We already run the CFD auctions once a year, they take about six months from start to finish. We see no reason why you couldn't just have a continuous process where as soon as one ends, the next one begins. And that maybe would strike a balance that the government would be comfortable with between getting the volume through and also keeping the prices low for consumers. Can we talk about the cost element of this? This is massive infrastructure, this is billions, potentially trillions globally, well certainly trillions globally, going into these projects.
We are entirely replacing and upgrading an electricity system. The grid connection application fees are in the tens of thousands. Securing the land will cost you in the hundreds of thousands and submitting the planning application will cost you in the millions and building the project will cost you in the hundreds of millions. The policy on strategic spatial energy planning is not currently well developed within the government and that needs to be developed in the context of the government's new clean power mission.
Connections Q as of June is around 700 gigawatts. I think the figure is that we're not going to need more than 200 of that, for we need rules that require developers to progress or to get out of the queue. Welcome back to Transmission.
Today we're back with another installment of our mini-series exploring the challenges facing the new government. In this episode, Ed Porter is joined by Ed Burkett, new project director for the UK development team at Low Carbon. Over the conversation, Ed discusses the current challenges with grid connections.
how changes in the contracts for difference auctions could help us reach net zero targets, and the current state of the grid connection queue and what could be done to improve the system. As always, if you're enjoying the podcast, please hit subscribe so you never miss an episode. And don't forget to give us a rating wherever you listen. Let's jump in.
Hello and welcome to another episode of Transmission. Very excited today to be joined by Ed Burkett from Low Carbon. Welcome, Ed. Hi, Ed.
Thanks for having me. Very good. I can see that can be... quite confusing for our listeners. So today we are going to do another podcast in our mini series going through some of the challenges that exist for the Labour government but hopefully digging into some of the kind of practicalities of how they might be able to achieve some of the goals that they have around doubling, tripling and quadrupling various forms of renewables in the space.
So without any kind of further ado it would be great to get a bit more context on yourself and also Low Carbon. Great, so thanks for having me, Ed. So I'm Ed Burkett. I'm a director in Low Carbon's UK development team, and I focus on all things grid in the pre-construction phase.
And then I have a separate team led by a colleague of mine that takes the grid connections through the delivery phase and into operations. Low Carbon is an independent power producer, heritage in the UK, primarily on the development side, particularly in the first round of solar from about 2011. to 2016. We did some batteries as well in the period about 2015 to 2019 standalone batteries including in the EFR enhanced frequency response those were original auctions. Bit old low carbon right VLC? Yes so there was a joint venture there to fund the construction of those batteries and then subsequently low carbon has really expanded now into different geographies and also into different parts of the development cycle so we're now involved in building, owning and operating assets as well as developing them.
Okay. And you've recently been in the news as well with some large solar sites coming through. Yeah. So in the last five years, Low Carbon has consented, has achieved planning consent for around 1.6 gigawatts of solar projects in the UK. And of that, about 500 now of those are either operating or under construction.
And then we had the really good news a few weeks ago that the new sector of state... Ed Miliband approved a development consent order, so the planning commission, for a 500 megawatt solar farm that we've been developing in Lincolnshire, and that's the Gate Burton Energy Park. And so there are six of those now that have been approved, with three of them being approved a few weeks ago. So yeah, that's going to make a major contribution towards the government's energy targets, and hopefully should be online within the next five years, depending on, amongst other things, whether the grid connection date can be brought forward now. for that consented project that's ready to go.
Okay and just kind of to put some context on that, so just how stuck was that project? So I think the Gateburst Energy Park project was quite lucky in terms of when it came through the consenting regime in that the actual final decision from the Secretary of State didn't get delayed that far. Perhaps it got pushed back a couple of times but just for other people's context the Secretary of State is the decision maker in terms of granting the planning commission for schemes that are greater than 50 megawatt.
which go through the development consent order regime because they're designated as nationally significant infrastructure projects. And that nationally significant process... is a bit different to what you would have normally where you put your project and it goes to the council or the local authority and the local authority decides. It has that political decision maker and that means it can be more, you know, those decisions can get held up, for example, by things like elections. And also the Secretary of State has the right to push back those decisions.
We were quite lucky, really. We probably only got pushed back a few months. But there were other projects that had been pushed back repeatedly and that were then granted permission. when the new government came in very swiftly. What we want to see going forward is that as projects get through the system and through that quite onerous planning system in terms of the nationally significant infrastructure projects, we want to see them then having a swift decision from the Secretary of State so that we can get on and build them.
