The Energy Transition | Ofgem consults on disputes mechanism for 'Gate 2 to Whole Queue' process

This week, we look at Ofgem's consultation on managing grid reform disputes, DESNZ's budget setting for the contracts for difference AR7 round, the carbon budget and growth delivery plan, and more.

Ofgem launches consultation on dispute resolution for the gate 2 to whole queue connections reform

Ofgem has published a consultation on managing disputes arising from the "Gate 2 to Whole Queue" (G2tWQ) connections reform, part of the "Target Model Option 4" (TMO4+) package, which was approved in April 2025. The reform prioritises projects in the gate 2 queue based on readiness and alignment with the CP30 Action Plan, while others are sent off to a gate 1 queue. 

Ofgem acknowledges that in rationalising the connections queue to deprioritise projects which do not meet gate 2 criteria, outcomes from the G2tWQ reordering process will create the potential for disputes. Accordingly, Ofgem states in the consultation that the proposed supplemental guidance on the determination of disputes will be bespoke to the G2tWQ exercise and supplemental to Ofgem's existing dispute resolution framework.

The guidance focuses on disputes with electricity distribution network operators (DNOs) and with the National Energy System Operator (NESO) that concern operational decisions taken as part of the G2tWQ exercise. The consultation is being undertaken to test with stakeholders that the proposed guidance is clear on Ofgem’s approach to those determinations and the procedures for raising a determination ahead of the publication of the final guidance.

Ofgem's position is that since NESO has discretion as to the issuance of gate 2 offers, "parties will not be able to request a determination if they disagree with NESO’s decision". Provided TMO4+ rules have been properly implemented, Ofgem will not make individual determinations that are inconsistent with the wider reforms package. Accordingly, Ofgem will only provide a determination if a party can demonstrate that NESO or the DNO has failed to follow the implemented TMO4+ reforms; the assumption is that the terms offered are reasonable and the process has been correctly followed.

The guidance on the determination of disputes for the G2tWQ focuses on three major areas: Ofgem’s determination functions and G2tWQ and the determination approach and procedure.

Functions and G2tWQ

The guidance clarifies the circumstances when disputes can be referred to Ofgem, with the regulator stressing that these circumstances are narrow and limited to specific routes under the Electricity Act 1989, NESO's licence and the distribution licences held by the distribution network operators.

Ofgem notes that its determination functions relate to the adjudication of disputes about the terms of connection agreements. This means that parties, even if the dispute does fall within the narrow range of matters Ofgem can determine, will not be able to seek a determination until after the new disputed agreement has been issued.

Determination approach

The guidance states that before seeking an Ofgem determination, parties must have exhausted the relevant alternative dispute resolution (ADR) process available for resolving disputes with DNOs or NESO. This can  be  through informal engagement, internal complaints, and formal dispute mechanisms under the Connection and Use of System Code.

Only after exhausting ADR routes can parties approach Ofgem for determinations, which will only be considered in exceptional cases such as regulatory breaches or unresolved errors. Ofgem presumes that new contract terms are reasonable unless objective evidence proves process errors or failures in following approved procedures.

Determination procedure

To raise a determination request related to G2tWQ, the party must complete a pro forma verifying their identity and submit evidence of the dispute with NESO or DNO, including the connection offer, complaint details, and proof of exhausting ADR paths, like deadlock letters. 

The request must be submitted through a centralised determinations gateway; submissions elsewhere will be rejected. If ADR fails, the determination request must be made within 30 days, will be handled based on written evidence, oral hearings held rarely, and Ofgem may recover costs related to delays or procedural problems.

The consultation period is open until 14 November 2025, and stakeholders are invited to send their input via email to connections@ofgem.gov.uk

DESNZ announces offshore wind budget for CfD AR7 

The Department for Energy Security and Net Zero (DESNZ) has published the contract budget notice for offshore wind projects bidding in the contracts for difference (CfD) allocation round (AR) 7. The announcement covers both fixed-bottom offshore wind projects (pot 3) and floating offshore wind projects (pot 4).

