Kayte O’Neill, Matt Vickers and James Norman.

Q76 The Chair: Good morning. This is the Industry and Regulators Committee of the House of Lords. We have an inquiry at the moment on the energy grid and grid connections, and we have three witnesses this morning: Kayte O’Neill, who is the chief operating officer of the National Energy System Operator, or NESO as it is more easily called; Matt Vickers, who is director of connections reform; and James Norman, who is head of connections strategy. All three of you have quite a lot of experience in this area, even though there have been some changes recently in terms of the structure and accountability of NESO.

Could you start, perhaps, by saying where you think NESO fits into this strategy, how it plays into the energy systems and how you see it developing in the future?

Kayte O’Neill: Good morning and thank you very much for the invitation to sit in front of the committee today.

NESO, the National Energy System Operator, was established just towards the back end of last year—so October 2024—as an independent expert body, arm’s-length and operationally independent both from Government and from industry. We were established with a new mandate, building on the mandate of the previous electricity system operator, to become a whole-systems organisation that is able to step back, look right across the energy system and understand what it will take to transition to a clean power system out to 2030 and a net-zero system out to 2050 in a way that is affordable, secure, resilient and sustainable for consumers. It is that whole-system mandate, I would say, that is the distinct difference in the evolution of NESO from our previous role purely as an electricity system operator.

Just to give you a sense of what we are now accountable for, we operate the electricity transmission system that ensures the lights stay on 24/7/365, but we also look across markets for electricity and gas and, as new markets evolve, we will have a role in those as well. Importantly, and in service of the Government’s ambitions and the wider transition of the energy sector, we look at the long-term strategic evolution of electricity and gas networks, and networks for hydrogen and Carbon Capture, Usage and Storage et cetera as those are brought onto the system. Our focus is on those three core areas.

The Chair: You have touched on the balancing up of these objectives and that is an issue we will want to come on to in some detail. Let me invite Lord Gilbert to start us off.

Q77 Lord Gilbert of Panteg: Shall we start with your Clean Power 2030 report? In the report you identified a huge range of steps and programmes that needed to be implemented successfully and on time to deliver clean power by 2030 and you said that failure in any one of those areas would lead to failure of the overall programme. How confident are you that the clean power target can be met?

Kayte O’Neill: When we set out our advice to Government back in November, we described the challenge of decarbonising the power system by 2030 as something of a Herculean effort but, nonetheless, achievable. We felt that it was achievable because, if you look at the heart of what is required, there are really two key facets.

One is the build-out of very significant network infrastructure. We have some confidence in that because the network infrastructure has been in the works for two years or more based on strategic network designs undertaken originally by the electricity system operator and then by us as we transitioned into the role of NESO. That is the first component part of what is required for Clean Power 2030.

The second component part is a very significant build-out of generation technologies such as on and offshore wind, solar, storage, et cetera. Again, while we are looking at very significant increases in all these technologies, we take some confidence from the fact that they are also already in the planning process. They all already exist in the connections queue and have connection dates pre-2030.

That provides some confidence, but we were also very keen to point out in our advice—the Government reflected this back in their plan too—that there are a whole suite of other things that we need to do to be confident in the delivery of clean power by 2030. That cuts across ensuring we have the right market frameworks in place, that the supply chain can respond to that massive build-out that I just described, that we have the right workforce and skills, and that planning and consenting can keep up.

Lord Gilbert of Panteg: This is a massive series of public sector investments and programmes. Within that framework, you identified a list of programmes that need to be implemented. Did you do a risk assessment of those that were in most danger of failing? Are you monitoring them on an ongoing basis, identifying where on each of those programmes we are slipping behind, and identifying actions that need to be taken to remediate that?

Kayte O’Neill: We are working closely with the Department for Energy Security and Net Zero and its mission control board, along with the transmission owners who are accountable for building the network assets and working with developers across industry on where they will build those generation and storage assets. We are absolutely focused on mapping out very clearly what needs to be built and then being able to track back from 2030 to decide what needs to be delivered by when and whether we are on track for that delivery. That is centrally owned by the mission control team—Chris Stark and his colleagues—but all of us across NESO, across Ofgem and across industry are working very closely together for exactly the purpose you described.

Lord Gilbert of Panteg: That applies to the various programmes where you identified other things that need to line up and work, such as skills and training. Are you on top of those as well? Are you looking at whether the skills and training are in place and whether the pipeline will deliver in time for delivery of these programmes?

Kayte O’Neill: NESO is not directly accountable for those things, but we believe that, with our whole-system perspective and our ability to look across the energy system, we can certainly bring advice and guidance on where we see the challenges, the blockers, the things that need to be done, and can give a perspective on progress and where we see risks arising. Ultimately, there is a huge role for DESNZ and for mission control and they have that access to Government to identify and move through the challenges that you describe.

Lord Gilbert of Panteg: The Electricity Networks Commissioner told us that delay haunts him. What haunts you?

Kayte O’Neill: It is really important that we can step back and keep in mind what needs to be achieved on a macro level, and how we ensure that we understand the interconnectedness, the dependencies across the many programmes that will need to be delivered. It is really important that, en route to 2030, we are not just building for a single moment in time but being really thoughtful about the benefits of a clean power transition that runs through 2030, to 2035, 2040 and beyond. Having that full picture in mind, being able to draw the connections between some big programmes and projects of work and being able to retain the benefits of this transition for the growth and economic prospects of Great Britain is really important.

Lord Gilbert of Panteg: Looking at the programme that you outlined that needs to be delivered and all the things such as skills and training that need to be delivered to enable it, is the programme on schedule? Are we hitting all the important milestones?

Kayte O’Neill: Certainly from what we can see at the moment, I am confident that there is the right momentum in place on all streams of work, whether that is the network infrastructure build or the work being done around planning and consent. We are starting to see that coming through in the Planning and Infrastructure Bill that will be laid before Parliament today. There is a huge amount of discussion taking place with industry on things like skills and workforce. So, I see the right momentum, but it will be really important that we continue to monitor, track and drive performance and, if needed, have the ability to correct our course as we go.

Lord Gilbert of Panteg: Have you raised any flags?

