Ofgem reduces generator liability for strategic grid upgrades

Ofgem has decided to reduce the liability for generators to cover the cost of grid reinforcements triggered by their connection request if the upgrades are included in the Electricity System Operator’s Holistic Network Design.    

The regulator said the change will ensure that earlier users of strategic upgrades to the onshore transmission network are not treated unfairly.  

Generators seeking a grid connection that will trigger upgrades to the transmission network are subject to ‘user commitment liabilities’ requiring them to pay cancellation charges if they terminate or reduce the capacity of their project.  

If they do so before the trigger date, they are required to pay a charge to cover the cost of ‘attributable works’ – the specific reinforcements required to connect the generator to an existing node on the main transmission network. If they do so after the trigger date, they are also required to pay a charge to cover the cost of ‘wider works’ – assets built for the benefit of all users.  

They are also required to provide post securities such as a letter of credit to ensure they can pay any cancellation charges. Prior to the trigger date the required security amounts to 100% of the liability. After the trigger date, they are only required to secure a percentage of the liability.  

In January, the Electricity System Operator (ESO) proposed a modification to the Connection and Use of System (CUSC) that would amend the definition of attributable works so it does include any onshore transmission network upgrades identified as necessary in the ESO’s Holistic Network Design (HND) or its HND follow-up exercise.  

Ofgem has now approved the modification, designated CMP428, which will come into effect on 14 June. 

The HND published in July 2022 set out the £54 billion of new grid infrastructure that the ESO deemed necessary to meet the government’s target of deploying 50GW of offshore wind by 2030. The follow-up exercise released in March of this year set out an additional £58 billion of investments it said would be needed to meet the 2035 net zero power target.  

The two blueprints each form part of the first and second transitional iterations of the Centralised Strategic Network Plans that the soon-to-be National Energy System Operator will produce periodically going forward.  

Explaining its decision to approve CMP428, Ofgem said the modification will aid investment decisions, ensure that “users that choose to connect to circuits that deliver wider system benefit are not treated unfairly,” and avoid confusion over the classification of assets included in the HND.  

The regulator has also rejected a modification to the System Operator Transmission Owner Code which sought to address the same problem but by different means. Under this modification, named CM098, securities posted by users for strategic grid upgrades would be released once Ofgem has approved the needs case.  

As the two modifications sought to solve the same problem, but were “operationally incompatible,” Ofgem assessed them at the same time. The regulator said both changes would represent an improvement over the status quo, but CMP428 is preferable as it would immediately relieve users from liabilities.  

Ofgem encouraged the ESO to bring forward a further modification to address the impact of CMP428 on the treatment of wider works and the association cancellation charges.  

It said the ESO should also consider reviewing the treatment of users which have opted to fix their liabilities at the point of contracting and therefore will not see any benefit from CMP428.