The maximum total amount of support available to pots 3 and 4 under AR7 is £1.08 billion per delivery year between 2028 and 2033, noting this has been calculated in 2024 prices, as opposed to previous allocation rounds, which were calculated in 2012 prices.

Compared to AR6, the AR7 budget represents a reduction in the maximum funding available for both fixed and floating wind technologies. Of the £1.08 billion total budget per delivery year under AR7, £900 million has been allocated to pot 3 for offshore wind and £180 million to pot 4 for floating offshore wind.

The pot 3 budget is on the AR6 budget for this technology, which was £1.1 billion in 2012 pricing. The pot 4 budget of £180 million is also a reduction from the AR6 budget which was £270 million in 2012 pricing. Commentary suggests that although a reduction in budget was anticipated, the level of reduction in budget was unexpected and could have significant consequences for achieving the government's Clean Power 2030 goals. 

Ofgem approves new balancing mechanism parameters for limited duration assets 

Ofgem has approved the GC0166 Grid Code modification which introduces new balancing mechanism (BM) parameters. 

The Grid Code modification GC0166 was proposed by the Electricity System Operator, which is now known as NESO, with the aim of improving the use of electricity storage modules (ESMs) within the BM. Currently, an asset's state of charge changes, and these use maximum import limits, maximum export limits and the "30-minute" rule to communicate their available energy to the control room. This, therefore, means that in the event an asset's state of charge changes, these values will need to be re-submitted to the control room. The 30-minute limit also presents limitations as the control room does not have visibility on the performance of an asset over longer periods of time and planning ahead for example for the next 24 hours.   

The modification introduces new parameters: the maximum delivery offer, maximum delivery bid and the future state of energy. Ofgem considers these modifications will further the first, second and third objectives of the Grid Code and neutrally impact the code's other applicable objectives. 

Grid Code's other objectives

These include improving levels of information about ESMs, resulting in more efficient use of them and eliminating the need for the 30-minute rule, as well as providing NESO with more visibility on the long-term availability of ESMs, allowing a more co-ordinated approach during its planning timescales.

They also include facilitating competition in the generation and supply of electricity and providing a more level playing field between all types of assets in the BM as ESMs will be able to declare their actual capabilities through the new parameters rather than using the 30-minute rule.

They avoid other potential discrimination distortions as all BM units must provide both maximum delivery offer and maximum delivery bid parameters, and they minimise the impact maximum delivery offer and maximum delivery bid parameters will have on other markets.

Ofgem expects NESO to provide a roadmap for the implementation of this modification and to set out a clear end date for when BM units would be expected to comply. Ofgem also expects NESO to give a minimum of one month's notice of the requirement for ESMs to submit the new parameters to NESO and to conduct a post-implementation review within the first 12 months of implementation to assess impact, accuracy, number of redeclarations and the consideration of any further improvements that could be made. 

Government launches plan for carbon budget and growth delivery 

The government has announced the Carbon Budget and Growth Delivery Plan to unlock the benefits of clean energy and accelerate investment in the green economy by supporting economic growth, job creation, and climate action.

The plan builds on the 2008 Climate Change Act, which sets out to reduce emissions, promote renewable energy and improve energy efficiency. It also seeks to enhance energy security, reduce bills and facilitate warmer homes, cleaner air, and job creation. Last month, the government published the Clean Energy Jobs Plan, which is intended to bring about thousands of new jobs.

Ed Miliband, the UK energy secretary, said the plan would "help unlock the investment we need in clean energy, jobs and growth at home. And it will strengthen our position as a climate leader so we can push others internationally to take the action needed to avoid disaster."

This article was written with the assistance of Oliver Derham, Yasmine Jauffur, trainee solicitors, and Tomisin Agbonifo, paralegal