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The first spatial energy plan for GB is currently being developed – but once it’s finished, will it form guidelines for the market, or rules? In this blog we weigh up the options and argue for somewhere in the middle, with a need for clarity and transparency regardless of the chosen direction.
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The National Energy System Operator has been commissioned by the UK, Scottish and Welsh governments to develop a Strategic Spatial Energy Plan (SSEP) for Great Britain. This will set out where and when we need to build new electricity and hydrogen generation and storage infrastructure, out to 2050. The aim is to support faster delivery of a clean, secure and affordable electricity system by informing anticipatory network investment and giving greater clarity to industry.
Capacity targets for different technologies set by the SSEP are expected to become the foundation for ongoing connections reform. NESO and DESNZ have also indicated that it could affect other market levers, including network charges, support mechanisms such as contracts for difference, planning and consenting.1 But how the SSEP will be implemented in each of these areas, and the significance of its impact, remains unclear.
In simple terms, there are two opposing roles the SSEP could take in energy system markets: high-level guidelines setting out what government would like the market to deliver, vs stricter rules which shape the market to deliver a centrally planned system.
In the ‘rules’ scenario, the SSEP should be achieved, implicitly delivering on its goals of a clean, secure and affordable power system. However, the development of such a plan will naturally be vulnerable to lobbying, modelling inaccuracies and future political change. It's impossible to present a perfect outcome for every stakeholder, and it's crucial that outputs can actually be delivered by industry.
In the ‘guidelines’ scenario, there’s no guarantee that the system will deliver on its goals. The market should function effectively to reduce technology costs and there could be fewer risks and delays to the development pipeline in the short term – but it risks creating a system which does not address the more challenging problems of constraints, resilience and connections backlogs.
While there are strong arguments for and against both scenarios, most people can probably agree that the objectives of the SSEP are generally good. We believe that the risks of the plan ‘getting it wrong’ should be addressed through a transparent process with clear allowances for updates and challenges, rather than hedging against a ‘bad’ outcome by watering down the extent to which it is able to affect siting and investment decisions. Below, we discuss some of the key opportunities and risks for implementing the SSEP.
It is unlikely that individual, one-dimensional locational levers such as network charges, connections thresholds or planning policy would deliver an optimal system (in terms of cost, resilience, carbon, or any other target) without being designed to act together in some way. Coordination is also important to provide investors with a long-term signal that won’t add uncertainty or penalise projects which can no longer change their location.
The SSEP could be used to provide this alignment, as discussed in recent consultations from DESNZ on Reformed National Pricing and Ofgem on locational network charges. But this is why transparency in its development is paramount; the sector and the country must have confidence in the decisions and direction of travel.
There are ways that the ‘rules’ scenario could incorporate some of the benefits of unrestricted markets. The SSEP is due to be updated every three years, in part to reflect technological advancements, and this process should be designed to support innovation within a plan-led market.
When the SSEP is implemented, it should leave room for market competition without sacrificing its efficacy. The current connections reform process has led to projects which are ready to build in some parts of the country being left without an offer, while zones in other areas lack the pipeline to meet their targets. How projects already in development are accounted for in the implementation of the SSEP will be important for preserving investor confidence. Furthermore, we are expecting to see high rates of attrition in the current Gate 2 connections process. If the SSEP is used to set new connection capacities for zones in GB, NESO should consider setting capacities higher than the SSEP targets to encourage competition and account for attrition, as suggested by DESNZ in their consultation on delivering Reformed National Pricing.
Planning is a devolved process, and it is currently unclear how, or even whether, the SSEP will be implemented in the Scottish and Welsh systems. In the English planning system, wording in the National Policy Statements and updated National Planning Policy Framework already suggest that SSEP and CSNP outputs could be material considerations for assessing applications.
However, Regen’s view is that planning should not preclude projects coming forward that don’t align with the SSEP (or RESPs), provided justification can be given. Equally, not all projects aligned with the SSEP (or RESPs) should automatically be approved; other planning considerations will still have an important role in ensuring projects are well-designed and meet Local Plan requirements (as set out in the SSEP methodology). Whatever the impact of the SSEP on planning, good community engagement, benefits and opportunities for shared ownership will continue to be crucial for successful delivery of the energy transition.
Moreover, clarity on exactly what the SSEP is and what it will mean for investment, planning, revenue support and so on – i.e. whether it’s guidelines or rules – is crucial, but so far absent, context for the debate. A lack of direction from government risks fomenting multiple interpretations and a confused debate. This would also make it easier to misrepresent and discredit the very concept of a strategic plan, which is a vital part of the country’s energy strategy and necessary to overcome many of the challenges the transition faces.
Uncertainty over whether projects currently in development will align with the SSEP, and whether this will materially affect their ability to be delivered, is increasing investment risk. Developers and investors need clearer signals on how the SSEP will be implemented to help them plan what comes next. In recent years, concern about investor risk increasing the cost of capital and this passing through to consumer bills, was one of the reasons that several more radical proposals for energy market design have been abandoned by government. Without clarity on the SSEP’s implementation, higher risks may still be priced in, eroding the benefit case that the Reformed National Pricing approach was intended to provide.
Ultimately, irrespective of the pathway selected by the Secretary of State, and the subsequent consultation, the mechanisms through which the SSEP will be implemented – and the frameworks through which it should be interpreted – need to be defined.
Regen will continue to engage with industry and NESO to ensure the SSEP is robust, transparent and fit for purpose. Members can feed into our work directly by joining our Planning Working Group or by emailing our planning lead, Rebecca Windemer. If you are not yet a member, you can find out more at www.regen.co.uk/membership