And I suppose the other part of this is, as you say, once you've then got that decision, you mentioned five years for that project to come through. That feels kind of odd in some ways in A lot of the reports we've seen in the marketplace say, well, there are potentially something like two terawatts of solar panels that might be manufactured, maybe not deployed, but maybe manufactured over the next year. It feels like we've got solar panels everywhere. How come it's going to take five years to come into action? Yeah, I mean, so these projects do take a long time to build.
They are very, very big projects and they do require equipment that is on quite long lead times. The solar panels are probably not the long lead time item right now, particularly given. the state of the panel manufacturing market, but things like ordering super grid transformers. So these sites will require their 400 kV connections, so connected directly to the transmission network, and that requires high voltage cabling, it requires the super grid transformers, and a lot of these now are on very long lead times, maybe even three years.
So even without the grid connection delays, it might take two or three years to get these projects connected after the point where you've been given planning consent. But now you've got the grid connection delays as well. And what we're hoping is that through the connection reforms, those projects that are ready can get connected. One other thing I'd highlight as well is the contracts for difference auctions. So in the UK, the vast majority of renewable energy projects that are brought into operation do have a 15-year CFD contract with the government.
And those auctions are only run annually. So the earliest opportunity for a project that was consented recently, like Gateburst and Energy Park, to receive a CFD is Q4 2025. So we think there's a case for the government to look at running those CFD auctions twice a year. The government has very ambitious targets for what it wants to achieve by 2030. And if you were to bring those CFD auctions and make them twice a year, then that would just allow a lot more projects to come through the system and a lot more projects to get built more quickly. We had Merlin on a few weeks ago and he was suggesting that the auctions are great for price discovery, but much like you can buy anything off Amazon, maybe having like a buy it now price.
So if you're in between auctions, then potentially the ability to bring forward projects at a certain price might get more volume through. Potentially an interesting idea, perhaps similar to your sort of two auctions per year structure. Yeah.
I mean, I think, you know, As developers, you always would like the option to get a guaranteed price and go whenever you're ready. Balanced against that is the value for money consideration. We already run the CFD auctions once a year.
They take about six months from start to finish. We see no reason why you couldn't just have a continuous process where as soon as one ends, the next one begins. And that maybe would strike a balance that the government would be comfortable with between getting the volume through and also keeping the prices low for consumers. Okay.
And one thing you mentioned in there is kind of the super grid transformers. And I think maybe for energy folk, they tend to be the thing that you sometimes see a picture of. More or less everything else that goes onto a site generally fits into a container. And so it goes in sort of nice containers, arrives at site, someone unpacks it and installs it.
But the super grid transformers, they're often generally quite bulky pieces of kit. And so you generally see them on a barge or being lifted in somewhere. So always a good photo.
So when you do get them on site, definitely take a photo, get that sent round. we'll make sure we share it from the Modo side too. Maybe just a strategy question, so Gateburton 500 megawatts, is that very much where the market's going?
Do you want to make sure that all of your projects are in that type of scale in terms of UK and also abroad, or are you looking at a range of sites down to the 10, 20 megawatts? So there are definitely some economies of scale as you get into these bigger projects. particularly around the installation of the actual solar farm itself.
But in a way, these are modular systems, so there is a certain point beyond which you don't get that much further reduction. Really, there's a couple of things that have been driving the sizes of projects. One of them is the planning. regime. So you have to stay below 50 megawatts if you want to go through the local authority system, Town and Country Planning Act, or if you're over 50 megawatts you're into the national planning system for the nationally significant infrastructure projects or the DCOs.
Now that DCO process is quite onerous and so if you're going to go through that you want to go big. But also you have to look at the grid connections as well and the different voltages. So if you have a connection at 33 kV on the distribution network then actually a project that's 20 to 30 megawatts is is very appropriate and that can be a very affordable connection then you get into the 132 kv connections on the distribution network perhaps those could be up to 100 megawatts but because of the planning system they tend to be 50 megawatts each so the government's looking at raising the threshold in the planning system from 50 megawatts to 100 or 150. that would be particularly helpful for those 132 kV connections to the distribution network and make more efficient use of the limited network infrastructure that we have.
Once you're into 400 kV connections though, you really want to be, you know, these are expensive connections, you really want to be maxing them out and 500 megawatts is a reasonable size for that. Perhaps there will be some limitations in how big you can go. You know, these are big projects and we're conscious that we don't want to be proposing projects that that are too big for the area that we're proposing them.