Kayte O’Neill: Not so far, but there is a lot of work happening right now to make sure that we have visibility of the right data—data that will be genuinely useful to us well ahead of time—and really good-quality leading indicators, rather than waiting until we are already in a tricky spot and then having to fix from there.

Lord Gilbert of Panteg: Finally, given the success of our country at delivering massive infrastructure projects, what makes this different to HS2 and all those other projects? You have identified some things you thought were distinctive. Do you worry that you are going to be here in five years’ time telling us either that the initial assessment was over-optimistic or that somebody failed to deliver? Is that what haunts you? Do you think there is a danger that the sector generally, given our success at delivering infrastructure projects, is in danger of looking or being complacent?

Kayte O’Neill: I would point to a couple of things. First, because these things have been in the plan for some time, I am confident that they have been well thought through, well tested and rigorously assessed. For example, there has been a huge amount of dialogue between ourselves, the Government, the regulator and the transmission companies on the ability to build that scale of network infrastructure in the time that is required. Similarly, there has been a huge amount of engagement across industry with developers of renewable energy projects and their ability to deliver within the required five-year timeframe.

I am confident that this is a great place from which to start, and our focus then has to be on whether we can unlock the other levers that we described in the CP30 advice: the things it will take to enable the actual build-out of that infrastructure.

The Chair: There are a couple of quick supplementaries.

Viscount Chandos: All your planning has to be in the context of the macro forecasts for demand, and there are a lot of moving parts behind those. I just wondered which you see as the greater risk: the demand being higher or the demand being lower?

Kayte O’Neill: That is a great question. We work not just as NESO, although we do have a huge body of work and a long history of working through our demand projections, but we are working very closely with Government and other parts of industry to really stress test our thinking on demand. The good news is that we have run a set of scenarios that look at what would happen if demand was low and what would happen if demand was higher, and in all cases we think that the pathway to 2030 can be met.

A really important focus for us when we put forward the clean power advice to Government was that there is a huge role here for consumers. How we think about demand on the electricity system is changing, and if we can unlock the opportunity of demand side response so that consumers respond to signals about how and when to use electricity, then we can come up with more optimal ways of achieving Clean Power 2030. That should be a critical area of focus for everyone across the industry. For me it is one of the more challenging parts of the plan, but it is one where there is a huge opportunity to think differently about demand.

Lord Teverson: Just to follow up on Lord Gilbert’s excellent questions on risk: in terms of your risk register, what is needed to get to 2030? What are the biggest factors that are up on the top right-hand corner in the red box? What are the things you are concerned about most?

Kayte O’Neill: From a 2030 point of view, it is about ensuring that the big deliverables—the network infrastructure and the build-out of generation—happen in line with the plan. A leading indicator of that will be if we see the shifts in the planning regime that will unlock that level of build. Investor confidence and the ability to move forward will also be critically important. The supply chain has been discussed as a very significant risk, but one which I understand we are making good progress on. The regulator is working very closely with industry to pre-emptively secure space in the supply chain.

Q78 Lord Udny-Lister: Many of our witnesses have welcomed your proposals to reform the queue, but we have heard concerns from witnesses that they would like to see more stringent requirements for progressing the queue, while others believe that projects for the period after 2030 are all going to lose out and that really all you are concentrating on is getting to 2030. Have you struck the right balance?

Kayte O’Neill: Perhaps I will let Matt jump in.

Matt Vickers: We have engaged consistently and deeply with industry and with developers in coming up with the plans, so I think we have struck the right balance. The risks we have been thinking through are around how to give investors confidence, and how to clean up the queue to allow well-invested, well-progressed projects to keep moving and contribute to the plan. As Kayte mentioned, we have deliberately not taken 2030 as a cliff-edge date; we are looking at a set of reforms that are going to make offers out to 2035. That is really important given that some technologies we are talking about have long lead times and investors need security around that.

In addition, when the Strategic Spatial Energy Plan (SSEP) is complete at the end of next year, we will have the opportunity to review it and make any changes that are needed. We have really tried to strike the right balance around making sure there are sufficient protections and sufficient confidence for those projects that we need for 2030 and beyond to be able to come forward with some clear signals about what is required in terms of technologies and what is required in terms of location.

Lord Udny-Lister: Taking the likely scale of future demand, is there a risk that holding back projects, which is what you are doing, could reduce investor confidence? We have had lobbying from various sources and they are saying that you are holding back stuff.

Matt Vickers: I do not believe we are holding back projects. The net effect of what we are doing is to clean up the queue of a lot of stalled projects. If you have a look at the queue at the moment, it is around 750 gigawatts. For a bit of context, that would be four times what we need for 2030 and twice what we would need for 2050, so the queue is not performing its purpose. Too many technologies are oversubscribed, and there are too many projects in the queue that are simply stalled and not moving. Far from holding projects back, I would categorise what we are doing in connections reform as creating clarity and strategic certainty for investors so that they can put money behind projects and get construction moving on what we need for 2030 and beyond.

Lord Udny-Lister: A bit of lobbying from one particular part of the industry actually suggests that you are holding back £26 billion in investment that is currently at risk. These may be numbers you recognise or do not recognise, but what we are picking up is a view from certain quarters that you are not really consulting them.

Matt Vickers: I would contest that because there are a number of ways we have consulted, both formal and informal. Formally, we have held four consultations so far to create our advice and to create the proposals in the reform package and we have made a number of requests for information, so we have taken on board feedback and data from industry. We are part of the Connections Delivery Board, which is chaired by Ofgem and has around 90 different companies in terms of investors, networks and so on, that are there to provide scrutiny and inputs to the plans. We have also set up a connections policy advisory group ourselves, which James works with, composed of about 30 different developers or industry figures who give us that really important feedback. If I look at where most of my time goes, it goes right across different industries but particularly solar—I have had a lot of contact with solar developers recently; there are a number of bilaterals that I will have with solar developers to understand their challenges and how reform is working for them.

