Podcast: Reform Update, Part 1: Gate 2 Offers

00:00:54 – 00:01:30 – Pete Aston

Hello, and welcome to another Connectology® podcast from Roadnight Taylor. I’m Pete Aston, and I’m joined by my colleagues Nikki Pillinger and Rachel Eynon, and we are going to be giving a bit of an update on Connections Reform, and what’s going on with sort of Gate 2 and the offers and so on.

Lots going on as, as ever – things very busy, so sort of as we get into this, can you give us a bit of an update on what’s going on generally with the sort of Connections Reform process, Gate 2 offers? Because obviously everyone put their applications in, what, about a year ago almost now.

00:01:31 – 00:01:31 – Rachael Eynon

Coming up to a year.

00:01:31 – 00:01:38 – Pete Aston

Coming up to, so we’re recording this 25th June, yeah, so, so where are we up to now? What’s gone on?

00:01:39 – 00:02:21 – Rachael Eynon

Yeah. So, we’ve had a quick look at the ENA dashboard this morning, to get the latest. So, it has been confirmed that all the protected offers at transmission and distribution have now been issued, but we are still seeing that quite a lot of those are still open for acceptance, and now then we’ve moved into the non-protected phase one offers, so the dashboard is showing that a handful of those have been issued; so hopefully start to see more of those over the next few weeks.

And of those that have been accepted, it is a very high acceptance rate. So, there are around 400 offers that have been accepted and only seven that have been declined, so…

00:02:21 – 00:02:42 – Pete Aston

Yeah, and there’s something like there’s still just a little bit less than half are still open for acceptance of the protected projects, isn’t it? So, so still quite a lot open for

acceptance. So, we’ll have to see if that high acceptance rate sort of continues through.

But I guess we’d expect, Nikki, wouldn’t we, that the protected projects is going to be a pretty high acceptance rate for those.

00:02:43 – 00:03:17 – Nikki Pillinger

Yeah definitely, there’s not going to be many protected projects that aren’t going to be wanting to continue. It’ll be interesting to know how many projects have accepted that they still have queries open, because I know I still have quite a few projects that have got some queries open on them,

especially at distribution. So yeah, there is there’s had to be that kind of pragmatism and agreements with, you know, developers who, you know, really do actually still have these outstanding issues with offers, but DNOs that need to get them signed; so that’s still going to have to, have to filter through.

00:03:18 – 00:03:24 – Pete Aston

Yeah, and we are still seeing connections happen in the background, aren’t we? Because you’ve been working on a project that was connected fairly recently.

00:03:25 – 00:04:01 – Nikki Pillinger

Yes. So yeah, I had, well, I had a project energize a couple of weeks ago now. I’ve got another couple coming up for energization, which is really exciting.

So yeah, Gate 2 is definitely much more of a formality, for them. But yeah, things are still happening in the background. It’s really, really positive. But yeah, people, especially like the protected projects, you know, they just need an offer that is, is clear and, kind of de-risks anything, that they can just continue on with. Whereas, you know, part of what we have seen is, is that actually those, those offers are, are maybe not that and, and are not what people are expecting.

00:04:02 – 00:04:19 – Pete Aston

We’ll come onto the offers in a minute because I know there’s quite a lot to talk about. Just in terms of Gate 2 offers, so we’re expecting, well currently it’s transmission phase one offers that are being issued, isn’t it? Then the distribution phase one offers start being issued, is it July or something?

00:04:20 – 00:04:24 – Rachael Eynon

Yes, about a two- or three-month lag from the transmission, so, yeah.

00:04:25 – 00:04:31 – Pete Aston

And then a bit later on in the year we’ll get the phase two transmission, and then phase two distribution don’t, doesn’t wrap up until what, March 27?

00:04:32 – 00:04:43 – Rachael Eynon

Yes, and there was an update, a slight update to those timelines – so, it was cited as mid-March, I think, that we’d see all the offers having been issued, but that’s now been extended to the end of March.

