Podcast: Grid News and Views #18 – Part 1

00:01:18 – 00:01:22 – Kyle Murchie

Hello and welcome to a Connectologists® podcast. I’m Kyle Murchie and today I’m joined by Nikki and Rachael, hello.

00:01:22 – 00:01:26 – Nikki Pillinger

Hello.

00:01:26 – 00:01:49 – Kyle Murchie

So today, I suppose we’re going to try and cover quite a few topics, get everybody up to speed as much as possible. And also, even just get ourselves up to speed and I suppose have that kind of wider conversation, which would be really good. So, I was thinking the one we could maybe start off with would be Gate 2 offer progress. So, Rachael, what’s the story, where are we now?

00:01:49 – 00:02:09 – Rachael Eynon

Yeah, so latest update that we’ve had was on, or from NESO was on their webinar – so, I think that was maybe a couple of weeks ago now to say that 40% of those protected offers, the 26/27 protections are now out; so still a way to go on that, and…

00:02:09 – 00:02:21 – Kyle Murchie

Interestingly, I’ve actually got a slight update on that. We just heard this morning through one of the trade bodies that as of the end of last week, as of kind of Thursday, Friday, it was now 80%.

00:02:21 – 00:02:22 – Rachael Eynon

Oh, okay.

00:02:22 – 00:02:27 – Kyle Murchie

But 80% of what is very questionable, yeah.

00:02:27 – 00:02:35 – Rachael Eynon

Yeah, because I think that had to be clarified as to what that 40% was on the webinar. But that does kind of chime with the webinar update from SSEN as well, I think. So, they have said they’ve got all their pre-2028 TOCOs with NESO. So hopefully that is just a case of, you know, pulling all those appendices together and getting the NESO stamp on it before they come out. So, they have been kind of checked from a, I guess, a technical perspective in that sense.

00:12:47 – 00:12:56 – Kyle Murchie

And Nikki, any sign of DNO offers yet?

00:12:56 – 00:13:11 – Nikki Pillinger

No. So, well, kind of. So, I’ve seen one. So, I’ve seen a BEGA in Scotland and the DNO variation has come out of that – so one.

00:13:11 – 00:13:13 – Rachael Eynon

And was that a Gate 2?

00:13:13 – 00:13:32 – Nikki Pillinger

It was, yes, it’s a very progressed project. But yes, that is very much all I’ve seen so far is, yeah, the BEGA and the kind of subsequent DNO variation, which, well, you know, there wasn’t a lot to do on that. There was, you know, a date to update, but that was it really.

00:13:32 – 00:14:07 – Kyle Murchie

Yeah, because it would be really interesting that 80%, which had been maybe 40% a couple weeks ago, whether that includes those 2026, 2027 protected distribution offers, I suspect probably not. But just as a reminder from a timeline perspective, although most distribution offers will come later, anything that was 2026, 2027, protected distribution offers should be between early March and what, the end of May. So, we’re definitely halfway through that window now at the time of recording, but maybe it will happen in the next few weeks.

00:14:07 – 00:14:23 – Nikki Pillinger

Hopefully, the DNOs have got an aim to get the offers out to customers, but you know, it varies a little bit depending on DNO, but so that customers have got at least kind of four to six weeks to have a look at those and to get them reviewed and decide whether they’re going to accept them or not.

00:14:23 – 00:14:44 – Kyle Murchie

And Nikki, I know that in most DNOs there, they’ve been working away quite hard in the background looking at various different offers before they’ve got all the information from NESO. And there’ll be a lot of other changes that will come as part of the variation, i.e. cost updates, etc. Is that is that kind of widespread now, are we expecting that across all DNOs?

00:14:44 – 00:15:30 – Nikki Pillinger

Yeah, I believe so. So, the DNOs have actually had quite a long kind of run up to this; so, they have been kind of working away in the background to, you know, update their costs to see if a POC change is possible for any projects, you know, it’s a wonderful opportunity for distribution projects to maybe, you know, get a different POC if one is available. Yeah, there’s, I think there’s going to be quite a lot of news hopefully coming out from the DNOs within the next, I’d say optimistically kind of three or four weeks or so. But a lot of customers have been informed of like price changes already or any POC changes. So yeah, the DNOs have actually done really well in this and that they have done as much work, like pre-work, as they could do beforehand before getting the offers.

