Development in a time of gridlock

Developers will be all too aware that the national grid is at capacity in many places, resulting in considerable expense and delay securing new grid connections for new projects. The backdrop to this challenge is the changing face of the electricity sector. For many years, it was dominated by large power stations located near sources of fresh water and coal, but away from the population centres where the power was largely used. A national transmission system was therefore needed to convey this power across the country. With the introduction of nuclear, it was a similar picture. But that whole model is now changing, both in terms of how we generate – as we introduce more and more renewable energy into the mix – and also in terms of how we connect and use that energy. The UK is not unique in this respect, but as it was an early deployer of renewable energy, the UK is also experiencing the issues associated with this sooner than some other countries. The pace of change Grid reform is well under way, but it will not be overnight. National Grid has said that in the next six years, it will need to deliver five times the electricity transmission infrastructure that has been built in the past 30 years. What’s more, if the UK is to meet its decarbonisation targets, that will mean decarbonising heating, transport and the wider economy, not just the grid. In large part, that will require more and more clean electricity and, in turn, more and more grid reinforcement will be needed. That brings very real challenges to the supply chain, both in terms of the human resource and the materials – the copper, new transformers and other pieces of kit – that are required for all this grid upgrade. In this, the UK is not only competing with grids in other countries for these resources, but in many cases also competing with generation projects. This certainly does not mean calling a halt to developments altogether. We have seen quite a wide range of innovative solutions being deployed by developers in order to make the best use of the grid as it is today. Ways forward For example, developers of generation projects are increasingly turning to virtual power plants. These do not just involve co-locating, say, battery and solar technologies side-by-side, but take this principle further by establishing true hybrid generation projects with a single grid connection, being owned and operated as a single power project. Similarly, we are seeing more development on existing energy sites. For instance, as early renewables projects come to the end of their operational lives, they can be repowered with new, more efficient technology. Existing sites can be retrofitted with new technology – for example adding battery storage to existing solar projects and “load shifting” the output of the project to other times of day. This means solar projects can now generate, or at least output, at night. Developers of new-build projects are also turning more and more to independent distribution network operators. This includes developers of large “load” developments such as housing developments, industrial parks and data centres, as well as developers of generation projects. Like the traditional DNOs, IDNOs are licensed by Ofgem, albeit with a lighter form of distribution licence. They often physically slot in between the local DNO and the new development, offering the “last-mile” connection. However, they say they can offer connection arrangements more efficiently than the DNOs and offer more favourable terms than the DNOs, with some even offering a capital contribution to grid connection costs. IDNOs have existed for a while, but in recent years there has been a dramatic upturn in their involvement – last year, Ofgem estimated 70-80% of new connections are now adopted by IDNOs. What’s more, a number of developers have gone a step further and applied to become IDNOs themselves – although this involves strict ring-fencing and other licence obligations. We have even advised one client on applying for a transmission licence – with a view to becoming an “independent transmission operator”. In parallel with this, there is much more development using private grid networks, some being developed by IDNOs but others by purely commercial developers as private, licence-exempt networks. Some of those seek to harness very large capacities. For example, where a large, fossil fuel power station comes offline they will seek to use the hundreds of MW of grid capacity released by that in order to connect new, clean energy generation and also big data centre and industrial customers. Others are at the opposite end of the scale – namely micro grids providing local energy solutions for new housing developments and business parks, often working alongside small scale solar PV, batteries and associated technologies such as electric vehicle charging facilities. Which brings us to the huge increase in on-site generation that has been taking place in the UK. This has been both large-scale and small, with clean energy generation, particularly solar PV, being installed on warehouses, industrial units, schools, housing stock and so on. With single-occupancy premises there is a well-trodden path, although still plenty of development opportunity. In a multi-occupancy context, there will be an important role for managing agents to act as an intermediary between the generators of the electricity and the occupants. Developers are also moving more to near-site generation. For example, many are seeking to locate solar projects next door to a large industrial user and putting a private wire through the fence, providing power under a corporate PPA. While very diverse in nature, all these solutions seek to avoid using the grid or move their grid usage away from peak times. And, of course, if you can reduce the peak time traffic on the grid, then less grid upgrade is needed. Complementing these approaches are also demand-side solutions, where customers can be encouraged to shift their usage away from peak times. Again, the applications here range in scale from individual householders to large commercial customers. Emerging technologies These are solutions that we are seeing deployed right now. Looking to the future, as you would expect, there is a very real opportunity for “smart” technologies to predict with greater granularity the supply of energy from (often intermittent) renewable generation, to predict and moderate the demand for that energy and match the two up. There are also huge opportunities for emerging technologies. In the UK there remains major potential for wave and tidal projects – after all, we are an island and the offshore renewable energy resource could supply our needs many times over. Another key technology is hydrogen, where the first commercial-scale projects are beginning to emerge. Hydrogen has a very special role to play here. First, it is of course a product in its own right, as an industrial commodity, so it represents an alternative revenue stream for developers outside the energy sector. Second, within the energy sector it is an energy vector, so it can provide a link to bridge between intermittent renewable generation, the short- or long-term storage of that energy and then the use of that energy, whether for generation of electricity or supply to heating, transport or wider industrial uses. Meaningful steps are being taken by policymakers and the National Energy System Operator to address our grid challenges. Meanwhile, the market is adapting through innovative projects and technologies which try to work effectively within the current constraints of legacy electricity infrastructure. They do not detract from the urgent need for better grid infrastructure, but they promise to be a major facilitator of energy decarbonisation, not to mention bringing commercial opportunities for the industry. Nick Pincott is a partner in the projects, infrastructure and construction team at TLT