Podcast: Grid News and Views #16

00:01:17 – 00:01:25 – Nikki Pillinger

Hello everyone, and welcome to another Grid News and Views. I’m Nikki Pillinger and I’m joined by Alex Ikonic and Philip Bale, morning everyone.

00:01:26 – 00:01:26 – Philip Bale

Morning.

00:01:26 – 00:01:26 – Alex Ikonic

Hi.

00:01:27 – 00:01:45 – Nikki Pillinger

So lots happening at the moment, so we are going to try and talk about some things over than Connections Reform, but obviously that’s going to come up a bit.

The first thing that we are going to cover is, so we now have an update on Connections Reform and the timeline and what’s going on there, so I’ll pass over to Alex first.

00:01:46 – 00:02:26 – Alex Ikonic

Yep. So, we recently, received NESO’s update that the timeline is under review again. So, we are expecting an updated timeline in the next couple of weeks, but generally the kind of first, batch of the Gate 2 offers; so that’s the protected 2026/27 projects, they have been delayed by at least a few weeks – we understand they are kind of currently underway. So yeah, I think by potentially the end of February, I think we are expecting them to be issued, and then we’ll wait and see what that means for the rest of the kind of phase one projects and the phase two projects as well. So yeah, still a bit of a waiting game that one.

00:02:27 – 00:02:31 – Nikki Pillinger

Yeah, certainly. So yeah, lot, lots of frustrations from lots of, lots of parties on that one.

00:02:32 – 00:02:38 – Alex Ikonic

Yes. Yeah, so I think, yeah, the, the earliest that we can get a bit more certainty on timelines would be very welcome from the industry.

00:02:39 – 00:02:49 – Philip Bale

Yes. The reason being, that there’s just a bit more that they thought they needed to do and a bit more data checking. And there’s other things that’s come in, so there are reasons for it, but that’s still frustrating for the industry.

00:02:50 – 00:02:56 – Nikki Pillinger

yeah, very. Yeah. And obviously that’s had an impact on like milestones and developers’ kind of being concerned about timelines there.

00:02:57 – 00:04:36 – Philip Bale

Yeah, absolutely. So, there was a customer event last Thursday that we, Roadnight Taylor went in attendance for, and primarily at the moment, I’d say much more focused a transmission basis rather than distribution. So obviously both transmission and distribution schemes have got milestones. Obviously, it’s much newer transmission schemes in terms of coming through, the general view from a transmission basis is that the TOs will put out the dates, the earliest possible dates that the scheme could be connected based on whether customer wanted acceleration or not, or whether the TOS could no longer deliver to date that’s in people’s previous offers.

Then from those dates, if the customer then can no longer meet those dates because of the delays associated with Connections Reform, it will be for the customer to Mod App to push that date back with the general view that, customers should justify why Connections Reform has delayed their offer and by how much. And then NESO and the TOs will assess that terms of then whether they grant that Mod offer that comes out with the new milestone.

So, from my perspective, it feels a bit clunky, what we do know is that for the 26/27 projects, the TOs engaged with the developers to say, when would you like your connection date to be, to try and avoid need of going through that, Mod App and Mod Offer, the view from the last event that we’re at is that there is a view that that would be very good, but no promises because the sheer number of projects that’s in the gate two phase one process, we’re talking more than 10 times the number that’s in the 26/27 pot.

00:04:37 – 00:04:57 – Alex Ikonic

I mean, it sounds a lot of work that they’re going to need to do because it’s definitely not going to be a sort of linear delay. And you know, even if Connections Reform delay things by a couple of months, that actually has quite a non-linear delay of when you think about you ordering kit, for example, that actually could be like a year delayed, so it’s, it’s a lot work to dig into the exact details for delay for individual projects.

00:04:58 – 00:05:46 – Philip Bale

It’s a huge amount, and one of the things that I’ve been focusing on over and over and over again is there are some, granted a small number of projects where they’re DC coupled solar and storage because of the way that the protections worked. They got a gate one offering the current round, they’ll be protected in the next round. Obviously, it’s being delayed for the next window being open again. So, they have at the moment, no certainty on when their project will get a Gate 2 offer and whether the battery will match the PV or not; so, it’s impossible for people to develop these projects and it’s also incredibly challenging people to go through and develop projects if they have this guillotine of milestones that’s hanging over them.

Milestones are a necessary evil for these project developments in order to keep projects moving forwards, we don’t want to cause uncertainty the market.

