The Energy Transition |Ofgem consults on transmission licence for competitively appointed transmission owners in GB

This week's edition covers Ofgem's non-statutory consultation on the transmission licence for competitively appointed transmission owners, the response to the proposed National Planning Policy Framework reforms of planning thresholds for co-located energy and data centre projects, and the launch of the Ultra-Long Duration Energy Storage Challenge, backed by £28 million in government funding.

Ofgem consults on draft transmission licence conditions for competitively appointed transmission owners 

Ofgem has launched a consultation on the terms of the standard transmission licence for competitively appointed transmission owners (CATO). The proposed introduction of this licence follows last year's publication of the commercial framework for the early competition regime covering onshore CATO assets. The consultation is open until the 16 October. 

CATO licence conditions

The proposed CATO licence incorporates or aligns with the approach taken in the existing electricity transmission licence standard conditions: Section B covering general conditions and section E setting out the conditions relating to offshore transmission owners (OFTO). The aim is for consistency with the existing framework where appropriate. A special condition on milestone payments is proposed to govern payments to the CATO before the main revenue period begins.

The CATO licence conditions will be added into a new section F of the standard conditions. This will, by formal Ofgem direction, apply only to CATOs, which will then not be required to comply with the existing sections B to E of the standard conditions. A CATO guidance document, which will sit alongside the licence as an associated document, will set out key processes such as securities, agreed refinancing, cost assessment and revenue. 

Alignment with standard conditions

Ofgem's consultation seeks stakeholder views on the proposals including its approach of reusing and adapting existing elements of the standard conditions, particularly the OFTO conditions, where appropriate. It also introduces new CATO-specific provisions for novel elements such as the project-protected works construction agreement (PPWCA), construction security, and CATO of last resort.

Stakeholders are invited to comment on whether further departure from the standard conditions is required and whether there are additional regulatory considerations to be taken into account. 

Risk coverage and barriers to entry: 

Stakeholders are asked to identify potential risks CATOs could face that are not covered in the current proposal, and any potential elements of the proposal which could become an obstacle to participation in early competition stages, particularly for new entrants and special purpose vehicle structures. 

Creditworthiness thresholds

On creditworthiness, the consultation addresses the appropriateness of the requirement for "investment grade credit-rating levels" during both the construction and operation of the CATO asset, or whether this high threshold should apply only during specified stages of the project. 

Refinancing provisions

Stakeholders are asked whether the refinancing provisions are commercially workable. They have been invited to propose alternative options that consider the effect of the risk profile of the project as it shifts between the construction and the operational phase, as well as the requirement for the debt tenor to be consistent with the tenor of the tender revenue stream.

Technical annex and PPWCA design

Ofgem has asked whether the technical annex and PPWCA provision are both sufficiently certain and flexible. 

Stakeholders are also asked to consider whether challenges to any PPWCA adjustment should be facilitated by licence modification or directions through the judicial review route.

Government announces no change to planning thresholds for energy projects co-located with data centres 

The UK government has published its response to the National Planning Policy Framework reforms, in which it confirms that no changes will be made to planning thresholds for energy generation projects co-located with data centres. 

The government noted that many of the respondents considered the current regimes to provide the necessary flexibility to obtain consent for co-located energy generation and data centre projects through either the nationally significant infrastructure project regime or larger projects or the Town and Country Planning Act 1990 regime for smaller ones. 

Additionally, the government cited the existing planning framework, alongside the Planning Act 2008 and the Planning and Infrastructure Act 2025, as providing the flexibility needed to determine, on a project-by-project basis, how a project should be consented. 

Ultra-Long Duration Energy Storage challenge launch: 

The UK government has launched a new grant funding programme to support the development of ultra-long duration energy storage technology. The scheme is backed by £28 million from UK Research and Innovation.

The Ultra-Long Duration Energy Storage Challenge  will support two main areas: the development of battery technologies capable of supplying electricity for more than 100 hours; and the development and testing of underground storage systems for hydrogen. The government estimates that advances in these technologies have the potential to reduce total energy systems costs by between £14 billion and £50 billion between 2035 and 2050.

The government's aim is for these technologies to reduce reliance on natural gas by allowing surplus energy to be stored and released in response to grid demand.

The energy minister, Michael Shanks said that by backing this technology through the latest government grant programme, the UK "will store more clean power, reduce reliance on expensive gas generation and deliver a more secure energy system". 

UK Research and Innovation has launched an additional competition, backed by £3 million in funding, to support research into electrochemical long-term energy storage. This comes alongside Ofgem's consultation on its plans to support 16 long duration electricity storage projects.

This article was written with the assistance of Osborne Clarke trainee solicitor Alice Smith and solicitor apprentice Jackson Clay.