I suppose going back in time a little bit, when you approached grid maybe 10 years ago, there was a bit more capacity on grid. And so maybe you might have been able to find some capacity at an existing super grid transformer. Whereas nowadays, as you say, the solar park that you're building is going to require a brand new transformer.
And so you don't want to be the person paying for that transformer. and then only using a small portion of it. Is that how you think about it in the commercial side?
Yeah, so there is a structural point as well that the grid is increasingly full. Low carbon really got going again on solar in 2018 for this round of solar, and that meant that we could go to the network companies and there was a lot of capacity available. So we were able to get that. The projects that we're commissioning now are generally projects where we secured the grid connection capacity in maybe 2019, maybe 2020. and that those grid offers didn't have particularly bad network constraints on the distribution network and crucially not particularly bad constraints on the transmission network as well because you can only connect when both the distribution network and the transmission network are able to accommodate your connection as you go as you fast forward now the distribution networks really are full with the current size of the connections queue and so that means you know structurally seeking many more additional distribution network connections is a diminishing returns.
And so developers have really been pushed towards seeking connections at the transmission network level, where you can get those bigger connections, which perhaps offers some economies of scale, but it also means you can bypass a lot of the local network constraints on the distribution network, which are now holding back schemes. And we're there, right? We're at that point of the conversation where we have to talk about the connection queue. How bad is this? How limiting is it for solar developers?
So I think it's a problem for all developers, developers of all technologies. Lowcarbon is a big developer, so we have projects that are the whole way up and down the connections queue from connecting almost today to connection dates in the late 2030s, 2037, 2038. And that is very challenging because it's challenging to invest in a project when the connection date is a long way away because ultimately you just don't know how quickly it's going to get brought forward. and therefore when you may or may not be able to get a return on your investment. Can we talk about that bringing forward?
So the date that you mentioned 2037 is a date that many people will be familiar with because it's almost like a long stop date that people kind of see. When you say stuff gets brought forward what does that mean? Yeah so that 2037 date is essentially saying whatever network assets are required they can be built by 2037 because it takes 13 or 14 years for the transmission companies to build whatever those assets are. We think there is substantial ability to bring projects forward.
We would hope that a lot of those projects could be brought forward towards 2030, perhaps slightly after, and that would align with a lot of the new government's targets. But that is going to require a thinning out of the queue and prioritising those viable projects that are actually making sustained and serious progress towards energisation. and that's just not the way the grid q rules have worked at the moment the grid q rules at the moment mean that almost anyone can turn up secure many gigawatts of capacity and do nothing for years and see if they can maybe sell those grid offers to someone, or just sit on them, and then maybe come back later. And that type of capacity hoarding is a real problem. And the new grid code rules, the grid queue rules that the ESO is proposing will go a long way to thinning out the connections queue.
And just to give some context to that, how big is the connection queue at the moment? So the connections queue as of June is around 700. gigawatts of projects across transmission and distribution. I think the figure is that we're not going to need more than 200 of that across all different technologies in the long term, so potentially out to 2050. So we are now in a point where if all projects did progress, then a lot of those projects at the back of the queue are not needed. Our view is that there are a lot of projects that are in the queue that are not progressing and are not developable.
So maybe you've got a solar farm that's in a a hilly or even mountainous region, that project is very unlikely to progress. And therefore, we need rules that require developers to progress or to get out of the queue. Then we'll see whether or not that solar farm in that hilly or mountainous area will be developed. We think it won't be.
And then it would drop out the queue and allow other developers the chance to progress. And just to kind of put some numbers on that. So if you get a project accelerated, what does that look like?
Does it get accelerated by a year, 10 years? What does that process look like? So we don't know at the moment. There are different initiatives on the distribution network and on the transmission network.
On the distribution network there's been a big focus on what's called the technical limits initiative and the idea there is that the key constraint point is at the interface substations between the transmission network and the distribution network. Those are the grid supply points or the GSPs and what the model that we're moving to now is that projects can connect to the distribution network, but they will be turned down or turned off at points where that interface will be overloaded. We've seen projects accelerated already by six or seven years under that system.
So instead of a 2032 connection, we can connect as soon as we're ready, which might take a couple of years to build the project. In return, we suffer temporary risk of curtailment, which is being turned down or switched off until that 2032 date. And that curtailment is really interesting, right? So yes, everyone would love to generate and have a firm grid connection, so something that's not curtailed.
