Connections reforms will ‘inevitably’ lead to litigation

Connections reforms being introduced by National Grid Electricity System Operator (ESO) will “inevitably lead to litigation”, according to legal experts.

Lawyers have told Utility Week that the ESO’s proposal to cancel grid connection agreements is likely to lead to “bun fights” in the courts with disgruntled developers.

New rules approved by Ofgem in November allow the ESO to remove “zombie projects” from the connections queue if they fail to meet a number of milestone agreements related to securing planning consents and hitting construction targets.

The queue management milestones were implemented on 27 November and apply to both existing and future grid connection agreements.

Ian McCarlie, senior energy partner at Pinsent Masons, told Utility Week that the change of rules will be welcomed by half of developers but resisted by the rest.

McCarlie said that the reforms “make sense” and that “a bit more discipline” will help to tackle the connections queue backlog.

However he warned that some developers sitting on existing agreements may feel “hard done by” with the rule change which could ultimately lead to unintended legal consequences.

“Anyone aggrieved with having their agreement cancelled will not go quietly,” McCarlie said. “It is inevitable that somewhere down the road a developer will disagree with the decision to cancel their agreement. This will inevitably lead to litigation.”

He added: “For some projects it will be obvious that they are never going to secure the land rights or the planning permissions to take the project forward – for example where there are archaeological protections. In those cases it should in theory be straightforward to cancel the connections agreements.

“However, in other cases, it might not be as clear cut. There are delays in the planning process and a developer may feel unfairly singled out due to things outside of their control.

“Likewise, developers will be looking at similar projects to themselves and seeing if the ESO’s decisions are consistent.”

Currently, there are 232 projects accounting for around 45GW of capacity that are due to connect by the end of 2025.

The ESO has already identified 144 “high risk” projects which are now at risk of having their grid connection agreements terminated as early as next year.

In a letter to industry, sent last month, ESO executive director Fintan Slye revealed that engineering consultancy DNV has been brought in to inspect the 144 projects, “to provide an independent view of their ability to meet their contracted connection date”.

McCarlie said that while there are clearly developers “sitting on agreements”, they will be unwilling to let them go as “no-one wants to end up with stranded assets”.

He pointed to the relatively low take-up of the ESO’s Transmission Entry Capacity amnesty which allowed stalled projects to withdraw from the register at no cost or a reduced fee.

In total, 5GW worth of projects gave up their place in the connections queue. McCarlie said this relatively low take up shows that “developers aren’t willing to give up their agreements”.

He added: “Usually developers will have spent a lot of time and money before they’ve got an agreement in place – they are not going to just give them up without a fight.”

McCarlie added that developers hoping to offload their projects may also be “sweating” due to the rule changes.

It was a point echoed by Jonathan Croley, energy partner at Ashfords law firm: “The risk of failing to meet a development milestone is that there is a high likelihood of the [ESO] terminating the connection agreement which would [lead developers to] seek significant wasted costs.

“The market is highly populated with parties that develop and sell the projects ready for construction.

“Buyers of those projects will now be even more keenly alive to the need to due diligence and seek relevant comfort of the milestones which have and have not been satisfied, to avoid the risk of inadvertently acquiring a zombie project.”