Weekly News Review - 17th November 2023
Ofgem announces tough new policy to clear ‘zombie projects’
Ofgem has announced new rules to speed up electricity grid connections for viable projects and allow stalled or speculative developers to be forced out of the queue. The previous system operated on a ‘first-come, first-served’ basis which allowed a long queue of potential projects to develop with a generating capacity of nearly 400GW. The new system will give National Grid ESO the power to terminate projects which have not met project milestones.
The new queue management milestones will be implemented by the UK grid’s operator from 27 November 2023 and will be introduced to both existing and future grid connection agreements. This will terminate stalled ‘zombie projects’ that are blocking the queue for high-voltage transmission lines and means ready-to-go generation and storage can be fast-tracked.
The ESO has said that the number of projects in the queue rose from 600 in May to 1,000 by September and between 60% and 70% of projects “ultimately fail to materialise or connect”. This has led to the average connection time increasing from 18 months in 2019-20 to five years in 2023. Ofgem have confirmed that more than 160GW of capacity has a connection date of 2030 or later with some projects as late as 2037.
Eleanor Warburton, Ofgem’s Deputy Director for Institutions for Net Zero Energy Systems Management and Security said: “The transition to net zero demands urgent changes to the electricity connections system – or we cannot unlock investment, speed up network build and accelerate new technology.
“This is a big step towards phasing out the first come, first served queueing system. We want new power on the grid as quickly as possible, so if you’re ready, you can connect sooner. If you’re not ready and are blocking the progress of others, you’ll be removed – you can’t sit on the queue with no consequences.”
Julian Leslie, Chief Engineer and Head of Networks at the ESO said: “We warmly welcome these new rules approved by Ofgem enabling us to proactively terminate zombie projects in the connections queue. This is a milestone moment in the ESO’s efforts to lead the transformation of the grid connections process, making it fit for purpose for a modern network that is rapidly evolving and decarbonising.”
Boost for offshore wind as government raises maximum CfD prices
The government has announced that the maximum price for offshore wind projects in the next Contracts for Difference (CfD) auction will increase by 66% to £73/MWh. This follows the disappointment of no offshore wind bids in the last CfD auction when the technology was priced at £44/MWh. Developers stated that a significant rise in supply chain costs had meant that it was uneconomical to bid at the previous auction price.
The maximum strike price has also been increased by 52% for floating offshore wind projects, from £116/MWh to £176/MWh ahead of Allocation Round 6 (AR6) next year. The price increases will help ensure projects are sustainably priced and economically viable to compete in the auction. Offshore wind will also be given a separate funding pot in AR6 to recognise the high number of projects ready to participate.
Energy Security Secretary Claire Coutinho said: “The UK is home to the world’s 5 largest offshore wind farms projects. Today we have started the process of our latest Contracts for Difference auction for renewables, opening in March next year.”
“We recognise that there have been global challenges in this sector and our new annual auction allows us to reflect this. This is a vital part of our plan to have enough home-grown clean energy, bringing bills down for families and strengthening our energy independence.”
Emma Pinchbeck, Energy UK’s Chief Executive, said: “Offshore wind is the flagship technology for the UK in terms of meeting our net zero targets. It’s also a critical one to ensuring our energy security through generating more clean domestic power – at the same time as boosting our economy and creating jobs.”
“So we very much welcome the government responding to the increased global competition and the economic challenges facing developers by showing more ambition and giving greater confidence to investors, which will help build a domestic green powerhouse that benefits our own economy and people.
SSE to increase clean energy investment by £2.5bn after profits rise
SSE plc has published details of its 2023/24 interim results and announced a £2.5bn increase to its existing five-year investment programme, expecting £20.5bn of investment to 2027 compared to £18bn previously. It reported a 3% fall in operating profit of £693.2m for the first half of this year, however pre-tax profits increased by 1% from the same period last year to £565.2m.
The group announced better than expected first-half earnings of 37p per share from April to September, higher than its previous forecast of 30p per share. The first half saw a strong performance from the thermal business as it benefited from the addition of Keadby 2 and Triton power stations alongside improved availability of its other assets. The period also saw first power achieved at Dogger Bank, which will be the world’s largest offshore wind farm once completed.
Commenting on the interim results SSE Chief Executive Alistair Phillips-Davies said: “Our first half performance reflects both the financial strength of our business and our ability to deliver world-class projects that are at the heart of the clean energy transition.”
“There remains strong underlying political consensus on the big drivers of energy security and decarbonisation – accelerating renewables, network investment and flexible power generation – and these are the growth engines powering SSE.”
“That we are investing more than £20bn over the five years to 2027 and could invest more than £40bn over the decade to 2032, speaks to the range and quality of opportunities we have, underpinned by an energy transition that is gathering pace, and our continued commitment to creating value for society and shareholders in a disciplined way.”
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