When you do get curtailed, I think for many of our listeners, there'll be storage people and they will think, ah, this is kind of an interesting opportunity. So a solar farm that gets curtailed just needs to turn down. A plant that is, say, solar and storage, there could be an opportunity there in terms of how to manage some of that curtailment.
Is that kind of in low carbon's portfolio? Yes, there are absolutely opportunities to have storage alongside your solar. We've done that on a number of our plants already.
And where possible, we will do that going forward. Part of the problem is that at the moment, when you include a battery project on your solar farm, the grid operator will see that battery and treat it as if it's going to make the local curtailment or congestion of the network worse rather than better. I have some sympathy with the network operators on that, particularly on the distribution network. Because the distribution network operators don't have the same visibility and controllability of assets like what you have at the transmission network through the balancing mechanism. Yes.
So we actually think that's something that Ofgem needs to look at and needs to explore whether we should have some regional balancing mechanisms for each of the distribution network operators. And that would be a way of running the distribution network hotter because the DNO now has more visibility and more controllability of those assets. and therefore the batteries can actually help the system rather than potentially causing it to fall over. Yeah, and when you say run the DNO network hotter, what do you mean? Connect more projects for a given level of network capacity.
So for example, if you had a solar farm and a battery on the same line, at the moment the DNO might think, well the solar farm and the battery might both export at the same time, which is the worst case that they have to model. Whereas if you could have this regional balancing mechanism that would ensure... or offer the battery when the solar is generating to say actually do you want to charge cheaply and this is the way that we're going to resolve this network constraint.
It's a bit of a it's a it's a kind of it's a funny one right so when we've looked at co-location we see how much storage works around say solar's profile or wind's profile actually the the two techs very very rarely will be trying to do the same thing at the same time in terms of exporting as you say with things like the balancing mechanism. There's maybe a little bit more of a reason where there might be some technical thing that the battery is being used to respond to, in which case they might want to share the connection. But really they kind of overlap in such a limited way because of how the market is designed.
So when you have lots of solar, you have lots of wind, generally speaking, the price is very low and no battery wants to be exporting in low price because they're all running a merchant trading strategy. So all kind of everything makes sense, which is nice. Yeah, and just going back on that. So I think if you look at markets like California now that are further along this journey of having more solar, you do see those batteries playing that role where they're buying low and selling high, performing that arbitrage strategy. And maybe at the moment, the batteries, there's more of a mix between providing these network services and conducting this arbitrage strategy.
But going forward, absolutely, we see that as something that's going to be happening. And we need to make sure that the network can recognise that and actually can be the network can be controlled so it remains within safe limits even when you have lots of storage and lots of solar and you actually do get that coordination and there's no risk that parts of the network will become overloaded. And I suppose you're also looking at other markets too right so outside of the UK where has this been done well in terms of managing the connection process?
So I think the connections queue is a challenge in almost every single market. What developers and investors are seeing is that there needs to be a lot of renewable energy projects in particular that are built. And therefore, hopefully there's going to be some return on investment to be made.
And developers are also seeing that you cannot develop a project unless you have a grid connection. So developers are really going after those grid connections, which is the logical response when you see that happening. I think the situation in Ireland has been interesting.
It's something that I've personally experienced. where there was an absolutely massive connections queue, and then there'd been various rounds of reform where the regulator has prioritised certain types of projects for grid connections. So initially it was based on who had secured planning permission, then there were different rounds for offshore wind, different rounds for battery, things like that. That kind of system of prioritising certain different technologies we think potentially has merit, but it also makes us concerned as a developer. particularly if the rules are uncertain and it's not clear what the prioritization process is going to be.
So we almost see that as the last resort rather than the first resort. We think the first resort has to be introducing tough milestones on developers that say to them, you must be seriously progressing this project towards energization or you will have to leave the queue. And that probably comes on to some of the reforms that are coming in in Great Britain at the end of this year. but we certainly see those milestones as the first line of defence. Yeah, and I think that's kind of exactly where the reform is pointing, right?
So maybe not towards individual technologies, although maybe put a pin in that because it sounds like that might come back, but we're not looking at specific technologies, we're looking at a much more gated process in terms of the current proposals. Yeah, so there's some new proposals on the table at the moment to change the grid queue connection rules, and those are modifications to the connection and use of system code. the CUSC, which is one of the codes that all of the projects on the transmission network have to be signed up to. And that governs the contract relationship between developers and the ESO, and also the transmission companies.
