13th February 2025
“Grid connection reform – a key tenet of the UK government’s net zero and growth ambitions – is evolving rapidly. NESO, responsible for driving reform, has revised its proposals to include a Progression Commitment Fee. In this article, we provide an essential update on the latest grid connection reform proposals, and likely impacts for energy and infrastructure developers and funders.”
On 10 February 2025, NESO announced a further proposed code modification to introduce a Progression Commitment Fee (PCF) that will support the future connections queue and work alongside other proposed grid connection reforms. NESO has been intending to implement a Financial Instrument as part of grid connection reform. Following a call for input issued in November 2024, NESO has considered industry feedback and proposed the PCF as an alternative to the previously announced Capacity Commitment Fee (CCF).
The PCF would apply to generation projects that have progressed to join the Gate 2 queue but have not yet initiated statutory consents and submitted a planning application (Queue Management Milestone 1). NESO has suggested that the additional financial requirement will remain dormant providing that the Gate 2 to Queue Management Milestone 1 queue remains in good health, and will only be activated if and when required. If NESO activates the trigger [1], developers would be required to pay the PCF if their grid connection offer is terminated (or a portion if they reduce capacity) prior to achieving Queue Management Milestone 1. The PCF is intended to incentivise generation developers to regularly assess the viability of their projects during the period before they submit their planning applications.
The proposed PCF would initially be equivalent to £2,500/MW for the project, and would increase by an additional £2,500/MW every six months, up to a maximum £10,000/MW, during the time a project is in the Gate 2 queue without a submitted planning application.
NESO’S proposals will need to be approved by Ofgem before they can become operative. Clearly, further detail of the proposal will be expected. We’re looking closely at the evolution of NESO’s proposals and approval by Ofgem, which will inform the impact upon developers and funders.
The national electricity grid was built to handle supply coming from a small number of large, centralised generators, like coal-fired power stations, being delivered to homes and businesses. Now, the shift to decentralised supply from a range of renewables sources, as well as growing demand, is increasing pressure on the grid. In particular, the state of the queue for connections to the electricity network (transmission and distribution) is a major barrier to investment into, and deployment of, renewable energy and infrastructure projects.
In fact, grid connection applications have reached the point where it’s no longer possible to deliver with the existing connections process. The current grid connection process is on a “first come, first connected” basis so the obtaining of a grid connection offer, sometimes speculatively, has commonly been the first step towards commencing a renewable energy project. In 2023/24 alone, over 1,700 applications to connect were made, leaving more projects already in the queue than are required for the energy system in 2030 or even 2050. Many of these applications relate to what are known as ‘zombie projects’. That is, schemes that are taking up space in the queue for grid connection, but may no longer be viable or even have any prospect of being developed (yet the systems operators have had to assume that all projects with a connection offer will result in a connection when considering available capacity).
The election of the new Labour government turbocharged the drive for reform. Its clean power 2030 objectives (see below) accelerate the need for timely grid connections and greater strategic alignment with the projects required to deliver those plans.
The infrastructure and energy sector has so far met proposals with a mix of excitement, coupled with some trepidation. But what are the key proposals, and what are the likely impacts for infrastructure and energy developers?
In December 2023, the electricity systems operator published its ‘Target Model Option 4 (TMO4)’ proposals for new grid connection offers. TMO4 comprised an early application window and a new two-gate process, initially to apply to all new generation and demand connection applications received after the ‘go live’ date (now expected to be May 2025):
In April 2024, an updated/expanded approach was published , TMO4+ which:
So, as proposed, only projects meeting the Gate 2 criteria would be provided with a firm connection date and connection point. Projects at Gate 1 would receive only an indicative connection date and connection point.
The CP2030 Action Plan sets out government’s supported pathway to a clean power system by 2030. It includes a specific connections reform annex, which supports Grid Connection and Use of System Code (“code”) modification proposals and related methodologies (explained below) advanced by NESO for grid connection reform.
The annex sets out the GB-transmission and regional permitted capacity ranges for the relevant technologies comprising government’s strategic pathway. There are permitted capacities for 2030 and 2035 for transmission connections and distribution connections, divided into zones. Once permitted capacities are reached within a zone, projects will not be accommodated. For further detail, see Tables 2 – 6 of the annex.
In November and December 2024, NESO consulted on three draft methodologies setting out the detailed processes for applying the reforms in practice:
The methodologies cement the move from a ‘first ready, first connected’ approach, to ‘first ready and strategically aligned, first connected’.
Ofgem is now considering those methodologies. Ofgem may take a pragmatic approach to these overall principals, and its focus is understood to be on the consequential requisite code modifications. Ofgem’s decision is due in Q1 2025. It’s critical, as it will determine whether the reforms go ahead in 2025 as proposed. Further updates to follow!