00:05:47 – 00:06:16 – Nikki Pillinger

No, and you know, distribution projects have had milestones for years and years and they’ve, they’ve been a really useful way for DNOs to say to people who are clearly not progressing, you know, we can see that you haven’t done this; we’re actually going to remove your project from the queue, or we’re going to put you at risk. But if a project is clearly progressing and developers are actually, you know, they’re putting money, they’re putting resources into that, then there’s no reason to cancel; you know, some things just take longer than others, and there has, there’s always had to be that pragmatism around milestones.

00:06:17 – 00:06:25 – Philip Bale

I agree that there has been a lot pragmatism with distribution milestones. I would argue possibly too much pragmatism.

00:06:25 – 00:06:26 – Nikki Pillinger

I do agree with that.

00:06:26 – 00:07:41 – Philip Bale

But I think it needs to be, clear, transparent, fair. I think, in some elements of the past of distribution milestones, individual engineers have had an awful lot leeway with doing them, which in some senses has been possibly too kind, but I think there is an element of network operators understanding the process for projects. And one of the ones concerns me is that it seems like it’s been a mystery for network operators and TOs that the that develop projects are very rarely the people that build them, which then means needs to go through a sales process. That sales process takes time, and at the moment it is incredibly challenging to sell a project that doesn’t have a Gate 2 offer.

Some are being bought and sold where the view is the risk is small enough, so it means that people are going to get to Gate 2 offers, they’re going to have some clarity on what they can actually do and where the project sits contractually, then it’s going to go a sales process, the wrong thing to do is to try and cancel those projects as they’re going through a sales process or make it look too risky for projects to then be bought and delivered. So, it’s a very fine line with milestones that needs to be tread.

00:07:42 – 00:08:17 – Nikki Pillinger

Yeah, certainly, so kind of looking forward with Connections Reform. You know, we have, you know, the next window coming up at some stage in the future, so we actually have a consultation coming up on that in March – so, we will look out for that. Consultations wise, we have also got the Ofgem end to end review consultation, that’s going to be closing on the 27th of February. So really, really recommend that people feed into that, we we’re going to be doing that as well; that’s a huge piece of work and that could really kind of change the industry.

00:08:16 – 00:08:20 – Alex Ikonic

Yeah. It’s very comprehensive and I think there’s some very ideas in that one, so I think yeah, definitely encourage everyone to respond to that one.

00:08:21 – 00:09:33 – Nikki Pillinger

Yeah, definitely. And we’ve got CMP460, DCP461, which we’ve done another podcast about summarizing, we have also got some complications around kind of existing schemes like tech limits; so technical limits is, it’s kind of been more like one of my own personal kind of bug bears for, for a little while, it was a really good scheme that was brought, in the ENO three point plan, and it allowed a lot of distribution customers to have those sort of earlier connections ahead of transmission reinforcement being done. But there hasn’t been a lot of uncertainty around that, there’s, it is also kind of Connections Reform also kind of stifled that to a certain extent. There’s been a lack of opportunity for people to enter into technical limits offers, recently, and we’ve kind of got the impression that DNOs and NESO will not be kind of including those technical limits opportunities in new Gate 2 offers other than for customers that have already got a technical, got assigned technical limits offers; which seems like a massive missed opportunity to me.

00:09:34 – 00:11:29 – Philip Bale

Especially as I think the writings on the wall that a large number of the transmission schemes are trying to push their projects back because they are big and they’re complicated and they’re gone take longer. And ultimately, if we want to hit our targets, it’s distribution schemes that are smaller and more nimble that can actually get connected earlier. So, I agree with you Nikki; I think it’s a crying shame.

I do have one really geeky point on limits to add in, which is very techy, but I’m going to go with it anywhere, and I know Grid News and Views is usually quite light. If DNOs are issuing variations based on tech limits, I think there has to be a light shone on the ETR130, the P2 clause, that some of the DNOs have said here is your tech limits offer for a battery, and we are counting this as a variation to your distribution offer because now you have technical limits which accelerates your connection date at your transmission boundary, and because you’re varying your offer and previously your battery offer was included in ETR130 as demand.

We are now going to hide in small T&Cs that you are now classified as contracted demand. Which means in the event of a M minus two scenario, we will not consider your demand to restore and we therefore won’t reinforce a network if you are going to do it I think you need to be incredibly clear and open and transparent around what is, what it means, so that developers can understand the business case for that, of what does it mean for them, and ultimately is it the right thing to do. Some DNOs have done it, others haven’t – that feels wrong, there should be consistency with it. And so, I think it’s just if we are reopening technical limits, again, I think there needs be an industry, this the right thing to do, this is not the right thing to do – if are issuing the variation, we need to make it really clear, so people understand what they’re signing up to.

