Ofgem published its decision on 13 November 2023 in relation to CMP376 that the “WACM7” modification should be made to the Connection and Use of System Code (“CUSC”) in order to implement queue management (“QM”) milestones into construction agreements for connection to the transmission system. The impact of this is that National Grid Electricity System Operator Limited (“NGESO”) will have greater powers (and in some cases an obligation) to terminate projects that are not progressing against their milestones, thus speeding up the connection process for projects which are progressing on time. The decision has been accompanied by a letter from the Director of NGESO noting that it “will be uncompromising in our approach to driving out and pushing back projects that cannot meet their connection date”. CMP376 represents a significant change from the “first to contract, first to connect” principle and is part of a series of targeted reforms to manage the grid backlog in Great Britain. The size of the overall queue of projects waiting to connect to the transmission system is almost 400GW and is increasing daily. This has had an impact on the UK realising its Net Zero goals, particularly given that more than 90% of the MW share of queued projects with connection dates of 2030 and beyond are either renewable energy or battery energy storage projects.
The QM provisions will be implemented to the CUSC through CMP376. WACM7 will be implemented on 27 November 2023 (the “Implementation Date”) and will apply to both future and (as further explained below) existing grid connections.
See our previous LawNows for further information on key reforms to Electricity Network Connections.
The Grid's Backlog
NGESO operates the high-voltage national electricity transmission system (“NETS”) in Great Britain. NGESO is responsible for managing applications from Users to connect to the NETS and has regulatory duties to maintain economic and efficient networks. Currently, NGESO has implemented “connection queue” policies, based on the “first to contract, first to connect” principle. Connection offers consider the connection arrangements that have already been entered into with other customers, thus effectively creating a ‘queue’ for network connections.
The CUSC is the key industry code with respect to the terms on which customers connect to and use the NETS. However, the CUSC does not currently contain a mechanism to enable network companies to actively manage connection queues. It is widely reported that the queue currently contains stalled, slow-to-progress and non-viable projects. NGESO has reported a high attrition rate of 60 – 70%, meaning that many of the projects will ultimately fail to connect to the grid. As a result, electricity network connection applicants have encountered increasingly acute shortages in available network capacity in recent years, and therefore significant increases in the costs and lead times associated with making new and modified connections. This in turn has impacted on viable projects that have been impacted by connection capacity being taken by those earlier in the queue.
CMP376 – Inclusion of Queue Management within the CUSC
CMP376 was proposed to amend the CUSC to implement the QM provisions. As part of the process there were various Workgroup Alternative Code Modification proposals (“WACMs”) to the original proposal. Ofgem has chosen to adopt WACM7 because it considers it would best-facilitate the achievement of the Applicable CUSC Objectives, and would remove stalled projects and deliver a consistent approach for both existing and new grid connections. It also closely aligns with the process adopted for distribution connections, providing consistency between transmission and distribution.
WACM7 introduces QM to:
- New Users entering into connection agreements from the Implementation Date of CMP376;
- Existing Users with existing connection agreements or an offer to connect where the completion date in the Construction Agreement is two years or more from the Implementation Date of CMP376 (27 November 2023); and
- Existing Users with existing connection agreements where the completion date in the Construction Agreement is on or before the date two years from the CMP376 Implementation Date where NGESO has reason to believe that the User’s project is not progressing in accordance with, nor is reasonably aligned to the Construction Programme in the appendix to the Construction Agreement, and the User is unable to demonstrate such progression to the reasonable satisfaction of NGESO.
The QM provisions to be implemented by NGESO will work as follows:
- milestones will be introduced with specific deadlines based on, and calculated back from, the User’s Completion Date into the Construction Agreement to measure and track project progress;
- where a milestone has not been met, projects will be categorised as ‘Termination’, triggering a remedy period within which Users are given the opportunity to provide satisfactory evidence to NGESO that the Milestone has been met;
- if the User is able to provide satisfactory evidence, then the project will be re-categorised as ‘On track’, if not then:
- for Milestones M1-M3 (the “Conditional Progression Milestones”) NGESO will terminate the connection agreements;
- for Milestones M5-M8 (the “Construction Progression Milestones”), NGESO may terminate the connection agreements, with NGESO exercising its discretion in accordance with its published guidance.
This guidance is yet to be published (it is due to be published on the Implementation Date) but the decision notes that NGESO will engage with the User, the relevant transmission owner, and (where necessary) Ofgem and DESNZ to establish the likelihood that the relevant project is in a position to progress to the Completion Date.