NESO has now “paused” applications for new grid connection offers (as of 29 January), enabling resource to be dedicated to delivery of connections reforms at pace across 2025. There are exceptions to this arrangement to support wider GB energy needs and economic growth. For example, demand projects directly connecting to the national electricity transmission network (typically large industrial and commercial units), will be allowed to continue through the connections process.
Also subject to Ofgem approval, NESO is due to open the one-off application window for the ‘Gate 2 to whole queue’ process on 1 May 2025. The window (i) will be open for at least two weeks and (ii) will open at least four weeks after the code changes have become effective. As such, this is currently a proposed date.
Because the reforms will apply to the whole of the existing grid connection queue, developers will need to apply for a new grid connection offer, and this is where the so-called ‘zombie projects’ will be removed from the queue.
NESO is then expected to take some time to reorder the existing queue before issuing revised Gate 1 and Gate 2 grid offers.
Once the existing queue has been reordered, a separate application window is expected to open in Q3-Q4 2025 for projects seeking new grid connections. The new methodologies and code rules will apply to these projects, and it’s anticipated that there will, going forward, be two gird connection application windows each year.
Legislation to solidify the strategic alignment of the connections process with the government’s CP2030 Action Plan objectives may be introduced this year.
A key point for developers is that existing grid connection offer will be pulled and developers will need to apply for a new connection offer during the Gate 2 to whole queue application window.
As stated, only projects which satisfy the Gate 2 criteria of readiness [2], and strategic alignment [3] will be provided with a firm connection date and connection point.
It’s proposed that ‘Protected Projects’ will generally include those with a connection date of 31 December 2026 or earlier, or those which are significantly progressed (such as with planning permission secured relating to an application made before 20 December 2024, or where a Contract for Difference is held).
Where the amount of capacity under protected projects exceeds the zonal capacity limits under the connections reform annex of CP2030 Action Plan, the zonal capacity will be rebalanced to accommodate protected projects within the 2030 connections time frame. This could have a knock-on impact on non-protected projects in other zones, as well as what projects might be needed in the future within a relevant zone.
Developers are entitled to apply for advancement of their grid connection date in the reordering process.
Where a project has met the Gate 2 criteria and the developer has signed the Gate 2 Offer, there will be ongoing compliance requirements (Queue Management Milestones), failing which there’ll be a risk of termination of the grid offer or reduction in connection capacity, and potentially the payment of the PCF discussed above.
Funders will need to carefully consider the impact of these reforms for any existing or proposed financings, which will very much depend upon the stage and nature of the financing and the underlying project(s). Where projects have financing in place but have not yet reached energisation, the suite of finance documents should be carefully examined to consider any implications. Is the project expected to be a Protected Project? Further certainty and clarity will ultimately be helpful from a funder perspective but in the meantime delays on financings which have not yet reached financial close may arise with increased scrutiny from funders’ credit and risk teams.
Among other things, NESO will be rolling out a wider range of energy transition programmes building on the CP2030 Action Plan. In particular, the draft SSEP methodology which will operate as a GB-wide blueprint for 2030-2050 development of large-scale generation and storage projects. This will include potential locations, quantities and types of generation and storage infrastructure and will include electricity and hydrogen as well as, in future, other energy vectors.
The draft SSEP methodology is currently under consultation. Final methodology is expected in Spring 2025, and the final SSEP itself in Q4 2026. It’s expected that strategic alignment for future grid connection applications will need to be by reference to the SSEP.
Grid connection reform is part of a larger, evolving landscape of strategic energy delivery and security, and contributing to economic growth. Whilst this may present some immediate challenges, Walker Morris’ Infrastructure & Energy specialists can support clients throughout this process, maximising the significant opportunities that reform is likely to prompt for developers and funders involved in renewable energy developments.
Walker Morris’ cross-disciplinary Infrastructure & Energy Group comprises expert lawyers experienced in commercial contracts, route to market, corporate financing and transactional work, planning and real estate development, as well as all aspects of the clean power agenda, and energy and infrastructure development.
In connection with grid connection reform specifically, we can:
For further detail, tailored training or advice on grid connection reform, or any aspect of the clean energy/strategic energy delivery and security agenda, please contact Shane, Paul, or any member of the Infrastructure & Energy Group.
[1] the proposed trigger is a new metric to measure the cumulative MWs that are terminated from the Gate 2 connections queue through failing to meet Milestone 1. If the amount of these projects goes above a threshold (currently 6000MW for an initial 5 year metric period), NESO can elect whether to activate the PCF
[2] for example, in terms of land, having an option for a minimum 3-year period, ownership or an existing lease with sufficient term; or, in terms of planning, a Development Consent Order or an application for planning permission submitted and validated by the time of the Gate 2 application
[3] for example, projects eligible for protections, designated projects, or those aligned with CP2030 (such as transmission-connected demand, wave/tidal, or non-GB generation, etc.)