00:11:30 – 00:11:52 – Nikki Pillinger

Yeah, definitely. So having some, having some kind of clearer guidance on it. You know that that was kind of one of the problems with tech limits in the first place, right? That there was, no clear guidance for sort of like nine months when the scheme was actually first bought out. So there were, there was a, those kind of quirks and nuances and how different DNOs interpreted it and how it was, how it was administered.

00:12:04 – 00:12:05 – Philip Bale

Yep.

00:12:05 – 00:12:10 – Nikki Pillinger

I’m going to pass over to Alex now for some, things to chat on zero balancing.

00:12:11 – 00:13:48 – Alex Ikonic

Yes, so I guess that kind of comes from the results that NESO published, a couple weeks ago on the kind of preliminary outcome of the Gate 2 exercise. So they basically published the results of, you know, what’s made it into the queue, kind of across the different zones and the different phases and what’s left for the next windows, which I guess is the, the very important question, so it kind of relates to that point of how they’ve treated the last project in the phase two queue. So, they basically said that if a project, you know, is larger, but would exceed that phase two pot, and if it needed to reduce its capacity by more than 50%, it wouldn’t make it into the new queue.

And so, I think T5 for solar, which is the Midlands area, I think is a very good example of that. So, they’ve said that about 270 megawatts is left for the next window, which kind of really means that you know that there must have been project at the end, which is around 400 megawatts, which has kind of sterilized that capacity for that pot, and if you think, you know, going back to your point about distribution projects that could be five or even 10 distribution projects for solar, which are quite small and agile and could have probably built quite quickly, they’ve kind of missed out on this opportunity for this window, and, again, potentially they could be in the next window. Again, depends how NESO are going to treat that zonal substitution and the pots, kind of going forward and I think that kind of leads back to that, consultation that’s coming up in April. I think that’s going to be something that’s going to be important to, see how they’re going to treat that

00:13:49 – 00:14:04 – Nikki Pillinger

Yeah, definitely. That was kind of further complicated by that, that sort of zonal allocations being shared with distribution and transmission phase two, that it kind of muddy the waters a little bit, essentially wasn’t done as well as it could have been.

00:14:05 – 00:15:19 – Philip Bale

I think here is one that think it’s probably worth just sharing a light. This is very much my view, whenever looking at anything around Connections Reform, I think the pendulum can swing between being more transmission focused or more distribution focused the moment, in my view, it’s very much more benefiting transmission schemes primarily as distribution schemes only enter the queue at the point that the project progression has been clock started, and some of the DNOs didn’t do project progressions for years, which then means that there has been a shifting from the distribution pot to the transmission pots, which then has allowed more transmission schemes to come through.

Some of those transmission schemes were applied for several years after the distribution schemes that have ended up getting a Gate 1offer because of the date of the project progression that went through, and the view that DNOs couldn’t put in multiple project progressions if they had an existing one outstanding, which was some of the guidance that was given; which I would argue was incorrect, which basically means at the moment there is lot potentially very good distribution projects that have fallen away in preference for transmission projects that were developed several years after them, which doesn’t feel fair.

00:15:20 – 00:15:46 – Nikki Pillinger

Yeah, I think that that’s because it obviously, you know, I’m more kind of distribution focused and it’s been very evident that it’s been a very transmission focused and led process that doesn’t really appreciate quite a lot of the nuances, of the distribution processes.

So, Philip, you hand over to you for DRC updates, that’s something that we’ve had come up quite recently.

00:15:47 – 00:17:14 – Philip Bale

Yeah. So going back to transmission projects, so there are quite a number of transmission projects where they’re complicated, they have an they have Mod Apps, second Mod Apps, third Mod Apps. It comes through, and due to the sheer number of schemes that were coming through, I suspect there are errors that has crept into the Appendix Os, the DRCs, that come with them, and so customers apply with a Mod App; they put the DRC in, often that is missed from the TOs and from NESO, which then means they are sat there with a contracted project where there’s errors. One of the things that I’ve been pushing for is to make sure those errors are rectified before the Gate 2 offers come out; the last thing we want do is to have the Gate 2 offers, and for customers not to be in a position to modify them until the next window, which is going to update their contractual position. At last Thursday’s meeting, it was agreed from NESO that where those projects did exist and where there are clear errors that customers could go onto the portal, that they could update the DRC just fix the errors in what exists in their contracted position to where it was meant to be in the DRC, to effectively fix them. So when their Gate 2 offer comes out, it will reflect the actual position where it should have been and not just keep the areas manifesting forwards so customers cannot load that to the DRC, sorry, to the portal.

