The Fall of the Ancien Connections Regime

A revolution by any other name

One of the core principles of electricity privatisation was that it would no longer be the State that determined which generators were built. Private investors would be responsible for determining the technology, location and scale of their investments.

Over the last two decades, the ‘technology’ and ‘scale’ bit of that has been slowly nibbled away by decarbonisation policy. Governments since the 1990s have taken it on themselves to support particular technologies through particular routes. Nuclear has received the Non-Fossil Fuels Obligation, a Contract for Difference and a Regulatory Asset Base. Renewables have received the Feed-in Tariff, the Renewables Obligation and the Contracts for Difference framework. Thermal fossil plant have received support through the Capacity Mechanism. The majority of all assets on the system right now enjoy some form of Government decision-making in their favour.

The last bastion of private decision-making is location, even within the existing constraints of the planning system. And yet, with the publication of yesterday’s open letter from Ofgem, this Bastille of the private sector has fallen.

In the regime as it exists until Ofgem’s proposals are implemented, investors find a location where they think they can make money and apply to connect their asset there while simultaneously applying for planning permission if needed. But you can only connect a certain amount of generation to a particular part of the network, and if more generation wanted to connect than there was capacity, projects had to queue until capacity could be upgraded or otherwise created.

If you’re radically expanding electricity demand through the electrification of heat and transport, then there’s lots of money to be made from building new generation to service that demand. This means having a slot in the queue is really important, even if you don’t plan to build straight away. And so, the queue for a transmission connection has grown and grown, and today there are over 1,800 projects in the queue representing over 500GW of projects. As a point of comparison, the entire UK generation fleet totals about 75GW. Many projects were looking at times to connect of over a decade.

This is obviously in no-one’s interests, and so prior to the election of the current Government Ofgem and the System Operator were implementing a range of measures to better manage the queue. This included mechanisms to remove more speculative applications through a series of project gateways, including the requirement that projects actually apply for planning permission if they want to move up the queue.

However, yesterday’s open letter blows much of this incremental work out of the water. Ofgem have announced that the incremental work has been paused and they are instead looking at a system whereby the System Operator essentially just picks which projects in a particular location get a connection. The System Operator will have a variety of methodologies for doing so in order to guard against the risk of picking their faves or projects that have good vibes. Critical within this, however, will be the need to deliver the Government’s 2030 target. Projects that do not contribute towards this target - as identified by the System Operator - are unlikely to be able to connect much before the end of the decade unless they are already significantly advanced in the process.

What this means for generation investors is that if your project isn’t in the System Operator’s strategic plan, it probably ain’t happening.

But - and I cannot emphasise this enough - although this may seem unfair to investors who stumped up cash during the ancien regime it is almost certainly impossible to deliver decarbonisation by 2030 in any other way. This is now very much an engineering challenge rather than a market design challenge. Only the right projects in the right locations indeed should proceed. This is why I recommended something similar for offshore wind in particular in Healing the Fragmented State.

For this all to happen so quickly is an extremely welcome rejoinder to those of us grumpy at how fast the State moves to deliver. It is a quiet, overnight revolution slipped out through a heavily technical letter from an obscure bit of the independent regulator, but it is a revolution nonetheless.