Changes, challenges and opportunities arise with NESO grid connection reforms

In a recent blog post, energy regulator Ofgem said it had been working closely with the National Energy System Operator (NESO) to ensure that it delivers a “strong and fair outcome, meaning that the right offers are issued first time”.

Due to the nature of the process, certainty is essential, so, as Ofgem says, the queue needs to be right first time and any mistakes will need to be rectified or disputes resolved very quickly.

However, although a largely technical process, there will inevitably be mistakes and project applicants disappointed with the outcome.  Even then, any changes to confirmed connection dates will have a knock-on effect to other projects meaning the scope for challenging NESO’s decisions is likely to be very limited.

The background

NESO closed the ‘Gate 2 to Whole Queue’ evidence window on 26 August, having had to extend it by more than a month due to issues submitting applications via the NESO portal.

The operator published an updated timeline for reforming the connections process at the start of October, which now reflects the delays caused by the evidence window extension, and has been embarking on a process of initial checks for Gate 2 applications. As we understand it, this process is almost complete, with NESO noting in October that 98.8% of applicants had received final results of initial checks.

Our experience to date has been that the vast majority of clients have received confirmations that these initial checks have been passed with very limited instances of failures to pass these checks.  

The financial impacts

The market across renewables and battery energy storage has been challenging this year, with the bulk of transactions directly affected by the Gate 2 reforms.

The well publicised delays to the Gate 2 process have shifted M&A transactions to the later part of 2025 and those delays are set to have a real impact on the deliverability of certain clause 1 protected projects – those with a 2026 connection date – with developers struggling to raise capital in time to progress their developments and make material financial commitments.

With the closure of the window and some more certainty – albeit in limited terms – about Gate 2 offer timings, process and initial checks, a number of sales processes have either started or restarted in the last few weeks.

What we are seeing coming through is protected projects, and the increased certainty in respect of Clause 1 and 2A protected projects that we are hoping to get by the beginning of December makes these even more attractive. Projects which do not necessarily have their connection dates secured are often being structured with contingent payments (CPs) or consideration adjustments in place to protect buyers, whilst also enabling developers to secure their sale pipeline, given the risk of a lack of deliverability is low.

Developers looking to bring projects to market should be focussing on how those projects can be made as attractive as possible to the market, de-risking those as far as possible, in particular in respect of broader property, planning and grid matters, and taking advice early on in respect of this to ensure their projects are as marketable as possible. The number of projects in the market perceived as "de-risked" once a clear notification or Gate 2 offer is received will likely result in more projects than there are investors in the market, and we anticipate a clear shift into buyer-led processes over the next 12 months. 

The challenge for challenges

Ofgem has said it recognises the importance of all project applicants receiving fair and equitable treatment, with channels for applicants to raise concerns where they believe this is in question. 

According to the regulator, the first port of call for any complaints will be NESO itself and the distribution network operators (DNOs), and their complaint procedures.  However, as far as we are aware, there are no specific formal procedures yet in place for complaining to NESO or the DNOs, although it has been indicated NESO and the DNOs are developing assurance and complaint procedures. 

These may ultimately be similar to the expedited complaints process introduced to deal with issues arising from the initial checks. This featured a simple form which had to be submitted in very short order – just two working days, although that may in part have been due to the technical issues with the submission portal.

The regulator also acknowledges that it may be called upon to make a determination for applicants or the NESO or the DNOs and is exploring how the process will work.

It is possible that the process will be along the lines of the contracts for difference allocation, where there is a Tier 1 and Tier 2 review process, on a tight timetable with a right to appeal to the court. However, Ofgem is talking about a “unique, one-off process” and says that it is planning to consult on dedicated guidance soon, although there is not much time before decisions start to be made. So we’ll have to see what it proposes. 

Whatever process is put in place, if project applicants are still dissatisfied with the outcome process, then there are limited options for redress and it is unlikely that it will be possible to change the outcome because of the knock-on effects on the queue and other projects.

What to consider

Organisations and companies which have found themselves failing to secure their position in the queue for access have a number of options open to them – all of which require expert advice and come with their own challenges.

At a simple level, raising a dispute under the Connection and Use of System Code (CUSC) would be a potential solution, at least for transmission connected parties. However, this can potentially take a long time to process and is unlikely to overturn a decision that goes against a company – but could potentially result in compensation.

A more aggressive response would be to apply for judicial review. Even victory would only quash the original decision and send it back to either the regulator or NESO to reconsider. That comes with the risk of further delays, and the potential impact on other parties is likely to weigh heavily against even getting permission to bring a judicial review

Finally, in extreme cases foreign investors could look to utilise the Energy Charter Treaty, or similar bilateral investment treaties, to bring an investor-state claim. This would be the nuclear option, however, with many hurdles to overcome, and likely only a matter of last resort.