How to Navigate CMP435 – With the evidence windows for CMP435 beginning to open across Great Britain (GB), many Developers are hoping for more certainty on the future of their connection projects. Increased clarity is crucial to underpin the investment required to build out these projects and in the meantime, it is essential to ensure projects are carefully managed and critical milestones are met when required.
Whilst we can be hopeful that the reforms will begin to address the oversupply of projects currently contracted to connect to the Transmission and Distribution networks, we expect that significant uncertainty may continue for the foreseeable future, particularly when it comes to connection costs and cancellation liabilities for projects yet to connect.
Gate 2 Offers: Domino Effects and Rising Costs
Later this year we expect “Gate 2” offers to be issued to individual projects before the subsequent variation agreements are prepared by the Distribution Network Operators (DNOs) to reflect the revised connection queue at each Grid Supply Point (GSP). However, not all these Gate 2 offers will be “good offers”, and this may not be immediately obvious for Developers. Due to the consultations we expect to occur between Developers and DNOs/TOs, we expect to see a continuous evolution of the connections queue as projects fall in and out of the queue. Importantly, these changes will have a knock-on impact on those that remain in the queue.
One of the main reasons for this post-CMP435 queue uncertainty is the impact the acceptance or rejection of Gate 2 offers can have on other projects, particularly where Super Grid Transformer (SGT) reinforcements are required. Typically, an additional SGT at a GSP can cost in the region of £15 million. This cost is shared amongst all parties that have triggered the need for this reinforcement and the cost that is apportioned to an individual project is therefore dependant on how many other projects contribute towards the necessary reinforcement.
Over the next year we expect the cost apportionment for reinforcements of this nature to continuously change as projects accept their Gate 2 offers or cancel due to various reasons both outside and inside their control. This can have a “domino” effect as projects will incur an increasing cost apportionment when other projects fall away, threatening the future financial viability of the remaining contracted projects.
Furthermore, the scale of future cancellation liabilities may also vary as projects fall in and out of the queue; a direct result of the CP2030 reforms. Cancellation liabilities are required to cover the cost of the Transmission level reinforcements required to facilitate the connection of a new generator. As the queue evolves, so do the reinforcements that are “attributable” to each project. Whilst the reduction in the connections queue could result in the cancellation liabilities decreasing, it could also result in an increase. For example, if the characteristics of the reinforcements change to reflect the reduced queue, the share of this reinforcement cost then increases to reflect the new rating of the reinforced network assets required for the updated queue.
One major concern is that the current CP2030 reforms have not yet been directly informed by any detailed network analysis. The current “MW thresholds” for each zone reflect the most recent Future Energy Scenario (FES) targets and these values do not consider the ability of the network to host this capacity without reinforcements. It is very possible that a network-led CP2030 plan which aims to minimise the need for network reinforcements would identify an entirely different split of the allowable capacity for each zone.
It is our view that Ofgem are obligated to ensure consumer interests are protected and that the transition to Net Zero is delivered whilst minimising the impact on consumers energy bills. Given that Gate 2 offers are being issued based upon planning status only, there is a significant risk that the final pot of projects which retain their connection offers may result in an unnecessary need for reinforcements that could be avoided if another mix of generators were to be selected.
This would almost certainly lead to an increase in consumer bills which would further increase the pressure on Network Operators to deliver costly reinforcements with a constrained supply chain subject to challenging timescales. When this effect starts to become obvious, we expect pressure to grow on the regulator to address this flaw in the CP2030 methodology and promote connections to areas of the network that can most efficiently host new generators with minimal reinforcements. This could radically change the CP2030 plan as it exists today.
What does this mean for Developers?
Whilst the industry battles with this ongoing uncertainty, we strongly recommend that Developers ensure they remain informed of the obligations documented within their connection agreements. This is crucial to ensure the ongoing validity of their connection agreements if the Network Operators feel the pressure to connect projects that are “ready first” and have met the various milestones. These obligations include:
- ensuring all payment milestones are paid on time as agreed with the Network Operator,
- ensuring the necessary security payments are in place when requested,
- ensuring all delivery milestones are on track and clearly communicated with the Network Operators.
Critically, failure to meet milestone payments can result in significant delays to the previously agreed connection date. Given the CP2030 protections afforded to projects with contracted connection dates before 31st Dec 2027, it has never been so important to ensure that delays are avoided.
Even a minor delay in the completion of milestone payments may result in the Network Operator failing to place orders for the long lead items (such as transformers and switchgear)when required to meet a connection in Q4 2027. The Network Operator may also then reassign the internal resource required to deliver the connection to instead facilitate the connection of other projects that have met their payment milestones on the agreed dates. This has already resulted in projects scheduled to connect by 2026/2027, being “leapfrogged” by other projects and having their connection dates pushed back by multiple years, all caused by missing milestones and not making payments. In the worst-cases, we have seen “good” projects with favourable outlooks cancelled when they have missed these milestones.
If a project’s connection date is subsequently pushed back into 2028 or beyond, the enhanced CP2030 Clause 2a protections (applicable to projects with approved planning consents and a 2027 or earlier connection date) the guaranteed Point of Connection (PoC) and associated Connection Date could be lost. In some circumstances the consequence of this could be a delay to the originally offered 2026/2027 connection date to as late as 2035, as both the physical point of connection and connection timescales for the project would become subject to the CP2030 zonal MW thresholds and its position within the queue of competing projects would have changed detrimentally.
How to Navigate CMP435 – What are the Key Next Steps?
In order to maintain good prospect for your project, the following actions should be taken to ensure that you retain the best possible chances in the upcoming reforms. Proactively engaging with Network Operators and understanding the risks associated with your project depending on the queue position it will end up in, is the best way to manage the uncertainty at this time.
✅ Engage with your network operator to ensure that not just the queue management milestones, but sub-milestones within the connection agreement.
✅ Engage with your network operator to ensure that all payments are met in a timely manner.
✅ Engage with your network operator to understand a realistic Programme of Works (PoW) to facilitate your connection: a Clean Power 2030 Connection Date Protection does NOT necessarily mean you will meet that date.
✅ Ensure your CP2030 Evidence Submission is not just double-checked, but triple checked: Network Operators have stated that any submission errors cannot be undone.
Contact us today to learn more about the prospects of your project in the upcoming reforms, and how you can navigate and mitigate the risks associated.