00:05 – The hidden risk
So the fifth and final theme follows very closely on from the last theme, which was all around IDNOs a versus private networks, and it’s to do with novations and modification applications. So, it’s all to do with transmission applications here, we’re not looking at distribution network applications. So, a data center connection to the transmission network will almost certainly have started its life as an effectively a private network connection.
So, an entity, I don’t know, let’s call it data center one limited or something like that, will make an application to NESO for a connection for a data centre, and NESO will issue the connection offer back to data centre one limited and say, yeah, here’s your connection offer and, you know, you can connect into the grid and we are going to provide you with the 132kV point connection or whatever, and so the data centre developer will then, you know, take that project through its development life cycle. They’ll be looking to get planning permission and designing the site layout and all that sort of business, and at some point, the developer will have the conversation that we were talking about under theme four, around do they want an IDNO involved, or keep as a private network? If the developer makes the decision that yes, we want to go and be an IDNO; then there is a process to go through to change, and it’s not that easy.
01:35 – The consequences
It seems like it should be easy, but it’s actually a bit complicated because the reason is a private network customer is classed as a non-embedded demand customer, a non-embedded customer in terms of NESO’s language. So, they’re one customer type, whereas an IDNO is classed as an embedded network type the same as a DNO; so actually, to move from one to the other, you need to change the offer. So, there needs to be a variation issued to that offer and to trigger that process to change the customer type you need to do a Mod App.
So, the first stage in the process of changing to an IDNO connection from a sort of direct demand connection, private network connection is to make a Mod App to NESO, NESO will then issue you with a modification offer, and that will change the customer type from a non-embedded demand customer to an embedded network, and that Mod offer is then signed, and then immediately afterwards, there’s then a novation agreement that is done. So, the novation then changes the customer entity, so that varied offer is then changed from being the customer, being data centre one limited to IDNO one limited – so those two processes have to happen sequentially. In the background, data centre one limited has put up securities for their connection to NESO. Now, in the changeover process, the IDNO, when it has the offer novated to it, the IDNO then needs to put up the securities to NESO and the IDNO will expect that the data centre developer, data centre one limited, to back off the securities for the IDNO; that’s just sort of the way it works. So, in this changeover period, the customer, data centre one limited, is putting up securities directly with NESO and putting up securities to, IDNO one limited at the same time, and so this changeover period could be for a couple of days or a few weeks potentially, as the offer gets novated from one to the other; it’s not necessarily a massive issue, and it can be overcome, but it’s really important for developers to understand the process because a Mod App can take three months from the day it’s issued and clock started, to get an offer back; the novation process can then take three or four weeks to happen, you’ve got to make, put these securities arrangements in place, and by the way, if you are, whatever your level of securities is at the time, you know, 10 million, 20 million, 30 million, you’re doubling that for a period of time.
So, there is a cost to doing this. So there’s potentially a, five or six-month period here that it’s going to take to do that change. So if it’s left too late in the process, it’s going to delay the connection of your site.
And so that’s obviously really important for a developer to try and make sure that they then don’t delay these connections.
04:48 – Navigating the process
Our process in these sorts of arrangements is trying to help the developers navigate the process, trying to inform them, this is going to take a long time. Let’s get on with it now rather than leaving it, and let’s get the Mod App done, we’ll help do that, we’ll help review offer that comes back, we’ll help with the innovation agreement and some of this requires sort of legal input as well in the background; so, we’ll work with any legal teams that the developers have got to, who will probably want to be reviewing the details of a novation agreement, and so on in the background. We are there to try and help guide the developers through a complicated process and at the end of the day to make sure the developers get the connection that they need in the sort of timeframe that they need it.
So I guess the important takeaway from this theme is don’t underestimate how long it’s going to take to transition from being a direct demand connection to an IDNO connection. So do it sooner rather than later.
