National Grid plc (NG) Earnings Call Transcript & Summary

Hello, everyone, and welcome to the next in our Grid Guide to... series. And today, we're focusing on U.K. Connections. As well as the people here in the room, we also have a lot of people online and questions will be open to all when we get to the end of the presentations. For those of you here, and just to say there are plan no fire alarms this afternoon. So if you hear an alarm, then we'll direct you to the appropriate exits. As a reminder, the Grid Guide to... series shines a light on different areas of the business. We usually focus on an environmental or a social angle. They are educational. So please feel free to ask Alice and Cordi on all things connected related to their businesses at the Q&A at the end. There will also be time afterwards if you want to catch them or one of their team over a drink. If you go to the results and events part of the IR website, you will find the Grid Guide to... series and the many other topics that we've featured over the past 3 years since we did the first event back in January '21, which was looking at the Future of Gas. So with that said, let's start today's event. And I'll hand over to our CEO, John Pettigrew.

Thank you, Nick, and good afternoon, everyone. Welcome to today's event, where we're going to be focusing on U.K. Connections covering both the U.K. Electricity Transmission business and our U.K. Distribution business as well. I'm well aware that this is a topic that is front of many people's minds, and it's been amplified, I think, by what we've seen in the press more recently. It's a significant area of focus for us in the wider industry and of course, for our customers, Ofgem and the government. So I'm joined today with Alice Delahunty, who is our President of U.K. Electricity Transmission; and Cordi O'Hara, who runs our U.K. Electricity Distribution business. And they'll demonstrate the progress that we're making within the regulatory and the policy parameters in which we operate. And they'll also explain why further reform is needed to deliver the clean energy and infrastructure required if the country is to meet the government's target of decarbonizing the grid by 2035. So before I hand over to them, I want to just briefly set the scene and help explain the current context. So 10 years ago, of course, network connections weren't a topic of concern for the industry. Regulatory and policy frameworks have been established for a world in which periodically, we only saw a small number of large power stations needing to connect to the system. But the electricity industry has changed enormously over the last decade. We've seen a big increase in new sources of clean energy wanting to connect across different voltage levels impacted on both transmission and distribution. We've also seen a significant increase in demand requests ranging from large manufacturers, manufacturing organizations looking to electrify their operations. Huge new data centers requesting levels of energy we've never seen before and the addition of the EVs and heat pumps in people's homes. And we're focusing on enabling this change. Our networks are becoming smarter with greater levels of digitization, providing 2-way flows and greater levels of flexibility. And we're building new infrastructure to connect these new sources of energy faster than ever before. However, this changing generation and demand backdrop has led to a surge in connection requests over the past 5 years. Coupled with the regulatory and policy framework designed for a steady-state world, this has created a disorderly pipeline where projects that are viable are being delayed and projects that will never be built sit in the queue and block those behind them. Today, the connections pipeline across the electricity transmission and distribution network in Great Britain stands at around 600 gigawatts. Our share of that across our transmission and distribution networks is about 400 gigawatts. To put this size into context, to achieve the government's aim of decarbonizing electricity network by 2035, we only need an additional 75 gigawatts of clean generation on our networks. Therefore, our pipeline has over 5x the new capacity needed for 2035. Addressing this challenge is an industry-wide issue, and we're playing our part here at National Grid. We're connecting new generation every day. You'll hear from Alice and Cordi about the significant levels of new capacity that we've already brought on to the network. In collaboration with the government's Connection Action Plan, we're working on near-term tactical reforms that are already having a positive impact and bringing connection times forward. And we're also focusing on longer-term strategic reforms, collaborating with industry, the system operator, Ofgem and government. Alice and Cordi will go into the details on that. But just to be clear, without further strategic reform, the delays on connecting generation and demand will continue. So I hope that the next 30 minutes or so will give you a much better understanding of the progress that we're making as well as a better understanding of the ongoing challenges the industry faces and how we're working together to tackle it. So with that, I'm going to hand over to Alice, who's going to take you through the detail.

