connections queue

Utility Week looks at the Electricity System Operator’s latest proposals for reforming the connections process for the transmission network, including its decision to apply the new process to the existing queue and the legal risks this could pose.

The past several years have seen a sharp surge in connection applications far beyond what is actually needed to achieve Britain’s net-zero target, with the result that some developers have been offered connection dates well over a decade into the future.

As of the beginning of March, the queue across transmission and distribution already stood at around 700GW and the Electricity System Operator (ESO) recently revealed it expects this figure to hit 800GW by the end of this year. Ofgem said this is more than four times the installed capacity expected to be needed by 2050.

The connections process has fallen victim to a vicious spiral in which the fear of being left at the rear, or the potential value of an early place in the queue, has prompted developers to submit applications for projects that are either speculative or at an embryonic stage.

Last year the ESO set out its preferred option for overhauling the queue. Under this two-gate model, projects would only be able to apply for a connection during annual windows, with projects given a backstop connection date upon clearing the first gate. However, they would not be allocated a place in the queue until they passed the second gate, which would require them to apply for planning permission or be designated as a priority project. At the time, the ESO said this process would only apply to new applications.

In an update to the method, published last month, the ESO set out that instead of a backstop connection date, projects that pass the first gate would receive an indicative connection date that could move forward or backwards.

The ESO said its current position is that projects would need to secure both land rights and a date for the submission of a planning application to pass the second gate. It said projects would be grouped together for gate 2 assessments at regular intervals throughout the year but would be assigned a queue position based on the date by which they demonstrated having met the gate 2 criteria.

Furthermore, the ESO said this process would also be applied to projects in the existing queue, which would be given a period of time prior to its implementation to demonstrate whether they have met the gate 2 criteria.

Those that met the criteria would have the option to retain their existing connection date or request an accelerated connection based on the reformed queue. Those that did not would move to an indicative connection date.

Ofgem quickly threw its support behind the model, which it described as “an ambitious idea”. However, the regulator also struck a note of caution, saying the proposals must be backed by a “robust plan for regulatory and operational implementation.”

Among other things, Ofgem said the ESO must seek to identify, and as far as possible mitigate, any associated risks, including legal; prepare contingency plans in case the new process cannot be implemented by the target date of 1 January 2025; and consider how to “manage the expectations of existing and new customers”.

Peter McCrory, policy manager at Renewable UK, says the trade body was “broadly supportive” of the ESO’s original proposals in June 2023 but “did note at the time that there was potential that there might need to be further action taken.”

He says the connections queue has continued to grow rapidly in the meantime and so “it’s not a huge surprise that (ESO) has come out with some sort of some expanded measures”.

While acknowledging that its members are usually the developers that are “more confident in their ability to deliver projects,” he says: “There’s an acceptance from industry that in order to get projects onto the grid there needs to be some quite important actions taken.”

On the ESO’s change in stance on whether the new process should be applied to the existing queue, McCrory says: “There’s probably a reason why they didn’t retrospectively act on the queue in the first instance and that was probably because there are implementation challenges.

“Clearly they feel that those are not insurmountable and the cost-benefit analysis in terms of the benefits to the grid and to viable projects are great enough that taking on those implementation challenges is worthwhile.”

Legal challenges

Juliet Stradling, a partner at the law firm TLT, says applying the new process to the existing queue does raise the risk of legal challenges from developers who lose their place or are pushed back. She says those looking to a mount a challenge could do so in one of three ways: a contractual dispute, an appeal to the Competition and Markets Authority (CMA) and an application for a judicial review.

Stradling, who specialises in providing commercial and regulatory advice to energy sector clients, suggests that contractual challenges are the least viable of these options.

She says the agreements between network operators and users are “all issued under the framework of the CUSC [Connection and Use of System Code] so you can, by way of a CUSC modification, make amendments to bilateral agreements so long as that CUSC modification goes through the process and is lawful etc.

“There’s also a specific clause in the construction agreement that obliges the ESO and user to implement any changes required by Ofgem as a result of something changing in the CUSC.

“When you sign up to your transmission connection, you do sign up to this ability for your contract to change if the CUSC changes,” she remarks.

Stradling says a CMA appeal could only be made once Ofgem had approved a CUSC modification to implement the new process, and only if its decision went against the recommendations of the CUSC panel: “Assuming the modification panel is happy and then Ofgem consents you wouldn’t actually have the right to go to the CMA.”