And it also affects the distribution-connected projects indirectly because the DNOs are party to that code. and so they pass through those obligations to their customers. This is like for energy wonks, it's how the whole thing is governed, right? So these are very much the rules that govern everything. When we get to a certain level of detail, you will almost certainly come across the cusk and modifications to it.
These documents are incredibly long and they're subject to quite a non-intuitive governance process. It's open governance or industry-led governance. So any industry participant who is signed up to those codes can propose a change.
So low carbon could propose modification to any one of those codes that we're signed up to. And it would have to go through that industry-led governance process. Now that could be quite frustrating if, for example, the regulator or the ESO wants to push through certain types of changes because it has to go through this open process where the industry has a formal role.
You form an industry working group. The industry can then propose alternatives, and those alternatives then go to Ofgem alongside the original proposal, and then Ofgem decides which one it's going to accept. So that can be quite a frustrating process, but I think it really has a lot of advantages having been involved in a lot of these work groups for these current reforms, because you actually get the people who are affected by the rules sort of pointing out the things that they don't think will work, and having the formal opportunity to propose an alternative. and then it's up to the regulator to decide.
Okay and so what are you really excited about in terms of the changes that are being made in terms of actually let's get rid of some of this 700 gigawatts of connection queue and let's get on with the projects that actually are going to work and go forward. What are you excited about? What's going to make the difference? I should just wind back and say it's the ESO that is proposing these reforms and they have raised two code modifications.
cmp 434 and cmp 435 which people can go and read if they want we think that those proposals have two main parts. The first part is that projects will be required to be making progress, otherwise they will effectively lose their position in the queue and they'll be put in a pre-queue that was known as the hopper for a while. So effectively they're in the waiting room and as far as the actual network modelling is concerned and the connection dates are concerned, those projects sort of don't exist or they're right at the back of the queue. Okay. So you have your gate one hopper and then you have your gate two queue.
effectively. And what are the things that mean you're in one or two? So there is going to be a gate two criteria and you must have met the gate two criteria in order to be in gate two and effectively that is you have to have secured the land for your project. Now we think that is the right place to put the put the barrier. In our view if you don't have land you effectively don't have a project you have a grid connection offer and it is that land that carries through the whole way through the project you get your land you submit your planning.
you secure your planning and then you build your project on that land. So we think land rights is absolutely critical and projects will, if these proposals are approved, at the end of the year the projects will lose their position in the queue if they haven't secured their land rights, which for example is an option to lease the land to install wind turbines, batteries or a solar farm. National Grid has, or National Grid ESO, ran a request for information. asking developers whether or not they currently meet that requirement or not, because we don't want a situation where everyone meets the requirement, because then the queue is still 700 gigawatts. Two thirds of the queue responded, so one third didn't respond.
Of those that did respond, half said they currently met the requirement, and half said they didn't. So the ESO's conclusion is that these reforms could halve the size of the queue. We think that's possible. A lot of those projects that didn't respond may not have. met the requirements.
A lot of developers say that they will be able to secure their land rights by the end of the year and therefore will be able to meet the Gate 2 requirement, but developers are inherently an optimistic bunch and we'll have to see whether or not that is the case. But we're really positive about that part of the reform which says you have to be moving forward quickly. There's additional bits as well that we think make the reform even stronger in that regard.
So the first one is that you will now have to... submit your planning application quickly after passing through the gate to requirement. So once you've secured your land rights and you've received your position in the actual queue and you're no longer in the hopper, you will have to submit planning in a timely manner, which for different planning regimes might be between one year and three years in order to keep your position in the queue. That is a fundamentally different and a higher barrier than we currently have. Currently you don't need to submit planning until three or four years before you energize, which for a project with a 2037 connection date means you don't have to really do anything till 2030. So there are downsides to this approach because you're asking developers to submit planning very early in some cases.
Does that potentially mean we might have of the 700, let's say we half it, 350, we're not going to have 350 gigawatts of planning applications going, are we? Well, we'll have to see. I mean, I think if...
Developers will have to take a view based on what the connection dates that come back after these new rules have been applied. If their view is that their project is still at 2037 and there's no prospect of it being brought forward, that developer will have to decide, do I want to spend millions of pounds on a planning application? Or actually, do I take the view that the market is oversubscribed and maybe I should come back in a few years'time and leave the queue for now? Can we talk about the cost element of this? because we kind of haven't really touched on it up until now.