A final point, if I may, Chair, is that it is important that we understand developers’ concern, but when we look at what we are doing, the effects of the Clean Power 2030 plan and the effect of connections, we are looking at hugely significant increases and hugely significant opportunities for private investment. We are talking about a tripling of onshore wind and a tripling of solar compared with what we have at the moment. If you look at batteries, we are talking about five times the amount of batteries that we would need. There is plenty to go for, and while we understand that different sectors or lobbies, as you have said, might feel that there should be more in the plan—they very rarely think there should be less—this is part of an overall balanced plan, and it is the right plan for Great Britain’s growth.

Q79 Viscount Thurso: I would like to follow on from the point that Lord Udny-Lister has raised to one of the risks of the transformation in the queue, which is around legal challenge. There must be a risk, I would assume, that deprioritising some projects comes with the possibility of legal action. What is your assessment of the potential for legal challenges? Do you feel it is a risk that may require the Government to take action through legislation or whatever might be required?

I again state that I have an interest in this as I have, I hope, a wind farm that will be starting to be built by the end of this year. I do not think it is affected in the slightest, but there is another one not very far away which I think will be. It may not have all its land rights yet and may therefore end up being caught by this. They have already spent a very great deal of money. What is your assessment of that risk around the legal side?

Matt Vickers: It is quite right, as you have said, that there is a prospect of a legal risk in this. Of course there is. If you look at what we are doing in the connections reforms, we are going to take a queue of about 750 gigawatts down to somewhere in the region of 200 to 250. So it is really important that the way we do that is seen to be fair, objective and reasonable, and that we follow the right process.

The first point to make is that, as I touched on earlier, we did not just create these proposals out of thin air; they have been very carefully consulted on. They have been built with significant feedback from industry and from different technologies and have gone through a really intensive governance process.

As you will probably be aware, in order to make changes in the energy industry you have to go through a series of code modifications. That involves getting a lot of scrutiny from industry and from working groups. We are very grateful to many people across industry who have been working really hard to short timelines to contribute to that. So the first point is how we made sure that we have been robust, that we have listened and that we have heard what is needed.

The second point is that we have been careful to think about project risk. We do not want to end up with projects that are well-invested and are well-developed going out of the queue on some whim or quirk of the model. So again, because we listen to industry, we changed some things in our proposals at the end of last year. We introduced a series of protections for projects that were well advanced in construction or were necessary for things like Contracts for Difference or the capacity market. Those protections should ensure that projects which are well advanced and well developed are much less likely to end up falling out of the queue.

Having done all that, where does the legal risk sit? It is important that, given that we have been developing the proposals and given Ofgem’s decision around broad agreements on the shape of the proposals, Ofgem should be the arbiter of any initial disputes. In the event that we do end up needing to be involved in a legal process, we will be able to point to all those things to show we have taken the relevant steps to protect and will be able to make a really strong case.

To your last point around legislation, again we are very confident that we have the powers and we have the process because we have been through all that industry governance. We feel that the changes we are making are legitimate, and that we do not need any further powers to make those changes, but our understanding is that, as part of the legislation that the Government is laying, there will be a legislative backstop confirming what we are doing and providing an added layer of protection.

Viscount Thurso: There is an article in the Scottish version of today’s Times which claims that developers are saying that after 2030 none of them will get a look in. The reason is that, although there is going to be a lot of wind development across the whole of the United Kingdom, there is already so much onshore wind in Scotland that more of the quota will go to Wales and England. Is that a case of the industry as usual protesting too much, or is it something that is real, and will it feed into that legislative risk?

Matt Vickers: I might pass that to James.

James Norman: I am happy to answer that one. We have heard that, and we are aware of the article. There are three things to say on the issue.

First, as Kayte and Matt have said, as an independent system operator we look across all technologies in a balanced way to get to 2030 and to 2035. That does not just cover onshore wind; it includes offshore wind, batteries—short and long-duration—and solar et cetera. To bring that to life a bit, in terms of our figures, we have looked for a doubling of onshore wind in Great Britain and most of that will be in Scotland by 2030. So there is still a large pipeline of onshore wind in Scotland to 2030. For solar it is a trebling through to 2030, and then for batteries five times more. So, across all those technologies there is a huge amount of additional capacity that we are setting out.

Another point to make is that our processes have built-in flexibility. Where we determine that there are well-developed projects, as Matt referred to, that have planning agreement, for example, they can be led into the process even if they do exceed that capacity because we do not want to rule out projects that have spent a lot of money to be well-developed.

There is also more flexibility to come in the future. We are working with Government on the first Strategic Spatial Energy Plan and that is something we will be producing by the end of 2026. That will take a deep, holistic view about what technologies we need for the period 2030 to 2035 and beyond. If there is a view that we need to increase or tweak some capacities that are in the current plan, then that is absolutely within the scope of that.

Viscount Thurso: One last question, possibly for you, Kayte: presumably there is a real need for urgency in getting this updated queue out there, and I think you are aiming for the last quarter of 2025. Are we going to meet that, and are you confident it is going to happen?

Kayte O’Neill: There is a huge amount of work to be done. As you know, we are waiting for Ofgem to make its decision formally on the proposals that we put forward pre-Christmas. We hope to see those around mid-April. From there, we will move very swiftly into what I describe as implementation mode. That is followed by a period of legal review, a standstill while we wait for everything to settle down, then from there we will start to reprocess the new queue. Our current thinking is that we would like all transmission level offers to be out by the end of the calendar year, as you described. Of course, there is also a huge amount of work to do at distribution and that might run on into the early part of 2026, but we will be giving as much visibility as possible as early as possible to those who are in the queue to provide that certainty and avoid any disruption in investment.

Q80 Lord Best: Kayte, you have already explained how NESO has this strategic planning role that overarches everything, but there are an awful lot of plans out there. There is the Strategic Special Energy Plan, which is the big one, but then there is the Centralised Strategic Network Plan, and a number of Regional Energy Strategic Plans. I suspect that NESO will have to take account of the Government’s other strategic and land-use plans for its industrial strategy, land-use strategy, transport strategy, housing strategy—that is the 1.5 million homes. This is an awful lot of stuff to reconcile and hold together. Are you able to provide that clarity? Can you see how you can prioritise and work through that potential minefield?