00:15:30 – 00:16:12 – Kyle Murchie

I think it’s worth noting that since we last spoke and had a podcast, DNOs have been a bit more forthcoming with writing down the fact that if you’ve got technical limits offer that already hit, you know, a solution that had already been put in place and presented, you can still move forward with that as long as you and the connections team can ultimately deliver to that date. Of course, at risk, but you don’t necessarily need to wait until you’ve got your offer, which was always where we expected things would be, but hadn’t been written down or kind of presented recently until last month, which I think was a positive, but maybe not so positive on LIFO of stacks and new technical limits.

00:16:12 – 00:16:53 – Nikki Pillinger

So, it’s very challenging for DNO customers to kind of justify moving forward with a project into, you know, the much more expensive stages of like procurement and like detailed design, because you just don’t know what their curtailment is going to be, their reinforcement solution might change; there’s a huge amount that could actually change between, you know, the offer that they had and the offer that they’re going to get depending on where they were in the queue and their progress and kind of everything that’s kind of shaking down from that queue reordering. So, while it’s, you know, kind of positive that they can continue if they want to, it’s a very, very challenging investment decision for developers to make.

00:16:53 – 00:17:40 – Kyle Murchie

Yeah, and we’ve seen quite a lot of varied information as well across different DNOs on what’s published and what hasn’t yet. So, I think if you do have a project in a particular DNO area and you haven’t had access to a certain type of information, then don’t assume that that’s the level of information available across all DNOs, there’s quite a variation and more obviously still to still to come, but I agree on that point around LIFO of stack is quite specific; we won’t get into the details now because we have talked about it before, but there will be some winners and losers, particularly projects that are in phase two, either because they’ve been moved into phase two or had been phase two before, irrespective of whether they’ve got technical limits in phase one, so quite a, quite a few challenges, I think, still to work through as projects get offers.

00:17:40 – 00:17:41 – Nikki Pillinger

And a long wait, as well.

00:17:41 – 00:18:41 – Kyle Murchie

Yes, yes. Because assuming everything still falls into place as planned, we’ll still be sitting here this time next year, hopefully just closing off the final remarks on Gate 2 offers, but we will see. In terms of offers that have been issued, because we’ve also talked about what, 80 odd percent of those protected fees be protected to 2026, 2027 offers out. What’s the feedback been so far? I’ve got a little bit of feedback from some developers on quality and errors, but yeah, be good to hear your thoughts as well. Rachael, I don’t know if you’ve seen or heard about many.

00:18:41 – 00:18:51 – Rachael Eynon

Not many on the Gate 2 front, but I do know we’ve had some Gate 1 offers that have maybe had some uncertainty around them. So, there is a clause in those Gate 1 offers that says why that project is getting a Gate 1 offer. And the default line around this is that it’s essentially because the project requested to get a Gate 1 offer, which in some cases will be true, but in some cases isn’t – so definitely worth checking that before you sign it to check that that reasoning is correct.

00:18:51 – 00:20:47 – Kyle Murchie

Yeah, really good point, because it’s the challenge with Gate 1 offers because they’ve got a perceived limited value. But of course, that could change; things do change very quickly and obviously people want to make sure that they’re in the best contractual position possible.

Interestingly, I suppose on Gate 2 offers, so it is interesting because what we’ve seen is quite varied. But generally speaking, a lot of offers that have had errors of some description, you know, these sorts of things will happen, we get that. Maybe the more the concern is, these should be the relatively straightforward offers. And if offers are coming out without certain appendices, i.e. an appendix that tells you what the date of connection is intended to be, what your completion date is, then that’s also a bit of an oversight.

So, I appreciate there’s a lot of pressure on the TOs and then also NESO to get those offers out. I think maybe something that when the TOs suggested last week might actually help that and help the review process. Talking about having like a pre, well, a pre-offer call, so a kind of offer information call as it was described – so that was SSEN Transmission. I know that others have voiced similar sort of considerations, but the idea of that is you would hear basically everything that they send out to NESO; some things redacted, but the main thing has been cost, connection point, connection date. I think that will be really helpful, particularly as we move through the summer, because you should be able to get information before you’ve got your offer, and then when you have your offer, you can quite quickly work out, ah is it an error on the NESO side, is it something already that’s a challenge to the TO and that might help query management. But if you do have a query, where do you go at the moment, is that still for the portal, Rachael?

00:20:47 – 00:21:07 – Rachael Eynon

I think still for the portal, and I believe there’s been talk of creating some kind of, I guess, error register within the portal for these offers, which would hopefully help streamline things and make that a clearer process than perhaps the query process for original Gate 2 applications, but I think we’re still waiting for a bit more information on that.