This is massive infrastructure. This is billions, potentially trillions globally, or certainly trillions globally going into these projects. We are entirely replacing and upgrading electricity system.
How much are people having to pay to kind of go through stage one, stage two? Is this costing developers a huge amount of money or is this quite light? Well, so I could probably talk mainly for solar projects.
The grid connection application fees are in the tens of thousands. Securing the land will cost you in the hundreds of thousands, and submitting the planning application will cost you in the millions, and building the project will cost you in the hundreds of millions. Okay, that was working really nicely in factors of 10 until that project was just too expensive. It was, yeah. And that's for a typical 500 megawatt, well, increasingly typical 500 megawatt transmission-connected solar project.
So those costs really do ramp up, but they ramp up in line with the milestones. secure your land and then and then you do your planning. Does that does that feel a bit odd right so I'm sitting there as an investor I'm going to put in hundreds of millions of pounds into this project or potentially hundreds of millions of pounds and the requirement for me to get to that stage is a ten thousand pound application.
Feels a bit... Well, that's not where we are anymore, right, under these proposals. That's not where we will be. Because effectively, the barrier to entering the queue currently is you can pay tens of thousands of pounds for a grid connection application fee. In future, the barrier is you have to have secured your land.
So that's the hundreds of thousands. In the case of offshore wind, it can be a lot more expensive. We've seen the outcomes of the Crown state leases.
So that barrier to entry is being significantly raised. And we think it's an inappropriate level. If you want a system where all developers are moving quickly, then developers are going to need to be able to stump up the money for, for example, securing land rights and then submitting planning in a timely manner after that. So super interesting. I think maybe there's a little bit of this where the devil's in the detail.
So let's say you have your land, you've been in the hopper, you're now out of the hopper, you're in sort of stage two. they're now looking at say 10 projects that are identical, all coming through, all ticking the boxes, all now standing there ready to go. Which one of those goes first? Which one of them goes last?
Yes, this probably gets to like the tiebreaker criteria. Everything should have a tiebreaker. Yeah, so that is a bit of a black box at the moment.
So well, in the proposal, in the current rules, it's based on this idea of whose grid connection application was submitted first. Okay, so First come, first serve. It's currently not clear how exactly that's going to work under the new system. So there are going to be windows in which you can submit your gate to evidence, i.e. your land rights, and move from the hopper to the actual queue, which is where people want to be.
It's not entirely clear how projects are going to be prioritised in each window. And there's also a much deeper uncertainty actually around how projects are going to be prioritised. If I just step back, I said that the ESO's proposals in our view have two parts.
The first one is ensuring these milestones are tough and projects are moving forward. The second one is that the ESO is seeking powers to prioritise certain projects in the queue. And that's the bit that makes us more nervous. The first part around milestones, that's very objective. It's very clear what everyone needs to do.
and as a developer or as an investor you can take a view as to how likely it is that you'll get accelerated all you have to do is look at the projects that are ahead of you in the queue and take a view on whether or not those are good projects that's not entirely simple but at least there's a very clear criteria there if the proposals go through as is the eso will have the power with off gems approval to prioritize certain types of projects in the connections queue and they publish very few details about what those rules will be and how they'll work in practice. They're actually not part of the rule change, the code modification that's going through. They're going to be housed in separate methodology documents.
Is there any guidance to how or what they might be optimising for? Not really at the moment. If you read the work group consultation on these rule changes, there are lots of ideas about how this can be done. There were separate earlier publications from the ESO as part of their connections reform about how this could be done. The real worry for us is that as a developer, as an investor, you want projects that can be connected quickly and you want to invest now in your project in the hope and expectation that will be brought forward using a very clear set of rules.
So we could invest today in a project on the basis that will be brought forward. If we now have some very uncertain methodologies that we don't know what they are and we don't know how they're going to operate in practice, the logical thing for a developer to do is to secure their land and then do nothing. and we would have to wait until September or October next year to see how the rules work in practice in the first round of this new process, which basically means a year of investment hiatus at exactly the wrong time for the new government's goals around its Clean Power mission. So we think the ESO really needs to think again on this, definitely bring forward these part one reforms around milestones, which we think could be very powerful, and we think that the land rights requests for information that the ESO has issued demonstrates these will be very powerful. But on the part two, prioritising different projects in the queue, there's just too much uncertainty at the moment.