00:04:44 – 00:05:12 – Pete Aston

Yeah. So, a bit more forward; well, compared to some delays we’ve seen, that’s not too bad, two weeks.

Okay, so good, good general update. So, it’s good to see though, I think after, you know, the, the significant effort the industry put in last year with getting the applications in that it’s, it’s good to see offers coming out. But we are starting to see some interesting, and that was a euphemism, things in, in offers, aren’t we, Nikki? So, things that are maybe not quite what we’d like them to be.

00:05:13 – 00:07:03 – Nikki Pillinger

So, as I said, you know, what developers and investors need is these Gate 2 offers to completely de-risk their projects. That’s what everyone was expecting, that these Gate 2 offers would land, and it would just provide all of this clarity for projects so that they could just move forward. That hasn’t really been the reality, there has been a lot of queries on offers, there has been mistakes on offers as well; there’s been caveats and clauses added into offers.

One of the most kind of worrying ones from my perspective for distribution projects is actually having clauses in there for protected projects saying your project may actually still have to go through another transmission assessment, or your transmission costs may change, or you have may have transmission costs that may increase over time. These are really unhelpful statements and completely go against the methodologies.

And our understanding is that it’s kind of coming from NESO. I understand that these clauses would have to be in there for maybe later offers, but not the protected ones. So protected offers, you know, we need the connection date, the connection point, you know, the connection works – that all needs to stay the same. So, we can’t have those clauses that are applicable to later offers, you know, like if you have transmission works identified, then these actually may change in the future because we are still doing those studies.

So, you know, for one, one batch or one phase, you may have, oh, okay, so you

know, there’s two new SGTs needed and a grid supply point, and then further studies would actually identify, no, we need, you know, a whole new grid supply point or something like that. So, that would actually change the solution there, but that’s not helpful for protected projects; it’s understandable for later phase ones.

00:07:04 – 00:07:13 – Pete Aston

And especially as a lot of protected projects or most protected projects that are at distribution level don’t require transmission works anyway, because that’s the why they’ve got a 26, 27 connection date, isn’t it?

00:07:14 – 00:07:27 – Rachael Eynon

Yeah, exactly. So, and to expect that there might be that risk that the design would change, like that risk should have lessened by the time that we’re coming to 26, 27 connection dates. So yeah, does seem like a, a strange clause to have in there.

00:07:28 – 00:07:46 – Nikki Pillinger

Yeah. It’s just adding additional risk, you know, when you have a DNO offer, if you have, you know, if you’ve gone through a transmission works assessment, you would then actually have that clause taken out of your offer to say, you know, this has been done, don’t need to have this in here anymore – that’s all fine, it’s not something that should be added in at this stage.

00:07:47 – 00:07:56 – Pete Aston

And is that something we’re seeing across all the DNOs? So, you say this is probably coming from NESO, so is that filtering down into sort of Gate 2 offers for all the DNOs?

00:07:57 – 00:08:11 – Nikki Pillinger

Yeah, and it’s challenging because the DNOs say, “Oh, you know, this has come from NESO, so we have to leave it”, but the clauses are all slightly different from all of the DNOs as well, so I think there just needs to be an agreement that, you know, that should not be in there for protected projects.

00:08:12 – 00:08:14 – Pete Aston

Anything else in terms of Gate 2 offers and some issues we’re seeing?

00:08:15 – 00:09:02 – Nikki Pillinger

Like I said, there’s some DNOs have taken the opportunity to kind of add in more terms and conditions that we didn’t have before, which really isn’t in the spirit of Gate 2. Costs have been a real issue that have been discussed across all of the working groups that I sit on. So obviously, you know, for projects that had their last, you know, cost update, you know, back in 2020 or 2021, we had those massive increases back in 2022; we are expecting to see a, like at least a 30 to 40% increase in costs from, you know, kind of over that five, six-year period, but we are seeing hugely significant increases in costs

for some DNOs, which is making that, challenging for developers to, to be able to actually invest in.

