Grid Locked: Tackling the transmission blockage

As the UK targets electricity generation as a key driver of clean energy, the National Grid system is struggling to cope, affecting the ability to make the energy transition. Can private finance help?

Credit: Getty

Everyone involved in the UK energy infrastructure market has a sorry story to tell when it comes to getting projects linked up to the National Grid.

“It takes so long to get connections because the Grid infrastructure is not up to it,” says Robin Baillie, a consultant in law firm Crowell & Moring’s energy group. “It means hardly anything is getting built.”

“The Grid is not able to cope with 21st Century capacity needs,” adds Roberto Castiglioni, co-founder and chief executive at Ikigai Capital. “It is a problem that should have been tackled at least five years ago.”

The whole Grid system was designed back in the early 20th Century, focused on large energy generation points that would subsequently flow out to users through transmission lines that got increasingly smaller as they reached individual homes. The approval process for obtaining a Grid connection didn’t need to be overly agile or nimble, because most energy generation came from huge power stations that took years to build.

Today, however, the energy transition means that more and more energy generation solutions are being developed across the country, with fields being turned into solar or wind power sources, plus a raft of offshore wind farms needing to be connected up where their transmission lines meet the shore.

There is a general acceptance that the current queuing system employed by the Grid for new connections is simply not fit for purpose, with some applicants sitting in the queue on a speculative basis, with no way of getting their energy from the project to the Grid and only going to landowners once they have received connection approval.

Helena Anderson, chief operating officer and Castiglioni’s fellow co-founder at Ikigai, explains: “It would be better if the connection application were to expire after an agreed period of time, so as to discourage speculative applications.”

“There needs to be a coherent national strategic framework for industrialisation of offshore wind, etc,” says Iain Sinclair, executive director of renewables and energy transition at Scottish-based energy service firm, Global Energy Group.

Many argue it has been an iterative process to date, spread across different government departments. As a result, there is a growing belief that the approach needs greater transparency and accountability.

The result is that many in this space are seeing potential investors look to other countries to make their investments, because they simply can’t afford to hold onto their capital for five, 10 or even 15 years for a decision on the Grid connection to be made.

“Knowing that there will be enough grid capacity, and a clear line of sight for connection, will unlock the opportunity for the pipeline to flow, and means that people can make investments ahead of the connection coming online,” Sinclair adds.

Castiglioni points to a project that Ikigai is currently working on where a behind the meter solution is unable to connect to the client. “Being given a connection date of 2028, for example, is not going to work for an investor.”

Baillie says the result is that many in the industry will now look for off-grid solutions wherever possible - but he and others acknowledge that this is not always possible, or even desirable in the case of projects designed to boost the country’s overall clean energy capacity.

“Large scale battery storage, for example, needs to be connected to the Grid,” he says.

“It is a vicious circle because we need battery storage to help with Grid capacity, but we are being given dates well into the future for connections of those battery storage facilities,” laments Anderson.

Signs of progress

There are, however, some reasons to be optimistic about the future of the Grid.

On the queuing system, there is a hope that the Electricity System Operator (ESO) will play a role in improving the approach - and that this can be taken up by a Future System Operator (FSO), as proposed by Electricity Networks Commissioner Nick Winser’s report into accelerating electricity transmission network deployment, published in August this year.

“Implementing the Winser Report in full would be a great place to start,” says Sinclair.

In his letter to the Secretary of State for Energy Security & Net Zero, Winser admits that while “many stakeholders commented on difficulties around the connection queue”, the report does not directly address these concerns. Nonetheless, he points out that “speeding the build of strategic transmission may assist somewhat” in this and other issues.

Among the recommendations is, for example, for the FSO to be established quickly and to immediately begin work on a Strategic Spatial Energy Plan, while the new organisation could work with regulator Ofgem to “assess the scope for new shortterm and long-term regional flexibility markets”, and the the National Policy Statements should be updated “urgently and regularly thereafter”.

All these things would help to give more clarity over the UK’s energy network system and where the government’s policy will lead.

Ultimately, however, there is a need for the connections themselves to be upgraded. Improving the queuing system is one thing, but unless the Grid itself can be properly upgraded, that queue will remain a bottleneck.

This is where a private finance and/or PPP-style solution could come to the fore. There is already precedent in the market, with the offshore transmission owner (OFTO) regime having proved highly effective at both getting investment into the market and delivering the links between offshore wind farms and the Grid.

According to Ofgem, since the OFTO regime was launched in 2009, winning bidders have  invested over £6bn in links connecting 9.5GW of offshore wind farms across the country.

A similar regime - competitively appointed transmission owners (CATOs) - was once put forward as a model to deliver new investment in onshore Grid connections, but changes in government and government policy meant the initiative never made it onto the statute books.

“The development of the transmission system should be an area where there is huge potential for private investment: it is a good place to put private capital,” says Julia Prescot, co-founder and chief strategy officer at investor Meridiam, and deputy chair of the National Infrastructure Commission.

The good news is that this seems to be resonating at the highest levels. Shadow Chancellor Rachel Reeves told the Labour Party conference in October that there are “£200bn worth of projects stuck in limbo.”

She continued: “Labour’s plan to rewire Britain…[is] to build faster and cheaper, opening up new Grid construction to competitive tendering.”

That approach sounds much like the OFTO regime and suggests a Labour government would look to some form of partnership with private investors to regenerate and renew the country’s Grid infrastructure.

The current administration, too, recognises that work needs to be done to improve the Grid. The King’s Speech in November stated: “My ministers will seek to attract record levels of investment in renewable energy sources and reform Grid connections.”

However, there was no further mention of the Grid in the speech or the briefing notes that outlined the legislative measures the government intends to take over the course of the next parliamentary session.

Nonetheless, there is optimism within the industry that there is broad agreement that things need to change.

“The industry has universal agreement that the Grid is a problem,” says Sinclair. “Recognising that is important, as is the need to get the public on board to support the generational change that is required.

“We are only one or two major steps away from being able to create a boom in the economy.”

With limited public resources and a critical need to improve the UK’s electricity network to support the transition away from fossil fuels, it seems increasingly likely that private finance and PPPs can help the country clamber up those final rungs.