Battery sector divided over Ofgem’s proposed connection queue fee

The battery storage sector is divided over Ofgem’s proposed new financial test for projects in the grid connection queue, with developers largely agreeing on the scale of the problem but not exactly seeing eye-to-eye when it comes to solving it. 

Thus far, the Electricity Storage Network has been the most forceful in its response to Ofgem’s CMP470 consultation. The industry group has warned that the proposed Oversubscribed Technologies Commitment Fee (OTCF) could add additional financial burden on developers who are already dealing with changing connection dates and costs. 

However, it’s not a view shared by all developers in the energy storage space. Pulse Clean Energy, for example, have backed Ofgem’s proposals – noting that stronger commitments could help distinguish batteries that will actually be built from those occupying space in the queue. 

How did we get here?

While the energy storage sector appears to be divided in response to Ofgem’s CMP470 consultation, the actual underlying issue is one they’re very much aligned on. 

According to Ofgem, there is currently around 90GW of battery capacity that is either operational or holds Gate 2 status. That’s significantly more than the system is expected to need, with Ofgem citing around 24GW by 2030 and 29GW by 2035

Given the gulf between what’s in the queue and what the system is expected to need, the obvious question is why the queue is still so big. Ofgem’s concern is that too many projects could remain in the queue without ultimately connecting, leaving networks having to plan infrastructure around capacity that may never be built.

Ofgem has already attempted to clear weaker projects from the queue through its wider connections reforms, which cut around 40% of grid-level battery capacity. However, 83GW still remains prioritised alongside around 7GW already operating, so the regulator is now proposing the OTCF to encourage projects that are less likely to proceed to make that decision earlier.

The plan is that the OTCF would set a minimum amount of money that developers must have at risk while they wait for a grid connection. It would apply when the queue for a technology is more than 50% above the Government’s target, and would be switched off once that gap falls below 25%. 

It won’t be cheap either, with the floor set to begin at £3,000/MW. If it remains oversubscribed at that point it will rise to £5,000/MW after six months. If even then the queue remains more than 50% above the Government’s target, Ofgem says that it will raise the floor by £5,000/MW every six months until it hits the £25,000/MW maximum or the queue falls below 25%, at which point projects would no longer have to pay the fee.  

There is a slight caveat. If a project is already putting up more security than Ofgem’s minimum, nothing changes. This is for those projects that are below the new minimum, with the developer having to add enough to reach it. That money would be returned if the project eventually connects to the grid – or if it leaves the queue instead, the OTCF could form part of its cancellation charge.

When will the OTCF come into force? 

Under Ofgem’s current implementation assumptions, the first OTCF requirement would appear in securities statements in July 2027, with any additional security becoming payable from October that year.

They are just assumptions, however. Remember, Ofgem has only just completed its consultation on CMP470. It now needs to assess the responses and set out its actual policy, which it plans to do later this year. That means the full policy could change from what was initially proposed – and that’s something the industry is very much eager to see. 

What changes does the industry want from Ofgem’s proposals? 

The Electricity Storage Network estimates that projects currently below the initial £3,000/MW floor could see their security requirements rise by an average of around £500,000 each. It has also challenged Ofgem’s use of a 4.08% financing rate, arguing that developer equity at this stage can cost 10-12%.

That concern sits alongside wider problems reported by ESN members during connection reform. The group says some projects have seen connection-offer costs rise by as much as sixfold, alongside extended connection dates, errors in offers and costs being changed after Gate 2 offers were signed.

While ESN accepts that battery oversubscription needs addressing, there is no consensus among its members on Ofgem’s preferred approach or any of the six alternatives considered. It has called for CMP470 to be looked at alongside the other market and connection reforms affecting storage rather than as a standalone intervention.

Meanwhile, Pulse Clean Energy has taken a more supportive view of Ofgem’s proposals. Its CEO Trevor Wills noted, “We support Ofgem's aim of clearing out speculative capacity. There is roughly three times more battery capacity in the queue than the system needs by 2035, which makes it harder for viable projects to secure dates and harder for networks to plan.”

For a 100MW battery project starting below the proposed floor, Pulse calculates that £300,000 could initially be tied up, rising to £2.5 million if the maximum level were reached.

Wills said, “A project connecting in 2028 might tie up around £1m for a year or so, while one waiting until 2031 could hold the full £2.5m for several years. Across a pipeline it scales, so a 1GW pipeline would need to post £25m.

“For real projects heading to construction, this is manageable. It rewards developers who can deliver, which is good for the system, and importantly, good for consumers.”

Where Pulse does want Ofgem to change course is what happens after a developer has demonstrated that its project is real.

Under Ofgem’s preferred proposal, the additional requirement remains until energisation. Pulse argues that developers should instead be released from it when construction starts, rather than having capital tied up because they are waiting for the network to connect a project that is already being built.

Wills added, “Security could be released at a construction milestone, not only on connection, so projects that are ready to build aren't penalised for the grid operator's own timelines. The collateral requirements could also be paused or stepped down as the queue shrinks.”

That approach is already one of the alternatives being considered by Ofgem. WACM2 would stop the OTCF once a project reaches the start-of-construction milestone, although the regulator said it had not yet seen sufficient evidence that this would provide greater benefits than keeping the requirement in place until energisation.

That could be something that is now reconsidered given the response from the industry, but it will be keen to ensure that the OTCF has the maximum effect that it wants. After all, the whole point of the exercise is to ensure that the viable projects get built and the unviable ones leave the queue. 

It’s a similar issue Ofgem is facing with the data centre sector, where it is considering separate commitment fees and new readiness tests for data centre connections as it tries to distinguish credible projects from speculative demand across an increasingly crowded grid queue.