Podcast: Grid News and Views #20

00:01:34 – 00:02:50 – Pete Aston

Hello, and welcome to another Connectology® podcast from Roadnight Taylor. I’m Pete Aston, and I’m joined by my colleagues Rachael Eynon and Nikki Pillinger. We’re going to be doing another Grid News and Views session today, this follows hot on the heels of another one that Rachael and Kyle did just a few days ago because obviously we’ve got a lot to talk about.

But we’re just going to go through some other bits and pieces. So, we’re going to cover some bits on demand connections, we’re going to look a little bit about Gate 2 and a few bits that Rachael and Kyle didn’t cover a couple of days ago, a little bit about on SSEP and then a bit about compliance as well. So that’s where we’re going for the next fifteen, twenty minutes.

So, first of all, let’s we’re going to kick off looking at Ofgem’s Curates Demand Reform consultation. So, it has been out for a little while now, it actually closes the consultation on the 16th of September. I think we’re recording on the 9th of September. So probably by the time the podcast goes out, consultation will have closed, but I think it’s just worth highlighting some of the sort of key things coming out of that consultation. I guess we all think it’s probably a good idea in general to try and reduce the number of data centres in the queue from 73 gigawatts to a little bit less, I think, yeah?

00:02:51 – 00:03:09 – Rachael Eynon

Yeah. Yeah. I think it’s; we’re seeing a sort of repeat of what we saw with the generation queue and that kind of oversubscription contributing to delays and later connection dates. So, the fact that this is being tackled hopefully kind of a bit earlier in the context of that will be helpful.

00:03:10 – 00:03:11 – Pete Aston

Yeah.

00:03:11 – 00:03:16 – Nikki Pillinger

Although somewhat more severely maybe is the word.

00:03:17 – 00:03:17 – Pete Aston

Yes.

00:03:18 – 00:03:23 – Nikki Pillinger

Than it was with generation. That’s quite the incentive to, yeah, not have a speculative data centre in the queue, currently.

00:03:24 – 00:04:06 – Pete Aston

I guess one of the differences between the demand and the generation that’s coming up is the government so far hasn’t wanted to give a cap to how many data centres can be developed, whereas that obviously happened with Clean Power 2030.

Whereas Ofgem, the government seem to be just going down the, “let’s make it really financially difficult to stay in the queue”, which I guess brings us onto the, the first of the two main points within the consultation, which is the data centre commitment fee, which reading my notes here, ranges from, these are the proposed figures from Ofgem – £237,500 per megawatt to £712,500 per megawatt, which is just enormous.

00:04:06 – 00:04:07 – Nikki Pillinger

Quite punchy, that.

00:04:08 – 00:04:24 – Pete Aston

Yeah, very punchy. Yes, so yeah, talking with various data centre developers, Rachael and I certainly are working with quite a few clients who are developing data centres. And I think the general flavour is from all of them that this is going to be really difficult to handle, isn’t it?

00:04:25 – 00:04:52 – Rachael Eynon

Yeah. Yeah. And that’s from kind of hearing from a range of like data centre developers and kind of sizes and sort of stages in the process that they get involved.

But, like, that figure is huge, and it’s not even just whether an organization can afford it. It’s the point at which they’re asked to be putting that down, and the kind of the high risk that still exists for a project that early through the connection process they don’t seem to line up at the moment.

00:04:53 – 00:05:18 – Pete Aston

Yeah, because Ofgem’s preferred view at the moment within the consultation is this is just a flat fee, hundred percent securitized from acceptance of an offer, which basically means everything in the queue from whenever this would get implemented would have that fee imposed straight away, which I guess is what Ofgem are trying to do to try and encourage the speculative projects out the queue. But I just wonder whether this encourages almost everyone out the queue?

00:05:19 – 00:06:04 – Nikki Pillinger

Yeah. And then, and also, its all very well saying speculative projects, but they’re all speculative, especially when you’re putting in a grid application, you have no idea what it’s going to come up with, especially now because we have to go through the Gate 2 process as well. And you know, it’s so much more onerous and so much more uncertain than it was 10, 15 years ago when you’re putting in a grid application that you’re actually going to get something out of that, that is viable.

And it’s, you know, the securities and liabilities process, it’s always been quite it’s always been based on something kind of real, you know, it’s been based on what infrastructure is being put in, it’s been based on something that’s actually a genuine risk, but project commitment fees, they’re not based on anything, it doesn’t, doesn’t really seem very ethical to me.

00:06:05 – 00:06:49 – Pete Aston

Yeah. I mean, what Ofgem did say in their consultation is that this is based on the sort of total cost that it takes to deliver a data centre, and then they’ve taken like a percentage of that to go, right, this would be then, in their view, an appropriate sort of fee, but I do wonder whether other more sort of like project commitment fee like is being potentially going to be applied for generators that sort of incrementally sort of increases over the lifetime of the project follows more the sort of certainty, because like you were saying, Nikki, projects are by nature speculative until they’ve got planning and then they’ve got financial commitment. You know, so they get less speculative, I guess, as they get closer to connection. So maybe a ramp sort of fee structure maybe reflects that a bit better.