00:09:03 – 00:09:14 – Pete Aston

Yeah, and some DNOs have completely changed their method of delivery of work, so they’ve gone into like framework type arrangements which then have massively increased costs.

00:09:15 – 00:09:16 – Nikki Pillinger

Hugely, yeah.

00:09:16 – 00:09:18 – Pete Aston

You know, even from like a year and a half, two years ago.

00:09:19 – 00:09:37 – Nikki Pillinger

Yeah, even if, you know, if the design’s changed, you know, we understand that, you know, we get that if, you know, we now need a 132kV tower replacement instead of a modification or, you know, the cable routes changed or something like that, you know, that’s an understandable change. But some of these cost increases are, are very, very significant, and are not particularly justified.

00:09:38 – 00:10:40 – Pete Aston

Yeah. So, I guess, I guess developers need to be looking out for terms and conditions that have added in specifically to, to offers and, and challenging them. We’ve, we’ve challenged this a few times, been successful with getting some, some of the non-Gate 2 related clauses sort of taken out that were sort of less appropriate, so yeah, definitely worth sort of liaising with the DNO and seeing, seeing if clauses can be, can be changed.

Great. Let’s, there’s still lots of industry work going on in relation to Gate 2 offers that are coming out. So, we know that NESO, TOs, DNOs, RenewableUK, other industry reps had, had a, a sort of a, a big workshop fairly recently, and there’s some sort of, sort of key notes coming out from that, aren’t there, Rachael? Anything to sort of pick up on what, what’s come out from that?

00:10:42 – 00:11:19 – Rachael Eynon

Yeah. We’ve got a few and, and a lot of those are related to offers and the timing of those and maybe complexities within them. So, one of those that’s stood out in relation to timing is that we have, AR8 coming up, and with the timing of offers, we’re going to have a kind of two tiers of applicants almost, where some might have their Gate 2 offer already, whereas others won’t. And I think it was highlighted in there that that could see bids being inflated to account for that risk. So that’s something that’s been highlighted to, to DESNZ and hopefully, shared with LCCC as well.

00:11:20 – 00:11:39 – Pete Aston

So theoretically, the CFD, the AR8 round is like July this year, isn’t it? So, which is slap bang in the middle of all the Gate 2 offers coming out, which is, yeah, so it’d be interesting to see how that works, whether there’s any flexibility built within to the auction process or whether it’s just delayed, deferred, yeah.

00:11:40 — 00:11:50 – [BREAK FOR MIDDLE SECTION]

Other bits coming out from that workshop?

 

00:11:51 – 00:12:50 – Rachael Eynon

I think a more general one was just that, by developers being in the room, I think they were able to highlight that so many of the offers and projects that they’re taking through Gate 2 are complex.

So, I think there’s potentially been an assumption that the majority of projects are, you know, single stage, single technology, and should pass through the process relatively easily; whereas the reality is there, there are lots more complex projects going through the process, which then brings up questions with how those offers will be issued.

So, one request out of that session was for a flexibility on acceptance windows. So, in particular, where we’ve got stage connections, that sit across phase one and phase two, there’s a bit of uncertainty as to, a) whether that stage one that’s in phase one will get its offer in the phase one timescales, or whether it will need to wait until the stage two has been assessed and see a full offer coming out at that point.

00:12:50 – 00:13:55 – Pete Aston

Because the TOs might not be able to design the phase one connection until they’ve designed the phase two connection.

00:13:55 – 00:14:33 – Rachael Eynon

Yes, yeah. So, our understanding is that, where the TOs are comfortable that those elements of the project, maybe they’re separate technologies, are easier to separate, then they will, in some cases, be able to issue that early sight of the phase one part in an earlier offer, and then follow that up with a second stage, but there are also going to be some cases where the full offer won’t be issued until that stage two has been assessed. But the concern there for developers is whether they’re, they have the information they need to be able to sign that first stage offer if it does come out without knowing what stage two looks like.