However, this route would allow developers more scope to bring in the merits of a decision when compared to a judicial review, which just looks at “lawfulness” of the decision but could be sought before it has been made.

Stradling explains that there are three principal grounds for a judicial review, the first being illegality: “That’s where you might say actually the ESO doesn’t have the power to bring forward a retrospective amendment to the CUSC. Obviously, there has just been a retrospective amendment to the CUSC in the queue management provisions that have gone through.”

Second, there is irrationality – “it’s so unreasonable that no one could possibly do it” – and third, there is procedural unfairness – “it doesn’t go through all the necessary process consultation and so on.”

“Whether or not the ESO has the power to bring forward retrospective CUSC modifications is an interesting one because there’s no explicit power for them to do that in the regulatory framework,” she says.

Nick Pincott, a partner in TLT’s projects, infrastructure and construction team, says: “Generally speaking, any kind of retrospective change is more unusual just as a matter of legal culture, but there are some circumstances where retrospective changes are permitted.”

Stradling says the recent introduction of new queue management provisions via the CUSC modification CMP376 in November “does sort of create a precedent, but I don’t think the fact that no one’s challenged it means that they couldn’t later challenge it because the court will look at whether you have got the power to introduce a retrospective modification.”

She says what Ofgem has said previously about retrospective CUSC modifications will be significant: “I did see something in a document where they talk about urgency criteria for CUSC modifications and when that track will be appropriate.

“They did say in there, generally we don’t like retrospective changes, but in a few scenarios we think that it could be appropriate. And one of those is a big change in circumstances…

“Arguably the rush of people applying for connections… could count as that kind of changing circumstance.”

She says the ESO and Ofgem could argue that “people always knew that the CUSC could be applied retrospectively in extreme circumstances. That might be part of a defence.”

Stradling says there is also a question over what exactly is considered retrospective: “What’s generally accepted is that if you announce something like the ESO announced on 16 April and it takes some time to implement, then once it’s implemented you can apply it retrospectively to the date of the announcement. What’s very unusual is to then apply it to people before that date.”

Pincott says if the ESO changes the criteria in future this could “reset” what is considered retrospective. Stradling adds that “you’re bound to get some proposals to change the gate 2 criteria because of the way the CUSC process works. You have these working groups that come up with their alternative modifications. There’s going to be a lot of variations to wade through.”

Overall, Stradling says it is “very hard to have a firm view at this stage” about the likelihood or merits of any legal challenge. She says the extent of harm suffered by parties that are pushed back in the queue will matter.

“I think quite a lot of it depends on exactly what projects are affected and also have a good case,” she adds. “Some people will be quite conscious of the PR of bringing an appeal.”

Pincott notes that the currently proposed gate 2 criteria for obtaining a place in the queue do not set a particularly high bar – merely requiring developers to have secured land rights and have a date for the submission of their planning application: “That threshold is quite low.”

Stradling says this could help the ESO avoid legal challenges: “You suggest something initially that isn’t too bad for most people. They think: ‘Oh, I can meet that.’ The principle is accepted and then it develops. It’s this incremental decision making that actually makes it hard for people to challenge regulatory decisions.”

McRory says the proposed connection process will also present other challenges. He says there are “definitely potential pitfalls” from moving to annual application windows, which could expose resource constraints.

This will place a significant administrative burden on the ESO, which will need to sift through “large batches” of applications: “I do know that they’ve been trying to increase their staffing levels significantly over the last year. It’s something that’s been flagged to them as a potential risk.”

He says resource constraints in the planning system could also be an issue, although the extent to which it becomes a bottleneck will be limited by the ESO’s proposal to only require projects to secure a date for the submission of their planning application to pass the second gate, rather than progress any further.

Nevertheless, McCrory says Renewable UK have made clear to the ESO that for the new connections process to succeed it needs to be properly resourced, not just internally “but also within other actors, and that includes the planning authorities and Ofgem as well.”

Whether these reforms and other actions being undertaken by network companies will ultimately be sufficient to unblock the system and bring down wait times to a reasonable level, McCrory says we can only “wait and see”.

This article first appeared in Utility Week’s Digital Weekly edition. Click here to view the full edition. 

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