Grid capacity in Wales

We have heard that there are constraints on both the distribution and transmission grids in Wales. Julie James MS told us Wales does not have the grid capacity it needs “right now”. However, Rt Hon Greg Hands MP told us that the grid is “fit for purpose today”. We are concerned by the difference in understanding between the UK and Welsh Governments over current grid capacity in Wales.

We recommend that the Government explain the timescales of “today” and “tomorrow” in the context of grid capacity in Wales. Further to this we recommend that the Government explains the evidence for its statement that the electricity grid in Wales is “fit for purpose today” in light of the evidence we have received on grid constraints in Wales. The UK Government must work with the Welsh Government to produce an agreed assessment of current electricity grid capacity in Wales and set out the agreed timetable for publication.

To ensure that communities and business in Wales can decarbonise in line with government targets, grid infrastructure must be able to meet the projected increase in demand for electricity. The evidence we received suggested that the grid in Wales will not be suitable to facilitate the decarbonisation of heat and transport across Wales.

While we understand that the UK Government must consider the energy and network needs of the UK as a whole, we consider that it would be inequitable if the UK were to benefit from Wales’ natural resources for renewable energy generation while Welsh households, businesses and industry were not adequately connected to the grid.

We recommend that the UK Government task the new Electricity Networks Commissioner to determine the grid infrastructure necessary to enable industry, communities and businesses in Wales to decarbonise heat and transport in line with net zero targets.

We recognise the strengths of an electricity grid that serves the whole of Great Britain. However, we conclude that there are distinct challenges and opportunities relating to grid infrastructure in Wales that require specific focus and intervention from the UK Government.

The Committee welcomes that Celtic Sea projects have been included in the list of infrastructure projects in the UK Government’s Growth Plan and notes the recent decision by The Crown Estate to seek to accelerate the leasing process where possible. This appears only to be possible in Wales if improvement to grid infrastructure is also accelerated and we would welcome a clear commitment from the UK Government on this point.

We note the work by the Welsh Government to develop a long-term plan for energy networks in Wales and call on the UK Government to explain how it is engaging with this. The UK Government needs to explain how it is taking into account Wales-specific 38 Grid capacity in Wales challenges and opportunities when considering grid design and how it is ensuring that Wales is able to benefit from the increased investment and development associated with grid reinforcement.

Upfront connection costs can be prohibitive and prevent the development of energy projects. This results in a “chicken and egg” situation whereby developers wait for other developers to commit to the funding of connection costs.

We are encouraged that Ofgem is reviewing connection arrangements and we look forward to hearing more about the progress being made in the run up to 1 April 2023. We consider that due to the tight timeframes set by government net zero targets, urgent work should be done to overcome prohibitive upfront costs and the ‘chicken and egg’ situation by incentivising developers to share grid connection and reinforcement costs.

Larger companies have a financial advantage linked to scale, whereas smaller energy projects are often reliant on the development of larger projects and the availability of spare capacity once these have been completed.

A mechanism should be developed to allow small energy generation projects to defer and spread grid connection payments over time.

We are encouraged to see that the UK Government recognises that grid connection costs can be prohibitively high for developers. However, we are concerned by the decision to move more of the reinforcement costs to the network charges paid by “all electricity consumers in the area”.

It is not equitable that grid reinforcement costs should be shared by consumers in an area because this would create a higher burden for rural households and businesses and those in areas which historically lack existing grid infrastructure. We ask Ofgem and the UK Government to define what is meant by the phrase “in the area” and to explain how they will ensure that rural or isolated communities will not be unduly burdened.

There is a multiplicity of different bodies involved in securing planning consent for grid infrastructure and this process needs to be streamlined. We welcome the commitment to cutting processing times by fifty per cent and appreciate the challenge that this constitutes. However, in light of the evidence we received, it is clear that in order to meet government net zero and renewable energy generation targets a reduction in processing times of fifty per cent is the least that needs to happen.

We are encouraged to see the new Electricity Networks Commissioner appointed with a remit to reduce timelines and look forward to understanding in more detail how this will be achieved. However, it is not clear that the UK Government appreciates that a step change is necessary to deliver a streamlined planning and consent process that enables the achievement of net zero targets. We call on the UK Government to produce a projected timeline for how it will reduce processing times by fifty per cent within a year. (Paragraph 90) Grid capacity in Wales 39

The planning consent process has created a queue of renewable generation projects in Wales to which grid capacity has been reserved before planning permission has been granted.

The UK Government should work with National Grid ESO, NGET, the DNOs and Ofgem to revise consenting processes to align the allocation of grid capacity with the application for planning permission. National Grid’s work should be expedited on reviewing commercial contracts with developers reserving grid capacity, where those projects have consistently failed to achieve planning permission.