And there's probably not enough time to come up with a credible process before the end of the year. So we think that should be stripped out. And then it should be brought forward next year as a subsequent rule change, once the ESO has done the work and can tell the industry how these rules are going to work.
Okay, so maybe there are two kind of really interesting parts of that first one. Labour's objective for clean power by 2030. How realistic do you think that is with this connection reform? Well, so if you just look at the 2030 goal as a whole. It's clear that we can build a lot more renewables in that time frame. We are starting to bump up against the project lead times for if you're developing a brand new offshore wind farm, for example, from today.
Is it realistic suggesting we connect by 2030? Maybe, maybe not, but certainly there's a lot of in-flight projects that can deliver and certainly something like solar and onshore wind and batteries can be deployed very quickly and contribute to that goal. Are we going to be in a situation where none of the gas power plants are running in 2030? I don't think so.
I don't think the government thinks so either. And in the discussion around the Clean Power mission, there is a recognition that there needs to be a strategic reserve of gas-fired power stations. So whether or not the goal is met will really depend on largely what that definition of strategic reserve is and therefore how much gas... Is this a 90% target, a 95% target, or a 99% target?
What does clean mean? So in the context of being 600 grams of CO2 per kilowatt hour, maybe 10 years ago, if you're now at 19 or 20 or 25, we occasionally see on the grid these days, like relatively that's extremely clean, but maybe not zero, but perhaps there's some nuance in the wording of it. Yeah.
And I think it's going to be important for the industry to see, to have a clear steer on what that target actually means in practice, because the reality is at the moment we can build a lot of renewables and we absolutely should do, but we also need to make sure that we have those gas-fired power stations there if we need them. and if there is the wrong signal sent to those operators then there's a risk of increasing costs later i saw the results of the pjm capacity market in the last couple of days that were very very high prices in that capacity market i don't know the details of that but certainly you could foresee a situation like that in gb if we have the wrong signal being sent to those those operators of those power stations which although they are not clean or net zero aligned they do play a very important role in the electricity sector and certainly will be doing so as well as we approach 2030. And I think this kind of comes back to something you were saying earlier that if you've got projects that are in flight to get them to go slightly quicker is kind of doable. If you run a capacity auction and you now need to start getting projects that aren't yet in flight or actually quite a long way behind and you need to get them to deliver very very quickly it's going to cost a lot of money to get there and so you kind of get these kind of very can be very high sort of outcomes within certain capacity markets or auction processes. Okay super interesting. I just want to go back to one thing around the almost like the spatial energy piece.
So ESO becoming NISO taking on more oversight of the kind of total energy picture within GB. I'm sure that links into some of the connection and this kind of prioritization of certain projects. Do you worry about what they might choose to prioritize?
Yes. So So historically, we've had a very market-driven system in this country, and that has led to, in some cases, some very good outcomes. We saw gas coming on quickly in the 90s.
We then saw coal rolling off very quickly in the 2010s, and we've seen renewables ramping up very quickly in the last 10 years. We've also seen some bad outcomes, you could argue. We saw lots of diesel-powered gas engines coming through, making use of the triad embedded benefit.
which was a sort of anachronism within the network charging methodology. And then that sort of loophole got closed quickly. So there are pros and cons of that market-based approach, but I think generally it served us pretty well. And for an investor and a developer, it's good to have very clear market rules there. There is now clearly a desire in the government and Ofgem and the ESO to have more strategic planning.
Some of that I think is in response to the scale of the challenge. And actually, there are certain types of net zero infrastructure that would benefit from that sort of spatial planning and clustering, particularly when you look at carbon capture and storage and hydrogen clusters and things like that. But I don't think we need to throw away the market-based approach. And we need to be prudent here.
We don't want the grid connections queue to just juggle all the balls in the air. No one knows what's happening with their connection dates. And then there's this investment hiatus that I was talking about earlier. you know, we need to be prudent. The policy on strategic spatial energy planning is not currently well developed within the government and that needs to be developed in the context of the government's new Clean Power Mission, which any previous work now needs to be re-looked at.
That work really needs to be done by the government before it can flow through the rest of the system to Ofgem, to the ESO, to the codes, and then it affects developers. It just feels like we don't have the time necessarily to do that, right? So 2024, we rerun some of these processes.
to go and adjust codes. We're talking three years before that comes into, three, four years maybe at a push. We've got a lot of things to deploy before 2030. I mean, do we have, like, we don't have that time, surely?