00:17:15 – 00:17:37 – Nikki Pillinger

We’ve also got some uncertainty for protective projects that are in phase two, especially projects that have got technical limits, in terms of the timescales, when they might get offers, and what those offers might look like, so that’s going to kind of it be a challenge for the coming months, but something that we, we are trying to get sorted as an industry quite soon.

Phillip, you wanted to pick up cost variations.

00:17:38 – 00:20:49 – Philip Bale

Yes, so this is something that is shining a light much more. So, there are projects that have been built out at the moment and going through and pushing forward, which is great to see, and hopefully we’ll get more and more of that coming through. A lot of these projects are relatively old, so there are projects that are out there from 2020, 2021, 22, that are now going into construction and they’re on their original costs and the costs are going up quite substantially, which is to be expected because there has been quite a lot of inflation since that time, the inflation that we’re seeing are typically 50, 60% increases. One of the Scottish DNOs made comment that when they’re going through and doing their cost variations associated with the Gate 2 offers, that some of them are looking like 200% cost increases – so that’s going to be quite substantial, the civils in particular of driving it.

What we are seeing in particular is variations in scope and cost being handled very badly by DNOs, and so projects are going into delivery and all of a sudden customers are getting a variation saying, oh, and by the way your cost was based on detail of on desktop design, we’ve now gone through detailed design, we determined we needed to change something, we’ve delivered something different, or in addition, we’ve already spent the money; please pay us an extra quarter of a million, half a million, million pounds for this – that is not being captured, and I think there is going to be a much bigger focus on the network operators having better customer service for customers going through so that the best practice is that if there going to be a variation in scope, that customer’s told about it immediately before the money is spent; they sign on to it and they have some level of visibility. I get the fact in delivery projects that sometimes it is more difficult to go through, but customers have to know how much money their schemes are going to cost as the DNO is aware of it, not 12 months later.

The other very quick point I’d want to do is for projects that are going through and in the build stage, ask your connection agreement as early as possible, scrutinize your connection agreement very very carefully. So, we are seeing a lot connection agreements coming out now and the terms are much stronger and bittier than was ever in the connection offer, and to some of them, to the point that people are having to go back and reassess the rates returns on their projects because the restrictions on availability and some of the terms that are in there will have a real economic bite on a project. So, when you get connection, agreement, understand exactly what’s going to be in there, restrictions on availability, abnormal network running, what are the terms, ENM being added at a very late stage and customers feeling quite uncertain around how this has happened and how dropped in. So, I think if you’ve got a project that’s going into construction, ask for your draft connection agreement as soon as possible, go through and review it and try and understand exactly what’s going to be in there because it’ll dictate how your project will operate when it’s connected.

00:20:50 – 00:21:19 – Nikki Pillinger

Yeah, certainly. And I think there can be, there, there’s also that differentiation in like the clarity of, how projects are going to be affected by abnormal running arrangements, you know, some DNOs are very explicit about it, some DNOs will you know, provide you with previous outage reports, but then other DNOs, you don’t really get anything on abnormal running arrangements, and then that’s kind of picked up quite late sometimes. Whereas it could be on the DNOs to actually make that much more explicit a little earlier.

00:21:20 – 00:22:10 – Philip Bale

A hundred percent. I mean, I think at the moment it feels like developers are basically asked to write a blank check with the DNO says that you could be constrained off abnormal running and abnormal running is everything, and you could have ANM on your project, and ANM is to be determined, whatever we think it should be, and this could change in the future, there again, there has to be balance in that, so I’m with you that the DNOs, I think should be forced to be far more specific on where there are restrictions. At the moment, you could have a scenario where something happens two or three grid groups over and it has an impact on your project and that feels fundamentally wrong, or if it is going be in there, that needs to be very explicit in the connection agreement to make sure that people can really understand what are the rights and the capabilities and the impacts.

00:22:11 – 00:22:20 – Alex Ikonic

Maybe that’s something that we could look through the Ofgem end-to-end review, like the themes to do with quality of offers and the kind of standards of service throughout the journey that feels like a good avenue to address them.

00:22:21 – 00:22:22 – Philip Bale

Absolutely.

00:22:23 – 00:22:29 – Nikki Pillinger

Yeah, definitely. I think that’s everything for today, so thank you very much, Alex. Thank you for Philip, thank you everyone for watching, bye.

00:22:29 – 00:22:30 – Alex Ikonic

Thanks