UK national grid connection queue management reforms and the use of arbitration

4 March 2024

Ofgem has recently approved a modification to the rules governing connection to the UK national transmission grid to introduce a new 'queue management' process that enables slow-moving or unviable projects to be ejected from the connection queue. Disputes arising from the process must be referred to arbitration under the Electricity Arbitration Association (EEA) Rules. These are very longstanding but little used rules, but which may now be pressed into more frequent action. However, as at present there is no provision to preserve a project's place in the queue during any arbitration, developers must manage potential disputes very proactively and, if termination appears imminent, consider seeking injunctions or expedited proceedings.

Background to the queue management process

The UK's transmission grid is operated by National Grid Electricity System Operator (NGESO) and power generation projects or major users must enter into grid connection agreements with NGESO to connect. The agreements incorporate the terms of the Connection and Use of System Code (CUSC). Places in the queue for grid connections are allocated on a first come first served basis. The queue currently is very long because of speculative applications and queue blocking. As of September 2023, there were 527 GW of generation projects (158 GW of storage) in the queue. By contrast, the UK's projected need is for an additional 275 GW by 2050.

The reforms (Ofgem decision on CMP376) seek to address this issue by enabling NGESO to eject projects that fail to achieve certain milestones. The milestones comprise eight key steps between project inception and the start of construction. If a developer fails to provide evidence that the milestones have been achieved, then after notice and a 60-day remedy period, NGESO can eject the project from the queue by terminating the relevant grid connection agreement. Developers are entitled to raise certain defences, such as force majeure or third-party delays unavoidable by using Good Industry Practice.

Termination is mandatory for some milestones but discretionary for others. For the latter, Ofgem has made clear it expects NGESO to "take account of all relevant factors and act consistently and reasonably in the interests of all parties" and NGESO's guidance provides some detail on the "internal escalation process" that it will conduct before any termination and the ways in which it will seek to engage with the developer to get a sense of overall delays to the project. The guidance also suggests that NGESO will take account of a user's participation in UK Government funding rounds, such as contracts for difference auctions. While the reforms seek to make this process objective, it is not difficult to see how disputes could arise.

The arbitration of grid connection disputes

Section 7 of the CUSC contains a dispute resolution regime. While NGESO's final report on the reforms and its guidance refer to "appeals" of termination decisions, the CUSC contains no express right to appeal. A termination of a connection agreement is treated as a "Other Disputes" under Section 7.6. The lack of explicit appeal right does give rise to potentially difficult questions of what cause of action (and relief) a developer could seek from NGESO.

Section 7.6 contains a relatively straightforward tiered dispute resolution clause:

If a dispute arises, either NGESO or the developer can request a meeting of representatives with authority to resolve the dispute.
The representatives must meet within 10 business days of a request.
If the dispute is not resolved within 10 business days of the meeting, the dispute may be referred to arbitration seated in England under the EAA Rules.

Arbitration is well suited to these types of disputes, given the potential for procedural flexibility and the ability of the parties to appoint specialist arbitrators. Arbitration is also used in Australia and the US for grid connection disputes. However, the EEA Rules do not appear to have been used widely and were last updated in 1993 and therefore pre-date the 1996 Arbitration Act. It is interesting to note that there was some discussion during the consultation period that the LCIA rules be used instead. That proposal was not taken forward but at the same time the LCIA has replaced the EEA in the Balancing and Settlement Code.

While the EEA Rules do contain features of other modern arbitral rules, such as consolidation and joinder provisions, some key elements are missing, such as emergency arbitrators or rules for expedited proceedings. The rules on commencing arbitration require careful navigation, as several notices are required and, as the CUSC does not specify the number of arbitrators, the EEA President must determine whether it should be one or three. The Rules also show their pre-internet vintage in parts, such as the requirement that notices be sent by post, fax or telex.

A disputed termination does not suspend the termination decision

While the dispute resolution process appears effective, a very significant risk for developers is that there is nothing in the CUSC or the EEA Rules that preserves a developer's place in the queue while any disputed termination is resolved. NGESO says merely that, where an appeal is successful, a user must reapply for a connection and that NGESO will "remediate User back into the queue as near to their original connection date as possible".

This means developers will need to manage emerging disputes carefully and engage with NGESO at the earliest opportunity. In parallel, developers must be prepared to act swiftly if it seems that NGESO may make an adverse decision. This includes keeping clear records of communications and underlying evidence such that it can be deployed very rapidly. If a termination notice appears imminent or is issued, developers may need to consider whether it is possible to obtain injunctions against NGESO to preserve the status quo.

Developers could also attempt to have an arbitration heard within the 60-day remedy period on a very expedited basis, albeit the EEA Rules do not currently provide this as a matter of right. Moreover, there is no EEA secretariat or court and functions such as the appointment of tribunals are performed by its President or Deputy President. As the President also has a wide range of roles under other parts of the CUSC, this may inhibit the expedition of proceedings.

Conclusion

As the UK Government has made clear that it expects NGESO to use these new powers and given the sheer number of new projects trying to connect to the grid, particularly in the renewables and storage sectors, disputes seem inevitable. Arbitration is well suited to handling the types of disputes that will likely arise but, given the EEA does not seem to have much of a track record, it remains to be seen how it deals with a potential uptick in cases. It will also be interesting to see if further changes are proposed to address what may be perceived as the inherent unfairness of any challenges to termination decisions not automatically suspending the implementation of the decision.