Podcast: Transmission licence exemption for demand

00:01:11 – 00:01:54 – Pete Aston

Hello and welcome to another podcast from Roadnight Taylor, I’m Pete Aston and I’m joined by my colleagues Alex Ikonic and Catherine Cleary. And we’re here to talk about Ofgem’s call for input, which is called the call for input for sort of Demand Connections Reform.

So, we this, this call for input’s got three strands – it’s got the curate strand, which is looking at the queue, it’s got the, the plan strand, which is sort of around prioritization of projects. And then it’s got this connect strand, which is around ownership of transmission assets, which is what we really want to talk about today.

So, I just wonder if you two want to sort of talk through what the problem is at the moment?

00:01:55 – 00:03:03 – Catherine Cleary

Yeah, I guess we’ve currently got a situation where, demand and generation are treated quite differently in terms of what kinds of high voltage transmission assets they can own. So, if you are a demand customer, particularly in England and Wales, then because there is, I think we say ambiguity around whether or not you are allowed legally to own a transmission voltage asset, so, a 400kV cable or a transformer, for example, the TO would say we’ll give you a 132kV point of connection. So, a distribution voltage point of connection in England and Wales.

So, a data centre, you know, would typically be given a, a 132kV, a couple of 132kV bays, a new substation, whereas a generator applying for the same capacity in the same area might have just been given a 400kV bay. So, there’s a disparity and it’s something which a lot of demand customers have really struggled with because it sort of perhaps constricts the engineering choices that they have, you know, you might be a, a gigawatt data center and having to cable back to that substation at 132kV, and so there’s a lot of appetite for this to change to sort of align the generation and demand ownership boundaries.

00:03:04 – 00:03:10 – Pete Aston

Okay. And, is it a problem just for demand projects or do generation projects get caught up in this at all?

00:03:11 – 00:03:49 – Catherine Cleary

So, generation projects also get caught up in this, in particular when it’s a kind of what we might describe as an energy park so, where you’ve got perhaps a single connection agreement with NESO, but you’ve got multiple types of generators that sit underneath it, or maybe just multiple generators, which are going to be owned by a different entity.

And then, you know, typically you’d have a sort of a Grid Co. So, owning some shared assets, perhaps that transformer, and suddenly that Grid Co. is now potentially needing a transmission license because they’re not a licensed entity like the generators. So, they’re potentially also in this ambiguous phase. So, I think that the reforms for demand could really help those sort of, mixed hybrid projects.

00:03:50 – 00:04:02 – Pete Aston

Yeah, which are coming forwards, okay, makes sense. And Alex, what, just briefly, what, what sort of is this ambiguity. Not asking you to, you know, read chapter verse from the Electricity Act, but what, what is the sort of issue that, that we’re finding?

00:04:03 – 00:04:38 – Alex Ikonic

So, there is this one phrase in the Electricity Act that refers to assets which are wholly or mainly transmission assets. So, I think, it’s not very clear whether that means to do with the system or is it sort of per asset basis. So, you know, a transformer versus cable or kind of the whole system. So, I think there’s, there’s a lot of discrepancies between how different TOs are kind of viewing that.

I think often might be able to provide a bit more clarity onto what’s their legal interpretation of that. And I think that would really kind of clear things up for demand users, but also for these energy park projects as well.

00:04:39 – 00:04:45 – Pete Aston

So, yeah, so the Electricity Act says you need an electric, you, you need a transmission license if your network is holding…

00:04:46 – 00:05:28 – Catherine Cleary

If you are transmitting power over transmission over assets, which are wholly or mainly transmission.

And, and then there’s a separate clause, which has a, is a carve out, which says effectively unless you are another kind of licensed provider, like a licensed generator, and you know, the assets we’re talking about are those which connect you for the purpose of undertaking your primary license function.

So, if you are a really simple single generator, then actually the market considers there to be no ambiguity. You can own that 400kV cable or that, or that transformer because that’s just part of your generation license capabilities. But it’s when it’s when we end up with an entity which isn’t licensed, that isn’t a generation license holder that needs to own that asset either because it’s a Grid Co. or because it’s demand user.