00:06:50 – 00:07:10 – Rachael Eynon

Yeah. And it was, I think it was actually acknowledged in the consultation that by putting that there as a, an initial upfront kind of fee or payment there is then not that incentive to leave once you’ve paid it.

So yeah, I think, it would have been good for that sort of staged option to be explored again, I think, in more detail in this consultation.

00:07:11 – 00:08:00 – Pete Aston

Yeah. So, once you’ve paid that fee, you are in for the long run because you’re going to, if you pull out, you know you’re going to lose it, so you’re going to do whatever you can to try and develop and connect your project. So yeah, that’ll be interesting to see where this sort of commitment fee sort of conversation goes.

And the other one, of course, is then the milestones. So, the milestones are perhaps, maybe at surface level less and less of a headline thing, but there’s some pretty significant milestones to try and hit.

So, I, for me, the hardest one is the M 0.5 that they’re introducing, which is basically within six months you have to give some non-binding commitment of an end of an offer taken for a data centre, which I think for most projects is going to be really difficult to achieve. Even if it’s non-binding, just getting someone to sign up to, to say, “Yeah, we’re going to use your capacity,” I think that’s really difficult.

00:08:01 – 00:08:02 – Nikki Pillinger

Yeah, hugely.

00:08:03 – 00:08:40 – Rachael Eynon

I think even just being in a position to kind of have those conversations and, yeah, arrange things within such a tight timescale when, you know, even after six months people are probably still kind of coming to terms with what their offer means even if they have kind of signed onto that. So yeah, it’s, yeah, really tight timescales to think about that.

And I think also while we’re still in a place where, all projects are receiving dates that are so far out, like signing up to that so early on when you’re potentially not connecting until 2036, yeah, makes that even more challenging.

00:08:40 – 00:09:21 – Pete Aston

Yeah. I mean, which end user of a data centre’s going to sign up to using any capacity when your connection date is 2034, 35? You know, it doesn’t feel realistic those, those timelines, and then for everything that is in the queue, because they’re already six, more than six months past their offer acceptance date, all of them will have to provide that evidence from whenever this is implemented, and then maybe even have to sort of meet some of the other milestones sort of straight off as well.

So, we’ve got another one at the existing N2 point for the data centres is a long lead procurement showing that they’re procuring some kit, because what, when’s M2 milestone’s out, that’s equivalent of getting planning permission.

00:09:22 – 00:09:23 – Rachael Eynon

Yeah.

00:09:23 – 00:09:26 – Pete Aston

So, even then that’s quite early to be buying long lead time items of kit.

00:09:27 – 00:10:06 – Nikki Pillinger

Yeah. And I think it shows a fundamental misunderstanding of how difficult the process of development is, and how long it takes as well to actually, you know, whether it’s a generation project or a large demand to actually get projects to that state where they can be more kind of firm in their like assertion and they’re actually going to build it.

But on top of that, you’ve also got the massive delays that so many projects are now seeing in the transmission works, you know, for people to risk this, you know, knowing that they may be told that their transmission works are actually then going to be delayed by three, four, or five years. It’s a really good way of just stopping anyone building any data centres.

00:10:07 – 00:10:17 – Rachael Eynon

Yeah, I think they, they might be more kind of realistic against the development timeframe if we were in a world where we had near-term connection dates being offered, but yeah.

00:10:17 – 00:11:18 – Pete Aston

I guess it is, it is difficult for Ofgem. I mean, let’s turn it back the other way and look at the positives of this because they are trying to run this tightrope, I guess, of removing a number of projects out of the queue. Do we need 73 gigawatts of data centers? Highly doubt it. I don’t know, I don’t know what we need, you know, 5, 10, 15. So, you’ve got to do something to get projects out the queue, but then on the other hand, you want to try and avoid all data centre developers leaving the UK market and going overseas, because this is a, you know, a worldwide market for data centers, so yeah, it’d be really interesting to see how that conversation and consultation goes.

So, I don’t think there’s any timelines yet as to what happens after the consultation closes, but I think Ofgem’s looking to use the new Planning and Infrastructure Act Powers to implement some of these changes. So as far as I can tell, that could be implemented pretty quickly, so without going through, you know, long sort of CUSC Mod developments and so on.

