As Great Britain (GB) continues its transition from an electricity system based on large, central gas generators to one that is more decentralised and reliant on renewable energy, a clear need has emerged for a more strategic, coordinated plan for our island’s energy infrastructure to connect this new capacity.
What does this shift to strategic planning mean for the ongoing process to reform the regime for connecting to the electricity network?
The shift to strategically planning GB’s energy system
Apart from the construction of the ‘supergrid’ in the mid-20th century, our energy network’s development has primarily relied on disjointed gradual buildout in reaction to changing needs as our population and economy grew.
During this period, a lack of frameworks to deliver new infrastructure at pace and a highly cumbersome planning and permitting process have largely been left unaddressed and continue to impact network operators’ ability to deliver.
GB’s planning laws, combined with an outdated process of connecting to the network and a laser-like focus on minimising short-term costs for consumers, have meant very slow investment in network expansion since the 1960s. According to the now-defunct Electricity Council, in 1970 there were roughly 550,000km of mains cables across GB. The network grew at roughly 1.5% per year over 50 years, with most of the expansion happening at distribution level (132 kV and below). This is in comparison to double that level of growth seen in 1955-1970, a period of only 15 years. Over the last 50 years, the transmission network (above 132 kV) has nearly doubled in size. This is an accomplishment, but by comparison, to connect the Government’s targets for additional offshore wind energy, onshore renewables, and nuclear power, we will need to expand the transmission network by around five times by 2030 according to National Grid. This would mean, by the estimates of some in the industry, capital expenditure in the entire GB network (transmission and distribution) will need to increase up to six times per year until 2040 compared to 1970-2020.
The need for such rapid expansion calls for a holistic, whole-system approach able to more quickly usher projects through the planning system. It is for this reason the Government has decided to take forward the recommendation for a Strategic Spatial Energy Plan (SSEP) made in Nick Winser CBE’s Report on accelerating deployment of needed transmission network infrastructure.
The SSEP’s purpose is to provide a rock-solid national needs-case for energy infrastructure that can enable it to go through the planning process more quickly through providing a precedent for their pre-supposed approval. With respect to networks, this would be through the development of a Centralised Strategic Network Plan (CSNP), informed by the SSEP. This by itself would provide much-needed certainty to network developers. Additionally, the SSEP is intended to be refreshed regularly and reflect a set of Government targets in tandem with the need for system decarbonisation, such as economic growth and devolution.
To date, Electricity System Operator (ESO) (soon to be the National Energy System Operator (NESO)) has produced two Holistic Network Designs (HNDs): tCSNP1 (known also as ‘Pathway to 2030’) and tCSNP2 (known also as ‘Beyond 2030’). The former produced recommendations on the network upgrades needed to meet the previous Government target of 50GW of offshore wind energy by 2030. This fed into Ofgem’s decision to bring forward funding and permitting for 26 transmission projects. The latter looked at needed transmission works to meet the previous Government’s target of decarbonising the electricity system by 2035.
Going forward, it is expected that the new Government will instruct the ESO to produce an SSEP proposal before 2024 is over. This will, in turn, go out for public consultation and be refined. The SSEP will then inform the first full system CSNP, expected to be produced by the end of 2025. The SSEP is also expected to inform the Regional Energy System Plans (RESPs), which will aim to deliver the SSEP on a regional level with implications for the buildout of the electricity distribution network.
It is intended that the SSEP will principally focus on accelerating and optimising the transition to a clean, secure and affordable energy system by assessing optimal locations, quantities, and types of needed infrastructure. Consideration in the SSEP would explore optimal siting for infrastructure, industry requirements, public and community interests, and use of land and sea.
This makes the SSEP a much wider assessment than previously about where infrastructure should go. To ensure the subsequent CSNP is meaningful, it appears likely that the designated projects are intended to be given priority through the National Planning Policy Framework (NPPF) and the Nationally Significant Infrastructure Projects (NSIPS) guidance. This will be done by zones, to work out where the next generation of energy infrastructure needs to be built in order to meet Net Zero over the next 25 years, considering expected demand alongside the required generation, storage, and hydrogen assets.
However, since the new Labour Government has come to power, with an ambitious plan to decarbonise the electricity system by 2030, the expected commissioning of the SSEP is likely to be further reworked to achieve this aim. Indeed, DESNZ has commissioned the ESO to strategise how to design a clean power system by 2030 before the end of 2024. How such a radical shift in timelines will affect the SSEP and CSNP remains to be seen.
What does the SSEP and CSNP mean for connections reform?
Until recently, the ESO was reviewing input from industry on the regulatory reforms needed to enable the shift from a ‘first come, first served’ to a ‘first ready, first connected’ system based on the willingness of projects to secure land rights and show intent to connect to the grid. While this new system was expected to go some way to speeding up queue connections, most acknowledged that more needs to be done to speed up connection times.
More specifically, this means moving from the new ‘first ready, first connected’ system to one based on strategic need. Sticking with the new system would likely conflict with the SSEP and fail to provide GB with the mix of generation technologies we need for a clean, affordable and secure energy system by 2030.