Kayte O’Neill: For me, this is a really terrific step change. I am hugely positive about the fact that, as an industry, we are moving towards taking a more strategic view, recognising that we need to translate a long-term transition at national level and understand the impacts of that at a regional level, bringing those two things together. With that longer-term lens on how the energy system is going to evolve, we can work really closely to translate that with Government into the relationship between the energy transition and those other strategies you described.

For me, as I say, it is a big step forward. Historically, we have worked for a relatively short number of years on a rolling basis ahead of time. The SSEP allows us to look out to 2050 and say what we will need the energy system to look like and then work back from there. Importantly we are bringing more regional voices to the debate, ensuring that local areas, regions and nations are all able to clearly articulate their vision for energy in their space. We must ensure that the suite of regional plans or national plans docks in with a top-down view of ultimately where we need to get to. It is certainly a complex process.

Lord Best: A challenge.

Kayte O’Neill: Yes, but a challenge we should embrace because ultimately it will deliver better overall outcomes for consumers and for investment in Great Britain.

Lord Best: Just a topical additional question: do you feel the Committee should be taking on board any changes as a result of the announcements yesterday by Angela Rayner, Secretary of State for Housing, Communities and Local Government, and colleagues on aspects of the Planning and Infrastructure Bill? Is anything coming down the pipeline that has now been announced that we ought to be aware of and factor into our thinking?

Kayte O’Neill: Largely speaking—from my understanding of the Bill as it started to come to life over the last day or so—we have had pretty good visibility in advance of what the Bill is broadly aiming to support. NESO was very supportive of the type of support that we see coming through in the Bill when we issued our advice to Government back in November. There is nothing that I have seen in there that I am worried about or that changes our path from my perspective so far, though there is more exploring to do.

Q81 Viscount Chandos: Can I probe a bit further on Regional Energy Strategic Plans, which Lord Best has already mentioned? What do they need to deliver in order to succeed, and is distribution really susceptible to strategic planning, given that it is so complex and more fragmented compared to transmission?

Matt Vickers: The work of the Renewable Energy Strategic Plan is one of the most exciting parts of the work that we are doing at NESO. As we now have new roles and new functions as a strategic system operator, it is really that chance to, as Kayte talks about, get not just a top-down, centralised view of the world, but make sure that it is one that really works for cities, for communities and for each of the regions and nations that makes up Great Britain.

What needs to be in place around that? From NESO’s point of view, we have been looking at investing around building up our capability. That means boots on the ground, which means we have been building up a network that can really support local communities and local areas in doing that. So we have been doing lots of recruitment over the last 12 months. In particular, I have spent quite a lot of time with the team in our Glasgow office and was presenting recently in the Scottish Parliament about work that we have been doing on regional planning. The really exciting thing is that there is an opportunity to make this not just about a network and an energy question, which of course it is, but a chance to build in those social and environmental questions, and a chance to build in opportunities around growth and the local economy.

I found it really encouraging and exciting to see how well local authorities and different city regions have been responding, and it is fair to say that the plans they have are of mixed levels of maturity. A few weeks back I was at the Liverpool City Region looking at the work it is doing; it has hugely ambitious, exciting plans. It is important that we bring some capacity and capability to that because we do understand how the energy system works, but it is also really important that we are tying in with communities who know best what works for them on the ground.

You touched on the importance of the distribution operators. They are embedded in their communities, and clearly, we recognise that we are building on the legacy of fantastic work that they have done over the years. The work we are trying to do on regional plans is not about elbowing them out of the way; it is much more to say, “Right, how do we build from that, and how do we make sure that you are a part of the governance process that we can really knit together?” The key thing for us as a system operator is the word system. It is about recognising that this is a system where we need to get all the right inputs to get the right economic, social and environmental outcomes for the communities that we serve.

Viscount Chandos: You have talked about working with businesses and, obviously, with local and combined authorities. Given the huge squeeze on local government budgets over the last 15 years, do you see them as having sufficient resources and expertise to produce effective strategic plans and to interact with you?

Matt Vickers: As I touched on before, there are different levels of maturity and different levels of ambition as you look around the country at what is happening. Our role and where we can help is first that point about our convening power. Because we understand the system as a whole, and because of all the different bodies that we touch on, we have a real opportunity to be able to bring bodies together, in some cases sharing resources or making sure the same work does not get done twice, or looking at different parts of the country where one area might have done something that another can learn from. Our role is very much in knitting together that capability and acting as a multiplier where we can for the work that communities are already doing.

Viscount Chandos: Is it too simplistic to say that transmission is driven by top-down and distribution driven by bottom-up? When you try to put those two together, do you come to the same place or is there a disconnect?

Matt Vickers: This might be something that Kayte wants to add to later, but to my mind connections reform at this specific time is a really good example about where we need to challenge some thinking. People have often talked about transmission as a motorway, with distribution being more like A and B roads. Sometimes I do not think that is helpful. Customers sit at the end of all the work we are doing. Ultimately, we need to be joining up what we are doing across transmission and distribution in service of those end customers who sit in communities, in businesses and in homes.

We have set up what we call the Connections Reform Hub which is bringing together transmission and distribution between ourselves and the regulator, to ensure that we get a cohesive plan that puts customers at the centre of what we are trying to do. That is one of the biggest shifts that Kayte might want to comment on: what is different now at NESO compared with where we were.

Kayte O’Neill: You have covered the question beautifully, Matt. What is really important to say is that we need to bring all the right stakeholders together to have that conversation as a single conversation. We do not have time to start purely with a national top-down plan and hope that the two things come together. Only by getting all the right stakeholders in a room and developing the bottom-up and the top-down in conjunction, and iterating as we go, will we get the overall right answer for consumers.

The Chair: Lord Gilbert touched on skills earlier, but when we are talking about the Regional Energy Strategic Plans and involving local regional authorities, combined authorities, there is a lack of skills in many of the areas which will be important to you; that is one of the biggest challenges that the country is facing. Do you think that those stakeholders and those people who can effect change in terms of delivering those skills are fully bought into what you are trying to do?

