Grid connection reform - how ‘secure’ are your land rights and consequently your place in the queue?

Pressure is mounting to exchange option agreements and secure land rights as soon as possible on transmission connected schemes in order to maintain your place in the grid queue. The current TM04+ First Ready, First Connected process seeks to have retrospective effect and existing projects could be at risk.

This article discusses the relevance of land rights in the context of the reform proposals.

Recap – latest grid reform proposals

To recap the latest position on grid connection reforms, in April 2024 National Grid ESO (“ESO”) published an enhanced version of its proposed ‘First Ready, First Connected’ process known as TM04+. TM04+ is proposed to apply to transmission connected projects from 1 January 2025. Distribution projects which have an impact on the transmission system will be impacted by these reforms, but in the majority of cases the District Network Operator (“DNO”) will manage interface with the ESO. 

Like the ESO’s original proposal (TM04), TM04+ is an annual application process with windows in which projects can enter a gating system:

• Gate 1: Projects enter the connections queue, are assessed for competency, and receive a Gate 1 offer. Offers issued at this stage will have an indicative connection date and an indicative connection point. Gate 1 projects will not be allocated supporting transmission reinforcement works, User Commitment liabilities and securities, or Queue Management Milestones.
• Gate 2: Projects then need to satisfy land rights and planning conditions in order to pass through Gate 2, at which point projects can obtain a ‘fuller’ connection offer with a firm connection date, queue position and costing. There will be quarterly windows in which projects can evidence they have met Gate 2 criteria. 

The key change from the ESO’s original proposal is that the above model will now apply retrospectively to all projects currently in the connection queue, not just new projects. 

From the end of 2024 / early 2025, existing projects in the queue which meet the Gate 2 criteria will retain their existing connection date or can request an accelerated connection date. Existing projects which do not meet Gate 2 criteria will move back to a Gate 1 offer, and their existing connection date and connection point will become ‘indicative’. This could translate as a later connection date for many projects. 

Gate 1 – letter of authority

It is important to note that in order to enter Gate 1 i.e. to show ‘competency’, projects will now require a landowner Letter of Authority - a requirement introduced for all new transmission connected projects from 28 March 2024. Prior to this, there was no requirement for a developer to evidence discussions or formal engagement with a landowner before applying for a transmission connection. 

Gate 2 criteria – land rights and planning

The ESO’s current ‘minded to’ position for Gate 2 criteria are ‘(i) having secured land rights for the proposed location; and (ii) dates for submission of applications for planning consent.’ Projects may also be deemed by the ESO to have met Gate 2 where they meet ‘specific strategic criteria’. 

For the land rights, this is likely to require an option from the landowner, giving the applicant the ability to call for the grant of the project lease once certain conditions are met (grid, planning, etc).  We expect this to take the form of a confirmation that an option is in place rather than ESO interrogating the land rights. How appropriate and watertight the options are will vary considerably on viability and enforceability, and it’s having the signed option (in whatever form that takes) that will be important. The applicant is likely to only be required to show land rights for the ‘proposed location’, being the main site lease for the energy generation or storage project; it is unlikely to need to show full land rights to connect the site to the grid for example where third party land needs to be crossed and separate easements and wayleaves need to be negotiated, and the point of connection could be subject to change. An otherwise viable project may therefore still be subject to third party ransom or technical issues.

For the planning element, ESO have indicated that projects will need to submit a planning application within a specified timeframe after signing their Gate 2 offer. There is no need to have submitted a planning application prior to the Gate 2 offer.

Timeframes

TM04+ will be implemented through code and licence changes. Further detail around Gate 2 criteria is being developed through the code modification process, a process which is being progressed on an urgent basis. This will include narrow windows for industry to engage with formal consultation. 

The ESO expects to receive Ofgem decisions on these regulatory changes by October 2024, with October to December 2024 then used as a preparation and guidance period ahead of implementation in January 2025. During this preparation period, ESO is expected to ask projects in the existing connection queue to evidence they have met Gate 2 criteria. 

Conclusion

Grid reform and the clogging up of the transmission connection queue with stale and aborted projects needs to be addressed. The introduction of new rules with retrospective effect and requirements to secure option agreements and submit planning applications will be unwelcome for some.

By the end of the year, existing projects in the queue will need to show they have an option agreement in place to avoid losing their queue position. New projects will be focussed on securing Gate 2 criteria as soon as possible to progress from Gate 1 to Gate 2 within the applicable evaluation windows. 

Whilst the industry is generally supportive of the purpose behind TM04+, the proposal on securing land rights for Gate 2 may not be that effective in practice. Options can vary significantly in form and content – it is possible for example not to fully negotiate the form of lease to be entered into, which may mean the option takes effect in law as an unenforceable agreement to agree. We may see some applicants taking very ‘loose’ and short form options, potentially with detail still to be agreed and conditions to be met, and due diligence and viability to be undertaken/considered, in order to confirm that an option is in place and secure/maintain their Gate 2 offers.  

This is a cynical conclusion. A well developed option will still need to be put in place for a scheme to be viable and bankable in the longer term.  Any applicants taking this approach will need to ensure the options negotiated for grid purposes include a mechanism to re-engage with the landowner to fully flesh out a proper land option agreement later.

The option for lease for the generation or storage plant and equipment is also only part of the picture - it is likely that further land rights will be needed to lay cables and infrastructure over third party land in order to facilitate the grid connection.  ESO will not have the will or resource (nor the ability) to fully appraise and investigate full land rights on each grid application.