The Conditional Progression Milestones relate to requirements to submitting and obtaining planning permission and obtaining land rights for the relevant project. The Construction Progression Milestones refer to establishing a construction programme, submitting a design for the contestable works, demonstrating the required project backing (by way of a binding contract for main plant equipment, staged payments made to the network company, a board FID decision, or a subsidy award) and commencing project construction. The User is responsible for providing suitable evidence to demonstrate that they have met the relevant milestones in order for the milestone to be considered to be achieved, by reference to the evidential requirements set out in the QM provisions in the CUSC.
For a transmission-connected project, the applicable timescales within which the milestones must be achieved will be determined by reference to how far in the future the agreed date for completion of the connection works is at the time of contract formation, and will be measured counting backwards from that completion date. The milestone timescales for projects with a contracted completion timeframe of up to two years will be negotiated between NGESO and the User for the individual project, whereas projects with contracted completion dates that are two, three, four or five+ years away will have predetermined milestone timeframes stipulated in their construction agreements. For example, for a transmission-connected project with a four-year completion timescale, the milestone for submission of a planning application should be met at 36 months from completion (12 months after the offer date), and the milestone for securing planning consent is required to be met 24 months from completion (24 months after the offer date).
The User will have 60 calendar days, pursuant to a ‘milestone default notice’ issued by NGESO, to remedy a missed milestone before NGESO’s termination rights will be exercisable unless an exception is applicable.
To account for situations outside of the User’s control, CMP376 allows for exceptions to termination. The exceptions are as follows, and apply to both Conditional Progression Milestones and Construction Progression Milestones (which are together referred to as User Progression Milestones):
- where the User is prevented from completing works as a result of Force Majeure (defined in the CUSC) and is entitled to fix a later date under the Construction Agreement,
- where the User is unable to meet a User Progression Milestone due to an event of Force Majeure;
- where delays are caused by another party (other than the User, NGESO or transmission-owner) and the User could not have avoided the delay or impact to meeting the Milestone by exercise of Good Industry Practice (defined in the CUSC);
- where there are planning appeals and third-party challenges in relation to the User’s Consents that mean it cannot meet a User Progression Milestone; and
- any delay to the achievement of the User Progression Milestone by the User which is caused by the relevant transmission-owner or NGESO.
Exceptions will require written evidence to NGESO and need to be accompanied by a confirmation from the User’s board of directors or equivalent. If accepted, a new Milestone Date for the missed Milestone will be issued.
Where a User is terminated, the existing provisions in the CUSC and forms of User Construction Agreement with respect to User liability to pay Cancellation Charges, incorporating the costs of abortive works (except to the extent that these can be utilised by another future User), will still apply.
The approval of WACM7 and the implementation of QM to transmission connections is intended to provide significant improvement to the management of the connection queue and encourage Users to progress their projects in a timely manner according to the new milestones. The impact is that NGESO will be able to (and in some circumstances will be required to) remove projects from the queue that do not meet their Milestones.
Users now need to carefully consider their Completion Date as to whether it is achievable and if not act within the six-month window (or two months where the customer is due to connect within two years). NGESO will be sending notices to all impacted Users following the Implementation Date. If an exception cannot be relied upon then the six-month window should be used to extend the date to an achievable one, noting the milestone deadlines.
NGESO has classified 144 ‘high-risk’ projects (circa. 29GW) that are at risk of not meeting their contractual connection dates by the end of 2025. NGESO has previously been hesitant to exercise its termination rights, however, NGESO has made a commitment to be ‘uncompromising’ in its approach to managing the grid. It has appointed an independent engineering consultancy to inspect these ‘high-risk’ projects to assess their viability. It is critical to note that, although it may be able to exercise discretion over whether to accept claims for “exceptional circumstances” and/or terminate projects not meeting their Construction Progression Milestones, NGESO will (i.e., has no discretion in deciding whether or not to) terminate projects if they do not demonstrate progress in accordance with the Conditional Progression Milestones.
The position on Cancellation Charges (the fees imposed by NGESO on the User if either party terminates the connection contract before the Completion Date and set out in Schedule 2 of a Construction Agreement) remains the same. Given the likelihood of termination has now increased, Users need to be very actively monitoring progression against milestones and ensuring that if there are any delays attributable to potential exceptions that these are submitted to and discussed with NGESO. If a User fails to meet a Milestone and NGESO exercises its right to terminate the connection contract, the User may incur Cancellation Charges, and the date at which this happens will change the amount payable.
Now that the nature of QM has become clear, developers will have to think cautiously about the stage at which they apply for a grid connection (rather than simply doing this as soon as possible in order to secure a place in the connection queue). They will also need to carefully consider whether to advance claims for Force Majeure and/or exceptional circumstances against NGESO where projects are delayed, and in turn, how to take into account the QM provisions (and the exceptional circumstances provisions) when negotiating their supply chain contracts.
Article co-authored by Jude AlHajjaj, Trainee Solicitor at CMS.