00:05:29 – 00:05:43 – Pete Aston

Yeah, and so I guess developers at the moment and investors are, are reluctant take to take the risk and go, I’m going to own this 400 through to 132kV transformer on the and cross my fingers and hope that I’ve interpreted the Electricity Act properly.

00:05:44 – 00:06:11 – Catherine Cleary

Yeah, well I think it could be really difficult, from a kind of a legal perspective. So, if you go and get, we’ve seen, you know, legal firms, you know, very prestigious legal firms give this advice to customers to basically say. There isn’t sufficient clarity to give you confidence you can own that asset. So, they will always flag a risk, but I think it’s even more fundamental than that, isn’t it? If you applied, if you were a demand customer at the moment and you apply, you’re not going to even be given that choice. You know, you if in England and Wales and get again, say, right, you’re a demand customer our policy is we will connect you at 132kV.

00:06:12 – 00:06:27 – Pete Aston

Yeah, so within Ofgem’s Demand Connections Reform call for inputs, they sort of flagged a few options, and we’re going to talk through one particular one today, but just very quickly what, what are some of the options that are being sort of highlighted that could be taken forward to, to help with some of this?

00:06:38 – 00:07:17 – Alex Ikonic

So, I guess the kind of first option is bringing in this idea of a demand license. So similar how we have the generation license, we could create one for demand users only, that doesn’t really solve the problem that we’re seeing with Energy Parks.

The second one would be having a sort of independent transmission owner license. So, similar we have IDNOs, we could create a license for transmission owners or operators to kind of own those assets. Then we could also, kind of request that particularly in England and Wales, that NGET get build out to customer sites so that could remove that problem of those long 132kV cables, I think there might have been a fourth?

00:07:18 – 00:07:35 – Catherine Cleary

Oh, the fourth. The fourth one was around, self-build. Which, which possibly doesn’t actually solve this problem at all, but, but it’s, it’s interesting maybe for different reasons, but, but that’s basically saying, you know, the design remains the same, the ownership boundary remains the same, but can the user build some of those TO assets and then hand the back over to the TO.

00:07:36 – 00:07:42 – Pete Aston

And I guess users and developers are going, maybe I can do it quicker than NGET can do it and I’m going to speed the process up, whether that’s true or not, I’m not sure.

00:07:43 – 00:08:20 – Catherine Cleary

Yeah, I mean, I think, I think one, one thing that’s really kind of key to highlight there is that, you know, a lot of the reasons that developers have lots of appetite for this is because it’s not just that they want to procure the same transformer the NGET would’ve procured. It’s because they want to design something which inherently has perhaps maybe like less redundancy than the kind of the SQSS compliant that the network that the TO has to design, you know, or they, they want to change the design and, and kind of have more flexibility. And I think that self-build option, it doesn’t, doesn’t allow that because you are handing it back to the, TO, so you got to build it to their standards. So really, you’re just saying, you know, these, these are both going to be apples who can build this apple faster. It is probably a bit of a pointless question.

00:08:21 – 00:08:27 – Pete Aston

Yeah okay, so we’ll come on to the, the fifth option, which we really want to talk about. So, you, I know you’ve been sort of leading on this, Catherine.

00:08:28 – 00:09:54 – Catherine Cleary

Yeah. So, Roadnight Taylor have, have actually sort of drafted a specific proposal which would look at this aligning generation and demand kind of ownership boundaries. And the way that we think could be quite a neat solution to do that is to come up with a Class Exemption.

So rather than coming up with new licenses you know, which are quite, quite arduous. So, the process for going through a kind of license application, you know, is not straightforward and it places obligations on both parties. So, a Class Exemption, I mean, we already have really good successful Class Exemptions, things like small generators, you know, so if you’re a generator under a 100 megawatts, there’s a simple Class Exemption, which is written into kind of a, an appendix of the Electricity Act that says – you don’t need a license because you meet the following criteria, you are less than a hundred megawatts, tick.