Matt Vickers: I think they are. Take the example I was talking about around Scotland: a good example of that is the work we have been doing with the University of Strathclyde where there is a huge capability around engineering and energy systems in general and thinking through some of those questions about community benefits, and so on. There are some examples there of how we have started to think about how we reach into the wider community, whether it is through academia or through skills and development. These are all doors that are opening, as we see the full potential of regional planning and getting out into the nations and regions.

The Chair: You need it in every region.

Matt Vickers: You do need it in every region.

Baroness Drake: Going back to the differing levels of capacity and capability in local authorities and your point that you cannot do it all from top down, you have to build from bottom up; I am not particularly looking for individual initiatives, but what are NESO’s controls for ensuring that disadvantage or advantage in capacity and capability is not baked into the investment going into these different local authorities?

Kayte O’Neill: There are a couple of things to say. From NESO’s point of view, one is just in terms of how we are setting up to deliver the Regional Energy Strategic Plans. We are implementing what I would describe as a hub and spoke model. The capability out in the regions is managed by folks who live in the region they are recruiting in; they maybe have a background in stakeholder engagement or energy in the region, and can bring that sort of local knowledge and perspective in. We have these managers in all the regions that are being created for a Regional Energy Strategic Plan.

We also have this very important hub in the middle where we bring that capability back to the centre and see what we can learn from what is happening across the regions: where the central capability can supplement and help, and how we can ensure that what we are doing is consistent and is not advantaging or disadvantaging those who are perhaps further ahead in their planning but allows everyone to come in with the same level of plans.

The distribution network operators (DNOs) will also be a critically important part of that. Although we will not deliver the first full Regional Energy Strategic Plans until 2027, actually towards the back end of 2025 and as we go into 2026 we will be working really closely with the DNOs on the investment they are putting into their regulatory plans for investment in each of those areas. What NESO can do to support here is ensure that they are regionally specific—that is, each distribution network operator can bring its understanding of the local region—that we are making consistent assumptions where it is appropriate to do so and consistently challenging each network on how they are thinking about the evolution in their region.

It is fair to say it is going to be a learning space for us all, but I have been really pleased with the willingness of parties to come to the table to help ensure that we get a really consistent level of high-quality plans across the regions.

Q82 Viscount Trenchard: It is self-evident that if you bring demand for energy and energy generation closer together, you reduce the need for perhaps unachievable grid upgrade. But how do you think persuading demand and generation to be located much closer should be achieved? Locational pricing is very much opposed by electricity generators: I have just been at a breakfast meeting and have had a real earful about this. Should it be achieved by that or by other reforms to network charging, and what would they be?

Kayte O’Neill: It certainly feels like locational pricing is one of the hottest debates in town at the moment. From NESO’s perspective, we are strongly of the view that absolutely there are benefits to be had from providing increased locational signals—we think largely through wholesale electricity prices—that would really improve the efficient operation of the system on a day-to-day basis. As you describe, this would also signal optimal locations for generation to site and for demand to site over the medium to long term. Those locational signals are probably the most effective way of providing really clear signals and unlocking value for consumers.

The debate on this has been running now for some years. DESNZ has been running its programme called REMA—the Reform of Electricity Market Arrangements—and after a couple of years of really thorough research and lots of debate and impact assessments, I am pleased that we are heading this year to DESNZ coming forward with a decision on what it thinks the answer is in terms of providing the right market signals to investors and developers in the way that you describe.

We absolutely recognise why this is a challenging debate. We have talked a lot this morning about Clean Power 2030 and the hugely ambitious levels of investment that are needed to achieve it. We fully understand that clarity, certainty and transparency for investors is a really central part in unlocking that investment. My sense is that clarity can be provided through a decision by Government, and then we can work towards whatever market signals are in place.

Viscount Trenchard: When you talk about signals, do you mean incentives? And do you think that DESNZ and other departments should be prioritising incentives, or prioritising greater certainty for investors? And what are the potential trade-offs of either approach?

Kayte O’Neill: When I talk about locational signals what I mean is, rather than having a national price that sends the same signal to everyone to behave in the same way all the time, you can send a signal through pricing for consumers to turn up or turn down their demand for generation. At the moment NESO, through its role in the control room, is having to correct for that lack of signalling, if you like, by what we would describe as re-dispatching—changing how the market is operating in real time versus how the market wants to operate—based on these fairly blunt national signals that exist today.

From a trade-offs perspective I go back to the fact that we recognise this is a difficult debate: investor certainty, clarity on the regime and how it is going to operate is really important, and particularly important in the coming years. But there are two further things that I would add: one is that we talk a lot just about the question of locational pricing and whether that is the right signal. Actually it is just one of many questions that need to be answered when you think about what is the full suite of market arrangements and the market frameworks that need to be in place. You need to know if it is a national price or a zonal price, but you also need to know how that interacts with other market support mechanisms like Contracts for Difference, which Matt talked about, capacity markets, cap and floor mechanisms et cetera, because it is that suite of market frameworks that ultimately dictates investment for consumers.

Q83 Lord Teverson: I need to declare my interest: I am a trustee of Regen, a renewable energy advocate that you are probably aware of, and I chair a battery storage company.

I want to bring up the subject of ASTI, which I have never actually understood. It seemed quite obvious that, after the Climate Change Act of 2008, we were going to have to plan ahead to decarbonise our electricity system, yet we only just recently seem to have it into our head that Ofgem therefore has to think ahead rather than just think about current consumer pricing. I would like to understand whether that system works now, as it seems to me that NESO has taken over that role anyway and ASTI is almost irrelevant, but also how it all works. One of your core areas is thinking ahead and planning, and then Ofgem pays all your money and is your paymaster; therefore I question that independence between the two of you. Does that system work?

James Norman: I am happy to answer that one, thank you. Just for everyone else’s benefit in case you are not aware what ASTI is—I think I will get the right acronym—it is Accelerated Strategic Transmission Investment. So that is part of Ofgem’s price control arrangement and it is something that it uses with the transmission owners, which are the companies that build the transmission system.

Lord Teverson: I will come on to the charging in a minute.