00:14:33 – 00:15:16 – Pete Aston

Yeah, that’s quite a challenge. Other things coming out from that meeting look like, there’s an ask from developers if they can have early sight of what the transmission works are going to be. So, so the way it works in the background, the, the TO gives the TOCO, (Transmission Owner Connection Offer, is that what it stands for?), to NESO, which is sort of contains all the works, doesn’t it? And then NESO packages that up and costs it and passes it to the developer. But this is an intermediate stage, isn’t it, where the TO will provide a sort of an interim update to the developer like a month or so ahead of the NESO offer coming out. Are all the TOs thinking of doing this?

00:15:16 – 00:15:50 – Rachael Eynon

So, it sounds like there’s a bit of uncertainty across the TOs, or kind of different approaches to this, so we know that SSEN Transmission have been issuing, you know, more formal, packs once they’ve completed the TOCO, which does show that detail around cost and expected connection date; and they were also scheduling offer calls with the customers. Again, that was ahead of the offer being issued. How other TOs are approaching it, we’re not so sure, but hopefully we’ll see some more of those meetings being scheduled.

00:15:50 – 00:16:09 – Nikki Pillinger

Yeah. I think that’s so important that that happens, and it’s something that we’ve been calling for a while because, you know, we otherwise we’re just going to get those, those shocks like we had with, you know, like a two-step offer process, where DNOs are then told about this solution that is completely unfeasible for them and that they had no visibility of.

00:16:09 – 00:16:21 – Rachael Eynon

Yeah, it’s a good point. I think something that’s maybe not clear is how that is managed, um, for distribution connections and whether there’s any similar engagement happening between the TO and DNO when they receive those TOCOs.

00:16:21 – 00:16:46 – Pete Aston

There was a couple of other things I think that came out that workshop as well, seeing if NESO could have a better process for prioritizing post-offer queries, that was one thing. Maybe sort of prioritizing it by connection date so that those with later connection dates, they deal with the quest queries later. But you still got to accept the offer within the same period of time, so it’s, I’m not quite sure how they’d do that.

00:16:46 – 00:17:16 – Rachael Eynon

Yeah. I would’ve, I think some of that will naturally happen by the phasing of the offers itself. So, it’s there will be so many offers that are out there just now that all need to be prioritized, so I think it really is more about, responding to those queries as a whole more quickly.

And I know NESO have acknowledged, that for some cases where queries haven’t been answered by the deadline, that they’re willing to extend that deadline to address some of those, but we don’t know if that’s happening in all cases or on request.

00:17:16 – 00:17:37 – Pete Aston

And then the last point coming out of that workshop seems to be a request for NESO and the TOs to manage unrealistic connection dates, which is a slightly weird one, because you’d have thought the connection date that goes in the offer should be realistic in the first place, so I’m not quite sure what the driver is for that conversation?

00:17:37 – 00:18:11 – Rachael Eyon

Yeah, I think maybe it’s more a concern for protected projects and for these near-term connection dates, where maybe that connection date has just been kind of reapplied and passed on again, and but now the, the developer, due to the connection performance uncertainty, has kind of held back and, and not progressed to meet that, that date.

But we have seen through those bilateral with the TO that there is potentially room to flex that date a little once they’ve seen this offer pack come out along with the TOCO.

00:18:11 – 00:18:26 – Pete Aston

Okay. Well, that sounds pragmatic but see if it works, there’s a couple of new working groups that are being proposed, we don’t have enough working groups clearly across the industry.

So, Nikki, you, you’ve come across one that’s called CIDEF that I can’t remember what it stands for, but you know.

00:18:26 – 00:19:09 – Nikki Pillinger

So, it’s the Connections Investor/Developer Engagement Forum, and it’s going to meet once a month, it’s going to kind of feed directly into, Gold Command, and it’s going to be, headed up by Ofgem. I think it’s kind of a replacement-ish for the CDB, but yes, I will see how it goes on the first meeting.  But yeah, I think that’s the general idea, is that we, we feed in, developers; and it says developer/investor – it seems to be more kind of developer focused. But obviously, you know, developers have that, you know, they do have to get the investment for projects and participate in that process. So yeah, we’ll see how it goes.