00:21:07 – 00:22:10 – Kyle Murchie

Yeah, I think that would be a really good idea to have the ability to raise the query there, have it then logged in a kind of like a dashboard, because also it will make it much easier when it comes to that point, which is probably fairly inevitable, but there will be some projects where all queries can’t be resolved within the time of the, at the time of the offer, so the offer validity period, so at least if that’s a kind of formal log, both projects and NESO should in theory be in a much better position to sign the agreements with some outstanding queries or outstanding defects, so to speak. But yeah, probably a few weeks away from seeing the results of that, I expect.

Just thinking, Nikki, we did see, feels as if we’ve been talking about DNO methodologies for ages, because we have been kind of involved in the backgrounds with some of those discussions. But yeah, but it’s not out there, isn’t it? We now do have some guidance on how the DNOs have actually interpreted what NESO wrote down in the CNDM.

00:22:10 – 00:22:36 – Nikki Pillinger

Yes, which I think is quite helpful and it does clarify where, you know, sort of demand technologies and those projects that are like under 5 megawatts are going to fit in. So at least that’s a process that the DNOs have now hopefully agreed on. I know there was quite a lot of discussion in the background and some different ideas being kind of proposed as to how that was going to work. But yeah, it’s good to have that clarity on how the DNOs are able to put their queues together.

00:22:36 – 00:23:01 – Kyle Murchie

I think given where we’ve kind of got to, and Rachael, you mentioned as we kind of lead into the designation process and how that links into demand, we could probably just get straight into that conversation on the methodology consultation. Because if that all already wasn’t enough to respond to and think about, we’ve now got a consultation on the methodologies, I can’t believe it’s been a year already!

00:23:01 – 00:23:05 – Rachael Eynon

Neither can I. So yeah, we do…

00:23:05 – 00:23:06 – Kyle Murchie

And you wrote part of it.

00:23:06 – 00:24:13 – Rachael Eynon

Yeah, yeah, a distant memory now.

So, we now thankfully have an extra week to respond to that once the deadline was pushed back – so that’s due on the 21st, and there is a lot to unpack in that. We’ve got some kind of very specific targeted changes, I mean, even right down to kind of correcting typos and things is all in there. But there is the overarching methodology document which covers some kind of broader points that aren’t reflected specifically in text changes, but sort of sets out NESO’s latest position and whether or not that’s changed since the original methodologies were published.

So, some of the mentions we’ve got there are things like attrition, the treatment of co-located projects and re-powering. So, all of those have kind of been brought out to say, we actually don’t think our position has changed since the initial methodologies, but we are interested to hear views and take those into consideration. And, you know, there could be consequential changes from that but there’s nothing actually proposed in the methodologies at the moment.

00:24:13 – 00:25:08 – Kyle Murchie

That’s a really good point, and we’ll hopefully be able to share it as part of the podcast itself. So, we just created a quick spreadsheet version of the NESO tables, but it is noting that those are the changes kind of classified in various different kind of classification orders down to really minor textual changes.

But reading that alone, you could easily miss probably the what’s going to keep most people interested in responding to the consultation. And I was going to say keep most people up at night, but definitely there are those three areas which probably needs most focus and certainly are things that we’ve talked about internally. So maybe I was just thinking maybe we can bring out the clause 3A and 3B concept and what’s been proposed there.

00:25:08 – 00:26:31 – Rachael Eynon

Yes. So yeah, we’ve got, so again, another area that they’re seeking views on is battery oversupply. So, we know due to the protections, there are significantly more batteries than the CP30 action plan deemed as needed, and we have more to come because we have the protections process, the protections clauses that cover kind of later applications coming in, in the next window for projects that had already got past that certain point of either submitting planning or having obtained planning by a certain date.

And NESO are concerned about the levels of battery oversupply that we have in there. So, one option that’s been put forward, but not kind of marked out in methodology, so it wasn’t set, is that clause 3A and 3B might be disapplied for batteries. So, you would still have clause 2B, which is the support contract. So, anything that’s got a CFD or a CM since the first Gate 2 window, they would still be covered by protections as they’ve kind of been deemed needed. But this would look to disapply protections for those that have kind of been, well, didn’t get a Gate 2 offer first time around, but have been working away in the background to progress their planning and now have obtained that planning and they then wouldn’t be able to come back in the next window.