James Norman: All right. But you are absolutely right there has been a move in recent years towards a more strategic early plans transmission system through the things that we have been talking about on connections reform. But before that we produced long-term development plans—10-year development plans—deliberately looking ahead to not just what we need for the next five years, but the next 10 years.

So Ofgem absolutely is moving through the ASTI framework to that more strategic price control process. But NESO’s role is really important there, in that we are able to provide that independent advice that I referred to earlier. Ofgem sometimes struggles with understanding whether transmission owners have the right incentives to build particular projects. If you look at a long-term plan that comes from an independent party that says, “Look, ultimately this is what we need for Great Britain for the next 10 to 15 years”, that gives Ofgem a lot more confidence and it has quoted that, particularly in the offshore space, for example. So, when we produced our offshore co-ordination plans a couple of years ago, Ofgem based a lot of its price control decisions around that.

So, that is absolutely the direction of travel and it is happening. We see that link really strengthening with connections reform in future because we will have a connection system that is then linked to our network system. That would then provide the regulator with even more confidence that actually what is going to be built is ultimately what will be needed for the generation and demand that we need in this country.

Lord Teverson: Coming on to pricing, one thing I have never understood—perhaps this is an opportunity to put me right—is if you think of just ordinary real-world industry, when you invest, particularly when you have an increasing demand for your product, you do not say to your customers, “Oh, I’m sorry, I’m going to make this big investment, and by the way I’m going to put the price of your product up for me to pay for my investment”. That is not the way it works. Companies invest in futures because they see demand going up and hopefully that investment gives them efficiency as well, either of economy of scale or technology. I do not understand why there needs to be a price conversation with the transmission operators or the DNOs. They have a market that is expanding, it is good news to them, their shareholders should be really pleased about it and, if anything, the price should come down.

James Norman: Obviously, transmission companies are by nature natural monopolies. We have three transmission owner companies in England, Wales and Scotland, and then we have, I think, seven distribution network operators in total: seven companies set across 13 areas. They are natural monopolies, so there is a role there to ensure that—

Lord Teverson: No, I understand the reason for regulators.

James Norman: Yes, but in the sense that there is always going to be a role for some sort of price control. But absolutely we see that the move is away from ad hoc looking at each individual project and doing all the detailed checks and so on, to then thinking, “How does this fit within the wider plan?” And how you can make a more strategic price control framework that is not counting every penny on every project but allows that investment and looks at it more broadly.

Lord Teverson: Do you feel that price control around ASTI is working well at the moment?

James Norman: We have certainly seen, from the example that I gave about the offshore co-ordination plans and the huge amounts of investment that are triggered by the need to connect so much offshore wind, that those have gone through the regulator and they are part of the infrastructure and network that Kayte was talking about earlier that is in train and that we need for 2030. So, yes, it is working but of course it can improve. There are more things that we can do to help make sure that price control in general, not just offshore but across all the areas, takes account of those more strategic plans that we were talking about earlier.

Lord Teverson: Did you get involved in the debate before, say the Contracts for Difference seventh allocation round (AR7)? Do you get involved in discussions with Government before the pitch is made or the amounts that are agreed on, when the bids take place?

Kayte O’Neill: No. So that is very much a relationship between the market and Government. We have some formal roles in enabling the auction processes to run, but the actual setting of prices and so on is a matter for Government and market.

Lord Teverson: To make just one further comment, at the beginning you described quite rightly the big queue and how many gigawatts it was. That number never seems quite right to me because part of it is storage and part of it is generation. Obviously you do not necessarily have one while you have the other—you need both—so adding them together is rather apples and pears.

James Norman: I am happy to say you are absolutely right: they do play different functions on the system. We have about 250 gigawatts of storage in total, so about a third of that 750 is storage, but we think, and our advice to Government is, that we only need a 10th of that in terms of storage. Yes, storage is important.

Lord Teverson: Absolutely, I am not in any way disputing that.

James Norman: But even taking the storage out, we still then have 500 gigawatts of generation which is way above what we need even for 2050.

Q84 Baroness Drake: My questions are on the business demand side in particular. Witnesses have told us that there is a strong focus on generation but not a strong enough focus on ensuring businesses can connect and that the delays experienced are making the UK a less attractive destination for investment; that is the issue they have put to us. Is there sufficient focus on connecting sources of demand such as business to energy networks, as well as connecting the new sources of energy supply? And how does connections reform balance that need to connect new sources of supply with timely connections of sources of demand, particularly major connections?

James Norman: First, you are absolutely right; it is really important and in consumers’ interests that we connect demand quickly and efficiently. For example, for the electrification of industrial processes and for jobs and growth: we completely agree on that.

Actually, demand is part of our connections reform proposals. It probably does not get as big a mention because obviously the key part of connections reform that is in the public domain is around the Clean Power 2030 plan, which sets out these permitted capacities for generation and storage. Within that, but not so widely noted, we have adopted an approach that demand is uncapped; so we are not setting any capacity limits on demand. So long as demand projects have land and can show that they are progressing, they will be in the reformed future queue. So they will still be able to be in that 250 gigawatts.

In general we will see really big improvements to demand connections as a result of reform. Removing two-thirds of the queue will help all those demand customers that are remaining in the queue to secure much earlier connection dates than they do at the moment, which is a really important part of that. For Clean Power 2030, for example, we have assumed a four times increase in demand at a national level in terms of electricity. That is part of our projections for how much generation we need. So, if that generation comes forward in line with our plans, that will allow the support of a four times increase in demand for electricity.

Baroness Drake: Following on from that, witnesses have also suggested that greater information availability on what capacity networks have in particular areas to help their location decisions would be useful. We heard about the Northern Powergrid referring to working with the Office for Investment to provide information where there are big pockets of demand availability capacity, which the Office for Investment could use to attract inward investment. So my question is: is there clear enough information on the capacity of the network and the number of customers in the queue in each area? And what could you do to support enhanced provision of clear information on network capacity for potential connection customers, particularly big important connection businesses?

Matt Vickers: I can talk about some work we have been doing on our Connections 360 portal, which will, in effect, do just what you have been talking about. We are looking to make the access to that level of data—about what is looking to connect and where, and what level of progress has been made on particular projects—much more available, so that you can interrogate it in real time and people can make much more informed decisions. That is good for investor confidence and so that businesses can plan.