00:11:30 – 00:12:16 – Pete Aston

Okay, thinking about demand connections again, there is the, one of the other three pillars of this which is the connect pillar, which is looking at different ways of providing connections for data centres, and one of them is looking to give data centres high voltage, i.e. transmission level voltage connections, because of course currently the law is sort of a bit ambiguous as to whether it’s allowed. So, most of the transmission operators don’t offer it. Certainly, National Grid don’t offer 275 and 400kV connections to demand customers. But there has been a bit of an open-ended window, hasn’t there, for demand customers to sort of indicate their interest in receiving a HV connection?

00:12:17 – 00:13:08 – Rachael Eynon

Yeah, so it started a while ago, can’t remember when, maybe a few months ago, with a kind of expression of interest type, form that was submitted if that was something you were interested in, and you needed to indicate kind of how your design might change and what other implications there would be, and that was then followed up with an ask from NGET, to confirm by a date whether you still wanted to go ahead with an HV connection as the kind of main intent; if not, you could opt out to NESO, and then from there, NGET would, do their own kind of assessment to understand which connection would be more, I guess, economic and efficient from their perspective, but the way it was positioned was that that would kind of be their decision, and once they’d made that initial assessment, they’d come back to you as the developer with the results.

But this was all done kind of very quickly, so I think developers maybe only had a week or so to respond to that, so quite a big ask in that time.

00:13:09 – 00:13:25 – Pete Aston

Yeah, and at present we don’t see any output coming from National Grid on that. I guess they’re going to sort of just fold that into their phase two designs. Because that’s the other thing to mention, that this wasn’t offered to phase one customer, it was just phase two customers.

00:13:26 – 00:13:39 – Rachael Eynon

Yes. So, this was timed so that NGET could have kind of certainty about how customers wanted to progress ahead of starting the phase two study. So, I think it was decided that phase one was far too underway, and asking that kind of big design change question for those customers wouldn’t have been helpful.

00:13:40 – 00:14:12 – Pete Aston

Although interestingly now with phase one customers seeing certain delays, maybe some of the phase one customers would’ve then sort of appreciated at least sort of the option. So yeah, we’ll keep our eye on that as well, what’s happening with those HV connection options.

Let’s think briefly around Gate 2, because I know you and Kyle, smashed Gate 2 a couple of days ago on a podcast. But there have been a few other little bits that have crept in. So, there is a bit of an issue around protected, a small group of protected projects, isn’t there?

00:14:13 – 00:14:41 – Rachael Eynon

Yeah. So, we mentioned on the other podcast that we’ve got this subset of the kind of very early, very protected projects, the 26,27s; I think there’s around 20 of them that haven’t actually had their offers yet, or that’s kind of how it’s now positioned on the ENA dashboard. So, there’s been an update to that to say, while the figures show that that stage was completed and that was how it was communicated previously, there is actually a subset that have now kind of been reclassified into phase one and are still awaiting their offer.

00:14:42 – 00:15:00 – Pete Aston

Yes. But so for a relatively small group of projects, but that’s quite challenging, and by all accounts, their connection dates are likely to go back from what they were, which sort of, you know, is very frustrating when you thought you had had a protected project but actually you’re going to have a connection date pushback, so yeah, very difficult.

00:15:01 – 00:15:25 – Rachael Eynon

Yeah. And I think we didn’t touch on this, on the other podcast, but it says on the website that there will be, there has been engagement with those customers. But I think from our experience, in some cases that has been quite limited or kind of non-existent. So, they know obviously that they haven’t got their offer yet and should have, but trying to get any follow-up on, you know, what might be happening with that and what kind of dates they would expect has been difficult.

00:15:26 – 00:16:23 – Pete Aston

Yeah, and then you mentioned in the podcast a couple of days ago, that there have been delays to some projects because of additional enabling works coming in, which is obviously really frustrating, but we are seeing some other, vectors of delay as well in that, that there are certain projects that are getting delayed, from a sort of phase one sort of date into phase two because of TO contractor resource issues. So, no additional work’s happening, but yeah the connection has just been pushed back by a year to three years because of delays from that.

So, I think that’s something for developers to just be watching out for. I guess most people haven’t yet received a phase one offer, so that’s still to, to come over the next few weeks, so we might see a few more of those delay issues creeping in, I guess as customers get their phase one offers.

00:16:24 – 00:16:40 – Nikki Pillinger

Yeah, it concerns me a bit that the phase one offers that certainly I’ve seen, have been the kind of the more simple ones where there’s, there’s not really works required at the GSP and we’re not kind of seeing those ones that actually might be a lot more challenging for developers to then actually work with.

00:16:41 – 00:17:07 – Pete Aston

Yeah, let’s quickly touch now on SSEP, so the Strategic Spatial Energy Plan. So has a big impact or will have a big impact on connections. This, I guess it sort of is the 2035 plus, isn’t it, view really, up to 2050, although maybe it might affect the 2030 to 35 pots. We don’t, I guess we don’t know yet, do we?