Well, the reforms specifically to the energy network codes, like the CUSC, can be done quickly. And they can particularly be done quickly when it's clear what is being proposed. So if the ESO comes forward with a rulebook, and says, this is the rule book, we wish to put it into the code, and these are the reasons why, then actually you can go through that process pretty quickly.
You don't want to be coming forward with proposals that are hard for the industry to understand because you will then get a lot of pushback, a lot of concerns, and the process will then be elongated. You've got to go back, I think, as well to the 2030 mission and how many of the projects that can deliver for 2030 are not currently in flight. And so there has to be a question about how much strategic spatial energy planning can contribute to that goal and actually how much of it is about speeding up projects that are already in the queue.
We know there are huge volumes of offshore wind in the queue, huge volumes of onshore wind, huge volumes of batteries, huge volumes of solar. And a lot of those projects can deliver quickly. And those in-flight projects are almost certainly going to be doing the heavy lifting for this 2030 target. And so we need to make sure that we're not putting those at risk and telling those developers and investors to hold off because we're about to juggle all the balls in the air. And we'll find out in Q4 next year how these new rules work in practice.
Is that maybe the message to government, right? That there's solar, there's wind, there's battery storage, all very modular, all being deployed today. Establish supply chains.
We'll see them coming through. Don't bump something to the top of the queue where we haven't got good evidence around its ability to deliver. Well, I'm not sure what the...
necessarily the example of that would be maybe floating offshore wind would be would be the be the main example hydrogen to power CCS possibly I mean I I haven't really seen that as the main direction of travel but I haven't been involved in in the discussions around this spatial planning I think they're further than 2030. yeah so so I mean you could see something like floating offshore wind being brought to the front of the queue that that might have merit but I think we need to see the analysis before the ESO takes the powers to do some of these things with Ofgem's approval, because otherwise that really creates an uncertain investment environment for developers and for investors. I think it's super interesting. We're seeing kind of the political will meeting the kind of engineering reality mixed in with the kind of commercial heads. And how does all of this then get washed through the kind of world of codes and industry groups?
Everyone's very much aligned, everyone wants to make it happen. But it's kind of like how quickly can we make all this go? Super interesting. Final two questions. The first question is, is there anything that you'd like to plug?
Yeah, so you asked me this before we started and I didn't have a good answer. For anyone who's interested in market design, which is something that I'm very interested in, I'd recommend reading the market monitor reports for the deregulated US electricity markets. So for example, the market monitoring report for the New York independent system operator, for ERCOT and for the California ISO. I think they give a real insight into some of the challenges that power markets are facing. And so there's some really interesting ideas in there around moving to zonal capacity markets, moving to nodal capacity markets, dispatching different network services alongside the wholesale market in a central dispatch model.
Just some really interesting snippets buried throughout those reports, if that takes you fancy. Absolutely. That's a great recommendation. And a contrarian view. So is there anything that you believe that the majority of the market doesn't?
Yes. So... I haven't sounded market opinion that widely, but one thing I'm thinking and one thing that low carbon is thinking a lot about at the moment is the number of new substations that have been triggered within Great Britain, particularly at the transmission network level.
We're talking potentially now 100 new transmission substations have been triggered. The distribution companies are triggering new substations all the time next to their existing transmission interface, those grid supply points. That is just going to be a huge barrier if those substations are all needed.
And so really what we're thinking about is how can you do more with less through things like the regional balancing mechanism that I mentioned earlier and other ways of limiting and controlling the power flow of generators on the distribution networks. We think that actually has a real chance of working, especially alongside the queue reforms, and that actually the vast majority of those substations will not be needed. So that's something hopefully that will happen, but we'll find out. No, I think hugely interesting. How do we do much more with the infrastructure we've got?
I think hugely important topic. So that's probably the contrarian view, really, is that the narrative that you often hear around the grid is that we just need to build more. We need to build a lot. But we also need to use what we've got a lot smarter.
And in our view, there is still some serious low-hanging fruit to be picked in terms of using the existing network better. Okay, Ed, thank you very much for coming on Transmission. A huge amount of insight into how we actually get all of this done. So thank you very much.
And let's have you back on again soon. Thanks, Ed. Thank you for listening to Transmission, a Modo Energy podcast. Transmission delivers conversations from industry leaders and experts exploring energy markets and the operations and technologies related to grid-scale battery energy storage.
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