Ofgem, as the market regulator, must ensure that the regulatory environment enables the decarbonisation of energy markets. Whilst ensuring the best value for consumers is important and should remain one of Ofgem’s primary considerations, this should be balanced against achieving net zero targets.

We recommend that the UK Government amend Ofgem’s primary duty to include both ensuring the best value for consumers and achieving net zero targets, by bringing forward government amendments to the Energy Bill. This would provide strong signals to developers and grid infrastructure owners.

The policy in favour of laying cables underground in AONBs is welcome. However, due to the significantly higher construction costs it is likely that overhead lines will simply be re-routed around AONBs. This will mean that communities and businesses in those areas will remain isolated from grid infrastructure and face high costs to connect to the grid.

The Government should outline the circumstances in which higher grid construction costs, for example due to undergrounding, are justified to enable rural communities to keep pace with the decarbonisation transition.

We have heard that community energy projects face specific difficulties in connecting to the grid, and that the UK Government is not aware of those difficulties.

We recommend that the Government engage directly with community energy projects in Wales to understand the difficulties they face connecting to the grid. The UK Government should lead a working group made up of the Welsh Government, grid infrastructure owners, energy companies and communities to explore how access to the grid for community energy projects can be improved in Wales.

We recommend that the UK Government strengthens the legislative framework to support the growth of community energy schemes. The Energy Bill provides a potential opportunity to do this.

There is a lack of clear policy directing energy development companies on how to provide adequate benefits to communities hosting grid infrastructure.

The Government should incentivise energy companies and transmission infrastructure owners to provide benefits to communities hosting network assets. Communities should be directly consulted on the benefits they would like to receive. A starting presumption 40 Grid capacity in Wales should be introduced through policy that a proportion of all future energy projects must be partly community-owned or provide direct benefits to the community which hosts the energy project and associated grid infrastructure. (Paragraph 126) Anticipatory investment

Without an established system of anticipatory investment in grid infrastructure the significant opportunities for renewable energy generation in Wales will go under- utilised, which will have an impact on the achievement of net zero targets. Were grid infrastructure to be built on an anticipatory basis in areas where there is a high probability of the construction of future energy projects, this would reduce the risks of costly grid infrastructure not being utilised. Furthermore, multi-connection substations, such as the MOS described by Celtic Sea Power, could have an important role in both reducing the costs and delays associated with grid construction and in providing strong locational signals to establish local supply chains. While we are encouraged that Ofgem’s stance has changed in favour of anticipatory investment and that BEIS is looking to strengthen Ofgem’s powers in this area, we consider that this does not reflect the urgency of the situation.

The UK Government should use National Grid ESO’s Future Energy Scenarios to work with energy companies and grid infrastructure owners to determine areas where anticipatory investment in grid infrastructure would be justified to achieve net zero targets. Where anticipatory investment in grid infrastructure is deemed justified, the UK Government should encourage the development of multi-connection substations in order to establish local supply chains, which can then support the connection of future renewable energy projects.

In order to utilise the opportunities for renewable energy generation in Wales a system of anticipatory investment in grid infrastructure needs to be created and implemented urgently. In the government response to this report, we request further information on the nature of the changes to Ofgem’s powers and the timeline for this to be implemented. The UK Government should also conduct a review with Ofgem of the impact of the current price control mechanism on the level of anticipatory investment in grid infrastructure across the UK. (Paragraph 143) Strategic planning of the Network

The grid network has been built piecemeal on the basis of the energy needs of the nation over time. The energy system in the UK is changing and electricity grid network design needs to adapt to meet this change. We are encouraged to see the Government shifting to a more strategic, planned approach to the network and welcome the recent policy work to set this out. However, given the complexity of delivering new grid infrastructure, the urgency of net zero targets and the multiplicity of different actors involved in the sector, we consider that there is a need for a more joined-up approach, which ultimately must be led by the UK Government.

Due to the urgency of the situation the UK Government needs to take control of electricity grid network design by setting deadlines and targets for Ofgem, grid Grid capacity in Wales 41 infrastructure owners and other significant bodies including National Grid ESO. The UK Government needs to provide the leadership and strategic planning to deliver a complicated set of changes across multiple bodies. This will involve taking a ‘round- table’ approach with regular meetings between stakeholders.

As well as considering the grid in Wales as part of a Great Britain enterprise, the UK Government must recognise the distinctive challenges and opportunities associated with the grid in Wales. The UK Government should engage directly and regularly with the Welsh Government to deliver a coordinated and strategic approach to electricity grid network design. (Paragraph 154) 42 Grid capacity in Wales