Recently, seemingly pre-empting the shift to the SSEP and delivering a clean power system by 2030, Ofgem have confirmed the ESO’s intent to add new criteria to the reformed connection process. These criteria will be based on technical restrictions about what projects can connect at specific voltages and limits on how much of each technology type can connect each year, in certain locations, in alignment with the strategic energy needs of GB. Given the very rapid pace at which these proposals must be implemented, there will be a need to ensure industry is kept closely involved in designing these new criteria and maintain confidence in investing in the power system.
The potential for legal challenge in transitioning from one system to another is also a serious risk NESO, Ofgem and the Government will need to navigate, with a need to ensure a robust legal basis to the reforms to avoid such legal challenges.
Another challenge will be ensuring landowners do not extract ‘scarcity rents’ from land that is also assessed as strategically necessary.
While many system plans, and therefore connections from now until the mid-2030s, will largely be baked in by process seen in ASTI and tCSNP2, there remains significant uncertainty regarding other projects attempting to connect to the grid as we move towards spatial planning. This is especially true given that the new Government’s new CP2030 objective. It seems inevitable during the move to strategic planning that there will be winners and losers from those in the connection queue.
Remaining gaps in policy
Ultimately, the impact of the SSEP and CSNP will depend on how it is reflected in the NPPFs, plus the subsequent legal and political backing necessary for strategic projects to be constructed and connected more quickly. Without a strong legal mechanism to accelerate the construction of new transmission assets, the SSEP and CSNP will be virtually toothless. In the Government’s recent proposed updates to the NPPFs, there are promising policy changes to promote the deployment of low carbon energy, most notably the removal of the effective ban on onshore wind energy. While welcome, few of these low carbon assets will see their deployment times improve if times for connections to the network do not improve. This means including associated infrastructure and networks for low carbon energy, especially those identified in the SSEP and CSNP. While these two energy plans are still being developed, the Government can provisionally provide approval guidance with in the NPPFs now – a low-hanging fruit.
Furthermore, at this crucial juncture, a number of ongoing policy workstreams affects the investment decisions of the low carbon sector; it remains unclear how these processes are being coordinated. These processes include the SSEP, reform of the connections queue, reform of Transmission Network Use of System (TNUoS) charges, and the Review of Electricity Market Arrangements (REMA). This latter is especially pertinent as it remains uncertain whether and at what point the Government may consider moving from a national wholesale price for electricity to a zonal one, denoted regionally in line with key constraints on the network. For renewables developers forming an investment decision that could span 20 years, it’s crucial to understand whether the market conditions of a project may suddenly change halfway through its lifetime.
But even more important is understanding how all these reforms interact to meet the Government’s strategic aims. It is understood that as part of the Connection Action Plan (CAP), there are regular meetings to facilitate such coordination between the Government, ESO and Ofgem teams working across these areas. However, they have largely been held up by progress of the SSEP and the outcome and direction of these meetings remains opaque to industry stakeholders. Given the current uncertainty caused by the connection reform process, this opaqueness adds an additional layer of uncertainty.
Competition and central planning
There is also a deeper question regarding the balance of the need for strategic, centralised decision making and the role of competition and markets as we go about reforming the connections process and preparing the network for the transition to Net Zero. Max Forshaw of Octopus Energy on this:
As all these reforms progress in parallel, industry needs a clear vision for how competition and central planning should work together to deliver the Net Zero energy system we need. Whilst planning can work well to de-risk investments and help network companies deliver at pace, competition must continue to play a central role in minimising costs for customers and driving efficient investments in generation and supply. This is particularly important as local and decentralised projects grow to deliver more of our energy needs in 2030 and beyond.
Two overarching types of competition should be harnessed to unlock value for customers as central planning methodologies are set up:
- Competition in the design of plans: the plan development process for the SSEP and CSNP must utilise the best ideas from across industry, rather than rely on any single organisation to reach the right answer. To achieve this, planning methodologies should create the opportunities for market participants to ‘bid’ proposed solutions to meet system requirements or solve network constraints. This type of early competition will promote the use of innovative, ‘non-wires’ solutions that can often be delivered cheaper and faster than conventional infrastructure.
- Competition in delivery of the plans: once required projects or solutions are defined in the plan, competition will help minimise costs in the construction and operation of these assets. We’ve already seen this work in auctions for Contract for Difference (CfD) and Capacity Market (CM) contracts. A robust, streamlined process for developers would ensure that central plan delivery is well aligned with these other competitive mechanisms, as well as progressing new mechanisms to maximise competition across broader asset classes (e.g. including competitive transmission operation and long duration energy storage development).
Ultimately, as the network moves towards strategic planning, how the connections process is reformed will be informed by the broader political aims of the new Government. The first objective will be to facilitate a Net Zero electricity system, but it will also need to meet the new Government’s focus on a ‘fair transition’. Prioritisation based on broader political objectives would not be unprecedented. The Netherlands currently has a system for prioritising network connections based on how much ‘social value’ a connection provides to the country. While there appears to be a move (some would say too rushed) to align spatial planning and connections reform by basing it on regional technology need, in the long run the Government must consider the role of competition in ensuring the ‘best’ projects for its objectives are fairly prioritised.
In the next article, we will look at the challenges and state of policy regarding the buildout of the distribution network and connecting those on the demand-side of the energy equation.