00:19:09 – 00:19:16 – Pete Aston

See how it goes. A name that rolls off the tongue that no one’s going to remember, and there’s perhaps another one as well?

00:19:16 – 00:19:53 – Nikki Pillinger

Yes, one, maybe two.

So this is something that RUK are looking at, and that will remain sort of offer focus as well potentially but it’s looking at consistency across the DNOs; so that might be one that helps address some of those clauses coming out in offers. But yeah, I think early stages of that one as well. So, we’ll have to see what the kind of terms of reference and scope of that look like too, but yeah, I think that’s to try and bring back some probably quite old now, historic DNO working groups, and yeah, bring them all together.

00:19:53 – 00:20:27 – Pete Aston

I think that’ll be quite positive because I don’t know about anyone else, I really, I miss ICE. Like that incentive and like, connections engagement; I thought that was really good because it really allowed, it gave like a structure for the DNOs, whereas now we don’t really have that. You know, I sit on obviously quite a few DNO working groups, but it’s, you know, not everyone, not every DNO has them and they don’t all do the same thing and they don’t all talk to each other, and they’ve all got sort of slightly different issues. But yeah, that engagement since ICE went has been really, really lacking for some DNOs. So that would be really positive, I think.

00:20:27 – 00:20:47 – Pete Aston

Yeah, good. So, lots of new working groups, so get yourself on those groups if you can. We’re nearly through the list, and this is just half of the podcast that we’re doing today, there’s another one we’re doing on Demand Reform because there’s a lot to talk about.

So, methodologies update, Rachel.

00:20:47 – 00:21:04 – Rachael Eynon

Yes, so we have now seen, NESO’s submission to Ofgem to update the methodologies. So that’s the, the annual update, which is in preparation for the next Gate 2 window in this case, and yeah, had a quick look at, at what’s being proposed in there and don’t think there’s too many major surprises. But I think one that everyone was looking for was to see whether the protections were going to be disapplied for batteries, and that is not the case. So, it looks like we’ll be looking to CMP 470 for some kind of action to resolve that the oversubscription.

00:21:04 – 00:21:37 – Pete Aston

So, the protection clauses, is it 3A, 3B? They’re the ones that are sort of could come into the first new window. So, they’re going to sort of remain in place, we think.

00:21:37 – 00:22:12 – Rachael Eynon

Yes, yeah. So, it was only ever proposed that they would be removed for batteries, but they will now go ahead for all projects, and there has been a few changes to the kind of queue formation process. So, those that are already in the queue and met Gate 2, in Gate 2 to whole queue will kind of remain untouched, but this is for everyone that applies in the next window and how they’re kind of added to the back of the queue, so we’ve seen the reintroduction of a planning submitted readiness status, so that wasn’t originally there for the new window; so, we’ll have planning obtained, planning submitted, and land rights as before.

00:22:12 – 00:22:16 – Pete Aston

And that’s because that’s how it was done for phase two, wasn’t it, the queue formation bit?

00:22:16 – 00:22:45 – Rachael Eynon

Yeah, yeah. So that affected the ordering for phase two and the kind of overall decision of who got in Gate 2 to whole queue.

So, we’ve got those three levels again, but then within those levels we have some new prioritization for hybrid projects and for projects that are repowering. So those were kind of more unexpected changes, but it’ll be interesting to see exactly what that looks like, brings a whole new level of complexity to that ordering.

00:22:45 – 00:23:12 – Pete Aston

And we were talking earlier about what does repowering mean, and how you define that. Like, because we had the example of, if you’re repowering a power station that’s been there for nuclear power station, for example, been there 30, 40 years, well, it hasn’t got a red line boundary. So how do you define, you know, what does the repowering mean? Is it just using the existing tech? Does it, within a certain distance of the existing site. Yeah, there’s lots of detail, I guess, that we’ll, we’ll need for that.