So we are, we are sort of proposing that we could add a Class Exemption to the transmission license, which would say actually for sole use assets. So if you are a single customer coming along, so single connection, agreement with NESO, and you want to build some sole use assets, which don’t interconnect with the rest of the transmission system, they simply supply your sites that could be one data center, it could be a one data centre and generate a hybrid, or it could be an energy park, then you are exempt from the requirement for a transmission license and the benefit of transmission exemptions as opposed, sorry, a Class Exemption is that the alternative is that the industry, you know, we see individual projects having to apply for sort of site specific, project specific exemption.

00:09:55 – 00:09:56 – Alex Ikonic

There’s not a lot of certainty with that, I don’t think so.

00:09:57 – 00:10:00 – Pete Aston

I think you’re involved in, in doing one at the moment. Is that right Alex, or?

00:10:01 – 00:10:02 – Alex Ikonic

Yes, we are.

00:10:02 – 00:10:03 – Pete Aston

And, and what’s the sort of process you have to go through to actually …

00:10:04 – 00:10:18 – Alex Ikonic

So there isn’t really a set process, so it’s a, it’s a very kind of bespoke application. There’s no statutory timelines and there’s no certainty that we will get it for this project that we’re working on, so I think something like a Class Exemption is a very neat way to, to solve that problem.

00:10:19 – 00:10:20 – Pete Aston

And it’s, and it’s an application to the Secretary of State effectively.

00:10:21 – 00:10:35 – Catherine Cleary

Yes. Yeah so, if it’s a, if you’re making a site, if there’s no Class Exemption and you’re making a site specific or project specific exemption request, it’s going to the Secretary of State, you know, and DESNZ are busy, right. You know, they don’t have a team set aside waiting to kind of review all of these transition exemption requests.

00:10:36 – 00:10:43 – Pete Aston

And yeah. And so for my interest, a Class Exemption, do you have to apply to benefit from it, or it’s just automatically a part?

00:10:44 – 00:11:20 – Catherine Cleary

It’s automatic.

So that’s the benefit of this is that, you know, we do a little bit of hard work now to write that Class Exemption, get, you know, get a lot of buy-in and feedback from industry.

So, I think Roadnight Taylor will be publishing some of the details of that on LinkedIn, you know, so that people can just sort of see what the wording would look like, get as much feedback as possible, and then once that class exemption is written, it’s a kind of fit and forget process. You know, everyone simply, they take their own view as to whether or not they legally fall under the criteria of that Class Exemption, if they do, they don’t need a license and there’s no requirement for Ofgem to kind of adjudicate or for DESNZ to assess anything on an ongoing basis.

00:11:21 – 00:11:26 – Pete Aston

And how easy is it to get a Class Exemption added into the regs?

00:11:27 – 00:11:43 – Catherine Cleary

So we have added a Class Exemption for transmission, a couple of years ago.

So, there is one Class Exemption for transmission, which is 132kV circuits offshore for, for offshore wind farms, arrays, array cabling circuits are now exempt, and that took about, roughly speaking about 12 months to get it into legislation.

00:11:44 – 00:11:53 – Pete Aston

Okay, so whichever option is going to be used, it’s going to be after the implementation of Gate 2 to whole queue.

00:11:54 – 00:12:33 – Alex Ikonic

Probably yes, which definitely needs a bit more thought in the industry, because I think, you know, projects or demand and energy part projects that are going through the Gate 2, to whole queue process now, you know, how, how can they benefit from this? Because if, if we ask them to kind of wait for the next window and, you know, apply for Mod App, there’s a big question about, you know, will they be able to keep their queue position or will they actually be put to the back of the queue because that’s some major change to their connection, but also we can’t really ask the TOs to kind of implement these solutions now when there isn’t any clarity on, you know, whether that is allowed or, you know, kind of ahead of the class exemption as well.