We had a release of that towards the end of last year, but it is something that we are still working on and continue to make further improvements to because we see it as a really important part of the pillars that we are putting together around reform. So it comes back to sending the right signals and giving industry as much information as we can to help them make the right decisions on where to invest and where to look at siting demand. We see that as a really important part of the jigsaw.

Baroness Drake: How far along are you in providing the information online and digitally?

Matt Vickers: We have been doing some work, and if you go on our website at the moment we have the connections portal that people can sign into and see. We are very conscious that the way that industry would like to get that is digital.

As we look further, we are then seeing what opportunities might be around because at distribution level some networks have been building their own systems that do that. It is really important that, where we can, we have a look at our vision for how we might be able to bring those all together under one umbrella so that you have a very clear picture of what is happening, across both transmission and distribution.

Baroness Drake: Are you confident you can progress that significantly within the year?

Matt Vickers: There is a lot of work that is already going on and I am seeing further developments already there, and within the year we will have further releases to the connections portal. I am confident we will see further development and a stronger picture for investors about, in effect, being able to self-serve what is on the network, yes.

James Norman: There is probably just one more point to make on that, if I may, Chair, which is that there are two parts to this: the provision of the information, which is what Matt has been talking about and our systems will provide that, and then there is obviously also what is in the queue at the moment and what that means.

As Matt said earlier, because we have such an oversupply in so many technologies and across Great Britain, actually the information people see now does not give them a great signal because they see a lot of full substations, a lot of full areas and connection dates into the late 2030s or even the 2040s. Our queue reform exercise that we are doing this year—if we get approval from the regulator—will free up a lot more capacity and provide a much clearer signal. We will then see there are some parts of the network where there will be available capacity and in a much shorter period of time, whereas at the moment that signal is obscured by the oversupply that we have.

Baroness Drake: Do you have evidence or examples of important demand customers using the triage service that the Government announced? How is that going?

Kayte O’Neill: It has actually been working very well. I have personally been involved in a number of conversations where you have large demand customers who are strategically important to Great Britain and can bring jobs and growth prospects, working really closely with departments from across Government and the transmission companies where, in many cases, it requires reinforcement or new build-out of network infrastructure, and with the consumer as well. So it has been a successful process so far.

Q85 Viscount Thurso: Can I turn to the Government’s Strategy and Policy Statement, or SPS? How does NESO take account of the Government’s SPS on energy policy when performing its functions? And would it be helpful for there to be a new or restated SPS to take account of the balance between decarbonisation, security of supply and the cost of energy?

Kayte O’Neill: As you know, the Strategy and Policy Statement is relatively new and came about as NESO came about. It really importantly informed how we thought about standing up NESO with all its new roles. It is very consistent in its current form with what is already required of us as the role of NESO is established in the Energy Act. Again, those responsibilities and accountabilities also flow through very clearly into our licence, and therefore into how we operate the business on a day-to-day basis.

For us, for the system operator, this question of balancing across a sustainable, affordable and secure system has actually always been at the heart of our thinking and a really important focus for us. But the clear translation of that in the SPS, and the fact that of course the Strategy and Policy Statement applies to Ofgem as well, just allows a level of consistency in how we are all thinking about some challenges and trade-offs that have to be made.

Viscount Thurso: So you are broadly content?

Kayte O’Neill: Yes, absolutely. It is working well and at the moment I do not see the need for any changes. It is sending a very clear signal to us.

Viscount Thurso: Some witnesses have suggested that there needs to be greater clarity between what you do, what the Government do and what Ofgem does. Do you feel that there is a clear division of responsibilities, and how do you expect clarity to develop over time, as NESO begins to become a more regular function?

Kayte O’Neill: As you can imagine, it was something we talked a lot about as we were designing and developing NESO before we stood the organisation up in October last year. At the moment, my sense is there is good clarity on the roles and responsibilities between us. But of course it is being tested as we take on new roles and we have to iterate and sense check that that clarity still exists.

There are many things that we work closely together on, where it is about NESO providing its impartial expert independent advice to Government to help them think about policy. There is a lot of work that we do with Ofgem, as well, to think about the impact of some of those decisions on consumers, and on how you need to regulate industry and the delivery of those outcomes. So there is a lot that we work on together, and we are always very conscious, as our three organisations work together, whether it is clear to the rest of industry and the outside world where the lines are drawn and where each of our responsibilities start and stop.

Viscount Thurso: Do you think there is anywhere at all where there might be friction? Because nothing is perfect, however well it is going. Is there anywhere where you are thinking that you are going to keep an eye on that because that could crop up?

Kayte O’Neill: NESO has just set out its business plan for the next financial year, so the period April 2025 through to 2026. One area we are talking a lot about at the moment is that we have a very strong sense that Government, industry and the regulator are looking to us to take this strategic role to be able to respond to the needs of the system as we work our way through the energy transition and ensure that we have the flexibility in our regulatory framework and our ways of working to be responsive.

A really good example of this, if I look back over the last 12 months, is that the concept of a Spatial Strategic Energy Plan did not actually exist in our business plan until it was something that Government envisaged. The electricity system operator, as it was then, was able to respond to that ask from Government, and Ofgem then had to retrospectively figure out how to think about our role in spatial strategic energy planning in our business planning process. So that is our need to be responsive, and the regulator’s need to be clear on what we are accountable for, the plans we are setting out, and how successfully we are delivering against them. That is one of the things I am very keen that we keep a watching brief on.

Q86 Lord Gilbert of Panteg: That is very helpful, thank you. I want to ask you about your relationship with Ofgem in a moment, but before I do that, I just want to come back on the line of questioning from Baroness Drake, who asked you about the major energy demand connections. Can you just briefly characterise what they currently are? Is it basically true—maybe this is a bit simplistic—that it is moving away from industrial towards data and AI demand? Is that a shift that is taking place? If it is, and if that is going to be a very important part of energy demand in the future, are you fully part of the Government’s industrial strategy, which has a lot of eggs in its basket?