00:23:12 – 00:23:28 – Rachael Eynon

Yeah. And we would expect at this stage that all of the projects that are looking to repower will be in a similar situation, because they’ve been considered, built and not in scope of Gate 2 queue, obviously over time that will resolve, but yeah, in the near term we will probably need a bit more information.

00:23:28 – 00:23:44 – Nikki Pillinger

I think that’s really positive, though, that hybrid projects are actually getting considered in this round because obviously, you know, they were pretty severely disadvantaged in the kind of initial Gate 2 to the whole queue process. So yeah, good that that’s been recognized for this one.

00:23:44 – 00:24:10 – Rachael Eynon

And I think that’ll be helpful where there were projects that were previously hybrid, and maybe they lost one of the technologies, but they’re now covered by the protections. So, when they come into the next round, they’ll be protected and hybrid and therefore be, as we understand it so far, kind of at the highest level of prioritization, or maybe not quite as high as designated projects, but should help, yeah, try and align those connection dates better with the, the part that’s already in the queue.

00:24:10 – 00:24:17 – Pete Aston

Yeah, it’s going to be interesting to see how that plays out, and of course, we don’t yet know when the first window’s going to be.

00:24:17 – 00:24:18 – Rachael Eynon

No.

00:24:18 – 00:24:21 – Pete Aston

Although I think we saw maybe in one, one document might be Q4 this year, but…

00:24:21 – 00:24:32 – Rachael Eynon

Yeah, so yeah, I think that was the latest from Ofgem, in their demand publication, which we’ll chat about in the next episode. But yeah, Q4.

00:24:32 – 00:24:48 – Pete Aston

Yeah, and there’s just one more thing for us to touch on, on this podcast, which is, just a couple of days ago, NESO sent round an email saying that they’re doing a Mod App scoping exercise, do you want to just talk us through what this might be?

00:24:48 – 00:25:27 – Rachael Eynon

Yeah, so yeah, I think there’s maybe a bit of reading between the lines at the moment, but hopefully we’ll find out more on this afternoon’s webinar. But our take on it so far is that NESO are looking at what kind of changes people might want to make to projects that are currently in the Gate 2 process; so that could be those that have received an offer but could still be those that are waiting on an offer, and the idea is that you would, for every change that you might want to make to your project, you would submit a form that explains that change, and why you might need to make it before the next window, and whether the timing of the window would influence whether or not you needed this early Mod App.

00:25:27 – 00:25:48 – Pete Aston

And this, there a tick box, isn’t there, for a non-gated or a gated change? So, it could cover, I guess, fairly insignificant changes, minor sort of admin sort of changes or some like significant ones like increasing your capacity or technology changes or something, I guess.

00:25:48 – 00:26:02 – Rachael Eynon

Yeah, or adding a new technology. So, I think it’s quite helpful actually, because it gives us maybe more information on, what NESO deem a, a gated change versus a non-gated change, so that early sight is helpful, but I think the deadline for that is the 10th of July.

00:26:02 – 00:26:04 – Pete Aston

So, it’s like two weeks, basically.

00:26:04 – 00:26:32 – Rachael Eynon

Yeah. So, it’s quite tight timing to make those kind of decisions, and there is a line in there that, that says, you know, if you don’t indicate your interest in this now, then you might lose the opportunity to participate in an early window, which is what we think this is gearing up towards, is that if there is significant demand for it that NESO might open a sort of Mod App specific application window to try and address some of these changes before a more formal full Gate 2 application.

00:26:32 – 00:26:56 – Pete Aston

So, they could open a Mod App window to do, I don’t know, minor changes to pushing out connection dates or whatever, okay. Yeah, watch this space, I guess.

That’s it for this sort of Connections Reform update. Thank you, Rachael. Thank you, Nikki. Thank you everyone for listening, and we do hope you join us for the next episode as well, and goodbye.