Kona Energy calls for Capacity Market 2025 grid connection certainty

Kona Energy CEO Andy Willis has issued an open letter urging the UK Government, National Energy System Operator (NESO), OFGEM, and the Department for Energy Security and Net Zero (DEZNEZ) to ensure critical energy projects are not jeopardised by the misalignment of the Capacity Market (CM) and proposed connection reforms.

The CM is designed to secure the UK’s electricity supply by incentivising investment and securing confidence in clean energy projects.

However, recent proposals under NESO’s Connection Reforms proposals risk creating significant uncertainty for investors.

Andy Willis, Kona Energy CEO commented:

“The Capacity Market provides a robust framework for ensuring the UK’s energy security. Projects that prequalify and secure CM contracts demonstrate readiness and are critical to keeping the lights on.”

“Requiring these projects to reapply for connections under a new system could delay deployment, discourage investment, and undermine the very purpose of the CM. An urgent rethink is required.”

“Kona proposes that any transmission connected project that has successfully prequalified and secures a CM Contract in March 2025 will not have to undergo the Connection Reform process. The timings of this reform are crucial in so far as OFGEM are not going to approve any Connection Reform Plans until April 2025."

Key areas of concern:

• Uncertainty for "ready" projects - Under current proposals, projects deemed essential for energy security via the CM process could face delays due to new connection requirements, despite already demonstrating their ‘readiness’.

• Investment risk - With OFGEM’s approval of Connection Reforms not expected until April 2025, a year-long pause in energy investment could have severe medium-term consequences, including a significantly increased risk of blackouts.

• Inconsistencies in timing: The misalignment between CM timelines and connection reform processes threatens to disrupt critical projects and undermine vital investor confidence. 

Kona Energy is urging NESO, OFGEM, and DEZNEZ to engage with stakeholders to create transitional arrangements that protect critical energy projects.

This is vital to safeguard the UK’s energy security, whilst moving towards a cleaner, more sustainable future.

Open letter:

Interaction between Capacity Market, Clean Power 2030 & Connection Reform:

The Capacity Market (CM) is a key component of the UK Government's Electricity Market Reform, designed to ensure the security of electricity supply. This flagship contract is critical to investor confidence and helps incentivise significant investment into UK energy generation and storage projects.

The CM provides investor certainty for the construction of projects to ensure the UK has enough energy generation capacity to keep the lights on.. An auction (T-4) is run 4 years in advance of a delivery year. If a project bids successfully they will secure a 15-year contract which begins in the Delivery Year.

A project must successfully prequalify to participate in the Capacity Market auction. Successful prequalification depends upon the ‘Readiness’ of your project. The barriers are higher for transmission over distribution projects, which can prequalify without having been granted planning permission.

Transmission connected projects must have secured the following in order to successfully prequalify and compete in the auction. These are not the only requirements and the burden on applications to show project readiness is high. Projects must have achieved the following:

·       Secure legally binding land options

·       Secure planning permission

·       Secure a valid transmission connection agreement with an energisation date before the Contract go-live date (October 2028 for the up-coming T-4 auction)

·       Submit credit cover; proportional to £10,000/de-rated MW

2025 Capacity Market Auction Pre-Qualification has confirmed ‘Readiness’ & ‘Need’

For those projects which have successfully navigated prequalification, they will participate in the March 2025 Capacity Market Auction.

They are for all intents and purposes, ‘Ready’ as proven by the prequalification process and ‘Needed’ as they are critical to future UK security of supply.

We call upon NESO to consider this ‘Readiness’ factor when they reform the Connections Process so that those who secure a CM Contract, being deemed essential to security of supply, do not need to reapply for a connection.  

This adds huge investor uncertainty and undermines the Government’s key role in securing security of supply and ultimately keeping the lights on.

Clean Power 2030 & Connection Reform:

NESO are currently reviewing the UK Connection process. This is welcome based on the sheer number of connections and inability of ‘ready’ projects to connect expediently. We note that NESO are proposing a centrally planned energy system where Government determines where assets can be located so and whether they are ‘Needed’.

The timings of this reform is crucial in so far as OFGEM are not going to approve any CP2030 and Connection Reform Plans until April 2025. Under current direction, projects that are ‘Ready’ must now pass a ‘Needed test’ following the OFGEM decision. Projects which have secured planning permission are not deemed more ‘ready’ than those which have only secured land rights. This means they could be removed from the queue as those earlier projects go through the planning process. This is not a move to First Ready, First Connect. It is rewarding incumbents who have secured grid connection positions but not developed those sites . Furthermore, this will lead to a further investment hiatus as projects cannot proceed due to connection uncertainty during the revised grid process. This could be a 9-months or more based on current timeframes.

We should not have a system where the Connections Process creates a year-long investment hiatus which allows time for projects to get Planning Permission ahead of those who already have Permissions.  This is inefficient, does not meet NESO’s original aspirations of connecting those that are ‘Ready’ and in a worst-case scenario risks black-outs in the medium term.

In summary, Kona Energy proposes that:

1.          Any transmission connected project that has successfully prequalified and secures a CM Contract in March 2025 will go to the front of the queue as they have been deemed ‘Ready’ and ‘Needed’.

2.         Those developers who are ‘Needed’ and who hold Planning Permission are placed at the front of the queue as they are ‘Ready’.

This open letter will be posted to NESO, OFGEM, EMR & DEZNEZ.

I welcome comments from each of these parties.

Yours sincerely,

Andy Willis

CEO Kona Energy