00:26:31 – 00:28:23 – Kyle Murchie

Quite a topical one, because on one hand you can see the argument of over subscription and over supply, and then in the other, oh, hold on, I’ve got a project, I’ve actively progressed based on the methodologies that were secured through licence change, and now or potentially changing the rule book. So, I can, I think it’s very challenging, particularly when you’ve got quite a lot of moving parts, maybe that’s the other thing to draw out that it’s not just one change here we’re talking about, there’s lots of other potential changes like CMP470 that’s just been raised and to bring in a potential kind of additional financial instrument kind of specifically for energy storage, separate, of course, to the PCF, which we’ve already seen kind of come through already and is kind of sitting in weight, we should know more about, but you know, whether that’s likely to be triggered or not in the coming months, but you then look back and say, hold on, we’ve also got queue management milestones as well, they will definitely come into play as we move forward and Gate 2 offers come into force.

So, it’s quite tricky. It’s, are you trying to resolve something in the real short term, which is my kind of reading of the methodology, kind of question, do we need to do something more quickly? Or do you let a lot of these other factors play out and see what the result is, noting we could end up with even more energy storage in the queue before either that naturally reduces or another mechanism is brought in – tricky one, I’m sure we’re not all going to agree.

00:28:23 – 00:29:52 – Nikki Pillinger

Especially given that, you know, there are market forces, you know, and, you know, this is going to play a huge part in this, you know, whether battery storage projects will actually be profitable, you know, developers do look at their projects and think, you know, what is this, what is the current state of this project now? What’s the connection date? What are the costs? What are the securities? Is this going to work or not?

It will be interesting sitting here in a year’s time and saying how many Gate 2 offers were actually accepted or not, because just because a project’s got a Gate 2 offer, it doesn’t mean it’s going to work, doesn’t mean it’s going to be viable and, you know, especially for batteries. I think it’s a, you know, kind of personal opinion, but I think it’s very pre-emptive to be looking at this as a massive issue, because you don’t say it can cause overbuild, you know, it’s not going to cause overbuild in the immediate future. And also, NESO are meant to be kind of looking at batteries as you know, a kind of a net negative impact on the grid anyway. You know, there shouldn’t really be a reason for there to be that much overbuild. You know, if you’re building a new GSP, that takes years to even find land to take it through the planning system, you know, and eventually to get it built. You know, thinking about doing that now instead of, you know, if there’s still a problem of five years’ time, when you’re looking to build a load more GSPs, potentially just for battery storage, then have a look at that. But I really don’t think looking at it now is necessary.

00:29:52 – 00:30:44 – Rachael Eynon

I think there is other levers that potentially could be pulled without necessarily removing projects from the queue as well. So, if, you know, if overbuild is a concern, there is the bay sharing policy, which it’d be good to hear more from the TOs about how they might be implementing that. But there is also potentially an option kind of not to allocate base to some of those oversubscribed projects. So, we know that oversubscription sits in phase two and as you say, these projects will need more time to build GSPs to bring them on. So, there is kind of a buffer there, I guess, in terms of maybe that could be could delay allocating bays to some of those projects and allow that natural attrition and market attrition to occur and then see who comes forward for the bays that remain.

00:30:44 – 00:31:03 – Kyle Murchie

I think co-location is going to play a part in this as well, you know, it’s not been really covered, seen as a too difficult to do, in the too difficult to do box through CMP434 and 435, but co-location makes a lot of sense if you’re already, particularly those projects that will be absolutely going forward and building, I don’t know, a solar farm or onshore wind, for example, and we’re already going to have a BESS element alongside. I think there will definitely be a revisit of whether, you know, the kind of resulting outcome of having now two potentially separate projects, taking two separate bays and costing a significantly higher amount of money to ultimately connect to the network it’s questionable whether that will be justifiable. Again, probably Nikki on your point, it should come back to the market – the market should help decide that. But at the moment, there’s probably quite a few different varying signals that make it quite difficult for the market to kind of produce clear winners.

Right, so I suppose on consultation, there were a couple of other points that we had drawn out. So that was clause 3A and 3B, and the last two were capacity reallocation and repowering. Maybe on capacity reallocation then, so there’s quite a lot of talk in the consultation, they filled a consultation document around capacity allocation and capacity reallocation. So, what’s the change Rachael, what are they what are they proposing?

00:31:03 – 00:31:20 – Rachael Eynon

So I think it is more of a clarification potentially than a change. So, it’s really trying to distinguish between capacity allocation and capacity reallocation. So, allocation is I’m a brand-new project applying to Gate 2 and I want to be added to the queue – so I am allocated capacity, by default at the back of the queue, but there are potentially circumstances where someone might be brought forward. And then we’ve got capacity reallocation, which is a project has terminated and left the queue, and that capacity is now available for a project to kind of hop into that space that’s been left in the queue.