Repowering Britain: How grid reform may impact renewable projects: what landowners need to know

The repowering and rewiring of the United Kingdom is now underway. This initiative is driven by the transition to clean energy and the need to accommodate rising demand from initiatives such as electric vehicles and data centres, among others. On top of this, the Russian / Ukraine war caused a spike in international wholesale gas prices, and the resulting price rises have cost the United Kingdom an additional £90 billion to date. Energy security has now become a major political concern. As a result, the UK now aims not only to be powered by clean energy but also to achieve self-sufficiency.

What does this mean for landowners?

These plans will all have a major impact on landowners. Generating electricity obviously requires some form of land or water. Many of you reading this will have agreements for such developments to be built on your land. However, once generated, that electricity also then needs to be distributed. This means more landowners are now being approached to host the supporting infrastructure for its distribution. If agreements cannot be reached to host these cables, pylons and other distribution infrastructure, utility companies are now much more willing to impose these through, which we will examine in more detail in future articles.

Here we are looking at the ‘repowering’ aspect. The Government’s goal is to ‘supercharge’ this repowering through 95% of the UK’s energy being generated from clean sources by 2030, including by nuclear energy.

Project delays

Despite this, clean energy project developers have been faced with significant bottlenecks when trying to connect their projects to the grid. We were regularly seeing new projects given grid connection dates of 2030 and beyond due to the ‘first come, first served’ policy of dealing with grid applications. As of June last year, more than 1,000 projects were waiting to connect.

If all these projects were connected to the grid, they would generate approximately 1.5 times the UK’s total energy requirements for each year.

The Connection Reform Process

While some of this energy could be exported internationally, it’s obviously not realistic or required to connect all these projects. As such, the National Energy Systems Operator (or ‘NESO’) undertook an exercise to reorganise the grid connection queue. This sought to prioritise workable projects that support the 2030 target and beyond, and to remove connections from projects that are causing delays. Some of these are known as ‘zombie projects’, and, for example, may have a grid connection, but not have secured land on which to build. However, other projects may be workable but are located in an area that at present has an overprovision of projects with the same technology.

Last summer, NESO had developers submit their projects for that evaluation exercise, and we now have the results (albeit developers are awaiting their written offers). Your developer may have already been in contact to discuss the outcomes and next stages with you. However, it’s important that you know what these outcomes are, and any next steps.

Gate 1 or Gate 2?

NESO has issued developers with what are known as Gate 1 or Gate 2 offers for projects submitted for evaluation. Most developers would be seeking a Gate 2 offer, which provides a project with a definitive connection date, secure queue position, and grid connection point (unless the developer stated they were looking for a Gate 1 offer). Gate 2 offers themselves are split into two categories: Phase 1, which are projects with pre-2030 grid connection dates, and Phase 2, which are projects with connection dates of between 2030 to 2035.

Conversely, Gate 1 offers provide only an indicative grid connection date and location. As we have said above, there is an over-provision in the market, and this means that many projects with Gate 1 offers may not be built. Much will depend on the location of the project, and the technology involved. Further, certain Gate 1 projects have what are known as ‘protections’, which, in theory, should make it more likely that they will be successful in achieving a Gate 2 offer in the future. In terms of future offers, NESO must open the application window at least once annually. On that basis, the window should open again this summer. If your developer has received a Gate 1 offer, then you should discuss what their plans are for the project with them, together with your professional advisors.

Developers with Gate 1 or Gate 2 offers may require changes to the development agreements for the project (usually called the option agreement). For example, options may need to be extended for revised grid connection gate, or varied, for example, if the point of connection to the grid has now changed. Some projects with dual technologies, such as wind and battery, may find they only have a Gate 2 offer for one of the technologies, and this may result in a re-evaluation of the whole project.

Don’t forget..!

It is important to note, that this process is a reordering of the grid connection queue and does not mean the same is now affixed. Not all developers will accept Gate 2 offers, as the economics of a project may now have changed. Projects that don’t meet development milestones under a Gate 2 offer also face being removed from the queue, and space for new projects may open up accordingly. Developers unhappy with what offers they have received, may look to raise an action against NESO, but it may be that options for projects that have lost their original pre-exercise queue position to be reinstated, are limited. Finally, while overcapacity in certain technologies will have an impact on the grid connection offers made, NESO does have the power to realign capacity from one part of the United Kingdom to another, again which may open up opportunities for other projects.

It should be noted that this is a high-level overview of a complex process, and one which is still subject to ongoing developments.

How we can help

It should be noted that this is a high-level overview of a complex process, and one which is still subject to ongoing amendments. If you have any questions about the development on your land, or this process, please contact Stuart Orr or your regular Anderson Strathern contact.