Kayte O’Neill: There is still a good mix of the type of demand connections that we are seeing coming on to the system, but we certainly are seeing growth in the development arm and the discussion arm and the volume of the discussion, if you like, particularly around data centres and AI data centres. It is a conversation that we are very much at the heart of. It is a real opportunity, and we have seen Government very clearly articulate their ambition to really maximise the value of the opportunity of growth in demand centres.

From NESO’s point of view there are a couple of things that we can offer, if you like, to that process. One, as Baroness Drake was asking about, is really clear signals about where there is potential and capacity on the grid, where would be a great place to locate these data centres, this demand: can you locate it close to generation, and does that help optimise how we use the network overall? So there is that part of our responsibility.

The other thing that is really important for us to bring to the debate is ensuring that the system remains secure and operable as you bring on this very significant new demand. Some AI data centres that we are talking about in particular are very large, up to 2 gigawatts in size—a very significant amount of new demand to put on to the system. So we spend a lot of time focusing on how we ensure that the system is secure and resilient, not just today but as we see that growth.

Lord Gilbert of Panteg: Moving on to your relationship with Ofgem, could you just briefly describe how you co-operate together: what are the mechanisms for you to work together in relation to energy networks? Given that one of your roles is to provide independent advice on energy system needs, in which Ofgem has a role yet it is also your regulator, is there an issue there? A conflict? And if so, how is that resolved? Do you feel that you can be completely independent in your scrutiny of Ofgem when it is your regulator?

Kayte O’Neill: To talk a little about how the relationship works today, there are very clear areas where Ofgem is the economic regulator and it regulates NESO to ensure that we are providing value for the costs of running our organisation and in terms of the contribution that we are making to the system. So, there is a rigorous and detailed, well-scrutinised process for ensuring that where we are investing in the capability we have in our organisation, the costs of running our business, that that is well understood, well tracked, regulated and scrutinised. That relationship very clearly exists and we were supportive of that: it was how we were previously regulated and we were supportive of that continuing as we became NESO.

There is a recognition that there are other areas where the relationship between us is shifting, or the respective roles that we are playing in industry are shifting. Strategic planning is a great example of that where, rather than the relationship being regulator and regulated entity, if you like, it is much more about NESO bringing its authoritative, expert, independent voice, and being able to give a perspective to Government in the service of policy-making on what is required in terms of the strategic transition of the energy system. Once we have set out that plan, rather than Ofgem second-guessing our expertise in defining that plan, its focus can be on then ensuring that those who are accountable for delivery of the plan—usually the transmission networks—are appropriately regulated in their provision of that network, or the build-out of that network.

So, I would say it is the subject of an ongoing conversation between us. There is huge potential to be unlocked if we can build this slightly different way of working together and this slightly different relationship. Because, at the end of the day, there is so much required to be done in the energy system, particularly over the next five years, that we do not need to be doubling up on work; we should let the right body with the right skills and expertise do the work that is needed so that we can progress at pace and move forward.

Lord Gilbert of Panteg: As independent advisers—I am sure it has not arisen yet, but if ever it did arise—you do not feel you would be hesitant in raising a flag about Ofgem’s performance in these specific areas.

Kayte O’Neill: No, that is right. There is a huge amount of mutual respect and, as you would expect, we work very closely together, as we do with all our stakeholders, grounded in trust and evidence-based decisions, to try to get to the right overall answer. But for NESO to add the most value it can with its new mandate, it is very much about our ability to bring that independence to call out the difficult trade-offs and decisions. I do not think we would hesitate at all in doing that if we thought there was a better answer for consumers or for the country.

Q87 The Chair: Just before we finish, can I ask about energy codes and reform of energy codes? You have touched on energy codes just briefly; clearly we are talking about a very fast-moving situation where things are changing very quickly, and you have covered a lot of that. Do you think that these energy codes are going to be flexible enough, and will Ofgem be using them to drive change, do you think? What is your take on those?

James Norman: I will take that one, Chair. There are a couple of points here so I will start with codes in general but then, if I may, a bit of our experience on connections and some lessons we can learn from that for future code processes. So, codes in general obviously set the rules of the game: how industry engages and how energy developers engage with network companies, ourselves and each other. We are very supportive of reforms to the energy codes. We have been quite clear for the last couple of years that the current process is not working as well as it should do: it is not agile enough to respond to the changing needs of the energy landscape. But it is also hugely resource intensive for everyone, not just us, but lots of industry. So if I take connections, for example, the reforms that we are putting through require changes to the industry codes, and we had over 50 working groups in a three-month period. Each group takes half a day to a day and has around 40 to 50 representatives from industry on it, which is hugely resource intensive, for small industry players in particular.

Obviously, we need to retain that level of scrutiny and challenge through industry, but we need to do it in a more agile way that allows both in terms of the way the codes are debated and put forward to be done in a more streamlined way, but then also for the way the codes are written to essentially allow more flex. And so connections is a good example of how we have done that. We have taken a lot of the more detailed arrangements that we are proposing for reform out of the codes, and we have put them in ancillary documents which will be approved by the regulator, so they have to go through a proper process. We have to consult on them as well and we do that every year but then, as and when we change them, we do not need to go through a lengthy code process again. So that is an example of one of the good things code reform can do in future. And if it can add to that a little more consideration of the agility of the process itself, then we think that would be a good way forward.

The Chair: Do you think industry is actually happier with this more flexible approach, with the ancillary documents?

James Norman: It is fair to say it has had a mixed view from industry. In connection specifically there has been a lot of change in a fairly short period of time and industry has told us that it has struggled sometimes to keep track of that change; whether that was through codes or the ancillary process was unclear. In general, it understands the need to move quickly and to be agile, and a lot of industry is really supportive of that so long as we have the right protections and the guard-rails—as I said, that there is a regulator role and consultation. So, a lot of industry does support that general approach. Obviously with connections, as I say, it has been a very whirlwind, intensive period for everyone.

The Chair: Thank you very much; we have exhausted our questions for this morning and we have learned a great deal. You are clearly quite pivotal in all of this, and it is clearly a very challenging period that we are entering. So, thank you for the information that you have given us, and good luck with what you are doing. I call this session to an end.