00:17:08 – 00:17:24 – Rachael Eynon

Yeah. Potentially could be a kind of uplift there, but I do think the focus is 2035 plus. I guess also still to see, you know, does that mean there’s, you know, capacity figures to work towards right out to 2050 or are we still going to stick with a ten-year timeframe or potentially less initially and that just increases over time?

00:17:24 – 00:17:50 –  Pete Aston

So, but we’re not going to know until the end of 2027 because that’s when SSEP is going to be published, so I guess all developers are sort of waiting to a certain extent with bated breath to see what happens, although I guess most developers are trying to work through Gate 2 and connection issues now, but SSEP will unlock that sort of future position, but there was a fairly recent update, wasn’t there, in terms of NESO publishing.

00:17:51 – 00:17:52 – Rachael Eynon

Not publishing.

00:17:52 – 00:17:54 – Pete Aston

Or not publishing, the pathways. Do you want to just mention that?

00:17:54 – 00:18:27 – Rachael Eynon

So, NESO have now submitted the pathways options report to, government and that sets out the potential different options that SSEP or the routes SSEP could take. I think in there there’s a sort of planning line that they’re intended to work towards, and then around that you’ve got a kind of planning range. So, still not exactly clear how that would translate to connections and what capacity might be available, but there is going to be a consultation on that, so don’t need to wait till the end of 2027 for everything, but we should get a bit of an idea early next year.

00:18:28 – 00:19:09 – Pete Aston

But those pathways haven’t been published yet, have they? For one reason or another that we’re not quite sure about, but yeah, for governments are going to be I guess choosing, their preferred pathway over the next few months, and then that will go into the next phases of SSEP development and consultation.

Yeah, so that’s all we can say about that, I think because there’s not a lot more information, last point that we want to cover on today’s Grid News and Views is just around compliance.

So, Nikki, you’ve ended up doing quite a lot of compliance work on quite a few projects, do you want to just sort of quickly highlight some of the key issues you’re seeing? Because you’re hoping that you might be able to do a, a deeper dive at some point.

00:19:10 – 00:20:48 – Nikki Pillinger

Yes. I think we will, we will do something with a, yeah, a bit more, a bit, when we’ve got a bit more time on compliance in the future because it’s such a big subject, but it is something that, you know, we’ve been doing quite a bit of recently, which is, it’s been quite nice because obviously there’s been this massive focus on Gate 2 and everyone getting their offers, so it’s been really lovely to see projects that are actually kind of being constructed and built and then taken through compliance and commissioning and everything.

I think the main thing for me is just kind of urging developers to make sure that they start everything as early as possible; obviously you have to have kind of certain things in place, so you have to have, like, your design in place to get some reports done, and you also have to have kind of, you know, that financial commitment within the business.

But compliance, even at DNO level, you know, it can take, you want to assume at least 12 months for compliance activities. If you can start it 18 months beforehand, then do, for transmission, it’s, you know, it’s at least 2 years before that you want to be looking at this, so just making sure that you understand the process or that you’ve got someone that understands that process, who needs to do what? That’s also very important. Getting those responsibilities in place early on in your process of, of appointing contractors, essentially. You know, who is going to be responsible for your PGMD submission? Who is responsible for getting your electrical studies contracted? What, who are you going to use to do that?

It’s just, it’s something that we’ve seen quite a bit of and, yeah, it’s just, it’s a very involved process, especially at transmission. So, it’s kind of ensuring that you give yourself enough time and that you know where that resource is going to come from and, and that you need to know everything that you’re going to do for that process as well.

00:20:49 – 00:21:04 – Pete Aston

And I guess it’s not cheap either. If you’re having to put in a lot of hours of work, you’re appointing people to go and do the testing on site and so on, you know, you’re going to have to allocate quite a chunk of cost, I assume to actually work your way through the compliance process.

00:21:05 – 00:21:39 – Nikki Pillinger

Yeah, very much so. And it’s not just the cost; it is the resource as well even getting, you know, getting the DNO on site to come and witness the testing that you’re doing can be very, very challenging, getting, you know, if you need engineers from your kind of equipment manufacturer, you know, we had someone had to come over from Spain.

So, you know, you need to line that up so you know that you’ve got everything ready for them to be there for those tests to be run because, you know, they can be coming from, hopefully within the UK, but sometimes from further afield. And that resource is very scarce as well, it is very expensive, and it, and it’s very scarce.

00:21:40 – 00:22:12 – Pete Aston

So basically, the message for developers is, if you haven’t got compliance on your, you know, critical path for delivery, it needs to be on there. And if you don’t know what PGMD is, you need to go reading G99 and the Grid Code, and other things.

Yeah, okay. So, more to come on compliance at some point, a really big topic. That’s it from us for today, unless anything else has sprung to mind while I’ve been talking? No. Okay. So, thank you everyone for listening and watching, and we do hope you join us for another podcast soon. Thanks and goodbye.