00:12:34 – 00:13:36 – Catherine Cleary

I think one thing to, so there are some groups, which Ofgem and, and Ofgem and DESNZ in some cases have sort of set up to try and sort of work through these.

We’ve got a, a Connect task and finish group, which is sort of again run for another four months or so. I think one really positive thing is that if there is quite a lot of industry agreement that this is a good solution, then we might be able to get to a point where. Actually, the secondary legislation still has to go through process, but we have kind of very clear guidance that this is the intended route. And it might be that that’s sufficient to give, you know, it would need to be sufficient to give both TOs confidence that they were issuing offers on the right basis, and developers confidence that they were kind of progressing their projects, you know, using the right ownership assumptions, but that feels like it could be possible, you know?

So sort of if we were talking about midway through this year, end of June, and we had a bit of industry agreement that actually this was the solution we wanted to implement, I suspect quite, quite a few people on the developer side will probably be happy to kind of take that risk and say, right, well, we’ll, you know, we know the legislation won’t be in until next year, but, but we, we’ve now got the certainty we need as to what the direction of travel is.

00:13:37 – 00:13:38 – Pete Aston

Yeah.

00:13:39 – 00:13:50 – Alex Ikonic

And I guess maybe it could impact those Phase 1 projects a bit less, which you know, practically speaking might be okay because they, they’re probably a bit more progressed in the kind of the, the build out of those assets. So changing things now probably wouldn’t be very beneficial for them anyway.

00:13:51 – 00:14:10 – Catherine Cleary

Yeah, I think I really agree with that, that seems like a pragmatic, just like going back to the Gate 2 point, you know, which I think is a, a massive thing, you know, if we are going to change this and it’s a good solution that gives users more flexibility. I mean, if possible, we do want it to go into Gate 2 offers, but maybe it’s more realistic for it to go into Gate 2, Phase 2 offers, which are the kind of 2031 project plus.

00:14:11 – 00:14:18 – Pete Aston

Hmm. So, what, what are the next steps with this? You, you talked about, so hopefully next four months or so being really important.

00:14:19 – 00:14:50 – Catherine Cleary

Yeah, so I think next four months will be really important, the next sort of week or so is actually really important. So Ofgem call for input closes on the 13th of March.

We will do our best to try and get this podcast out before then, we’ll definitely share some, some sort of points on LinkedIn, before then as well. So, I think we just encourage everyone to feed into that, you know, especially, especially if you do have an interest in this kind of HV ownership question, regardless of whether you’re a generator or demand feed into that demand call for input, I think, with, you know, I mean either support for this proposal or, or kind of, you know, or concerns or feedback or alternative proposals.

00:14:51 – 00:15:20 – Pete Aston

And don’t forget in the call for input, there’s also the, the CURATE and plan sections, and they’re going to be really important about, you know, who’s in the queue and who’s out the queue, so I’m sitting on Ofgem CURATE advisory group or CURAG as this, it’s kicked off just yesterday, and you two are sort of on the task and finish group. So, lots, lots going, lot, lots of sort of industry participation in these groups.

But yeah, I guess the more responses to this call for input the better, really from different parts of the industry.

00:15:21 – 00:15:34 – Catherine Cleary

Yeah, I think whenever we’re asking government to allocate resource to doing something, you know, we need to make sure that there is a clear industry need to fix the problem. So, I think, you know, if no one replies, then we might all conclude that this isn’t a problem and we can focus on other things. So yeah, we probably need people to reply.

00:15:35 – 00:15:36 – Pete Aston

Yeah, I think so, anything else to say?

00:15:37 – 00:15:39 – Catherine Cleary

I think that’s covered it very, very neatly, Pete.

00:15:40 – 00:15:41 – Alex Ikonic

Yeah, that’s all.

00:15:42 – 00:15:51 – Pete Aston

Brilliant, okay in which case, thank you everyone for listening, and we just hope you join us for another podcast. And don’t forget to reply to the call for input.