Thank you, John. Good afternoon, everyone. I'm Alice Delahunty. I'm President of our U.K. Electricity Transmission business, which is responsible for the design, development, operation and maintenance of the Electricity Transmission network for England and Wales. Our network consists of more than 300 substations and nearly 22,000 pylons, connecting enough overhead lines to run from London to Miami. As John said, we're delivering the biggest overall of our network in generations to decarbonize the power system and enable a secure and affordable net zero transition for U.K. consumers. That's why I'm delighted to be here today to talk about connections, one of the critical issues in our sector right now. We're now just over halfway through our RIIO-T2 price control, which runs until March 2026. Over the 5 years of this price control, we'll be investing GBP 11 billion in our network, GBP 3.5 billion is to connect new customers and demand customers to the network with another GBP 3 billion for ASTI, which will ultimately enable significant connection capacity. My team and I really care about connecting projects to the grid as quickly as possible. Over the last 5 years, we've connected almost 10 gigawatts of clean generation and interconnection to the transmission network. But as I will describe in more detail in a minute, we've seen a rapid growth in the number of projects looking to connect to the transmission network. This has massively increased the size of the pipeline in the last year and the ones preceding, and understandably has led to frustration from customers, particularly those who have viable projects ready to connect now. That's why our immediate priority is working with the system operator, Ofgem, government and industry to ensure we can build on recent positive reforms and ensure the connection of viable projects is accelerated. But first, I want to give you some detail on how the pipeline has come about and how we've been working to reform the connections process. When the connections process was designed, as John said, we only needed to connect a small number of large power stations. But as we all know, the situation has moved on enormously. Connection agreements need fundamental reform to be fit for a fossil-free future, where large amounts of smaller renewable generation and storage projects with much shorter lead times have become the norm. Today, customers apply to the ESO for a connection, and the ESO manages the pipeline of projects waiting to connect. Our job as the transmission owner is to apply the modeling assumptions provided by the ESO to design and engineer the connection requirements and then physically connect those projects. As you've heard from John, National Grid's transmission and distribution networks have a pipeline of around 400 gigawatts. For our transmission network in England and Wales, there's around 340 gigawatts contracted to connect. Over 200 gigawatts of that or about 60% is solar and storage. This is far more than we need. The demand will not be there for all that generation, and yet it continues to grow at a rate of about 1 gigawatt a day. So what got us here? Well, the reason the queue is so long is threefold. Firstly, it's really easy to get a connection. The barriers to entry are really low in terms of both cost and demonstrating project viability. In fact, it's easier to get a connection than it is to open a night club in this country. This means the pipeline has attracted large volumes of highly speculative applications. Developers likely attach to value to having that connection irrespective of its position in the queue or how likely they are to progress. Secondly, the first come, first served approach has been driving long lead times. Let me just illustrate how that works for you. If we have 5 or 6 projects wanting to connect at a substation and they're getting a lead time associated with how long it takes to add connection points to that substation. But when the seventh project comes along, that overloads the network lines, and that triggers the build of a new overhead line. You can then automatically add 10 to 15 years to the consent and planning of that overhead line. It's the piling on of projects on the back of other projects, which is driving the extraordinarily long lead times. Thirdly, holding on to your place in the queue has been too easy. There's currently no milestones for projects to meet once they're in the pipeline, slow-moving or stalled projects are able to retain their connection agreements with relative ease by just pushing back their connection dates. So even the so-called Zombie projects, the one can drive these overhead line bills and lead and contribute to these really long lead times. And there's been no mechanism to get them out of the queue. The challenge has been compounded by industry processes, which, as we mentioned, we're designed for that predictable world when generation projects had longer lead times and there was more certainty. So they're not ready for this world where huge parts of the pipeline are uncertain and some technologies can be deployed really quickly. For example, storage was being treated in a really similar way to generation in the network modeling and that was signaling more network reinforcement than was necessary. The industry processes are also still reactive to connection applications. Our work to engineer and build connections is triggered by specific connection agreements. We don't have a mechanism to anticipate what might turn up, how much and where. And without an anticipatory mechanism and hence anticipatory reinvestment, there is a lead time to connect. Especially given it's quicker to build a solar or storage project than it is to build an overhead transmission line. So what have we done so far to tackle this situation? Well, our work with the ESO has tackled the modeling of battery storage, which I just mentioned. This resulted in the acceleration of 10 gigawatts worth of battery energy storage, which is about 90% of all the projects expected to be needed for 2030. Connection dates for those projects were brought forward by an average of 4 years. Attempts to rationalize the queue have had limited success to date. An amnesty for stalled projects was held in 2023. This gave the opportunity for projects to leave without any penalty. 3 gigawatts of capacity was removed from the pipeline, but the low uptake made it really clear that more is needed to get nonviable projects out of the queue. For this reason, we felt really strongly that customers should be held meeting milestones on their projects or move backwards. And therefore, we were really pleased to see Ofgem's adoption of queue management last year, which will introduce milestones into contracts for customers that they need to hit to retain their place in the pipeline. Although we expect this to take a number of years to have a meaningful impact on reordering the queue. Longer-term reform has also been tackled, and the ESO has made recommendations for reformed connections process, which is set to go live in 2025. This will enable first ready, first connected approach for future applicants. And we're hugely supportive of the government and Ofgem's connections action plan, which was published late last year as part of a suite of grid reforms and policy recommendations. It signals an intention to raise the barriers to entry and support the connect or move approach. It also notes the government's intention for strategic demand projects to be considered an absolute priority, which is essential to the decarbonization of industry and transport. The government also supported our call for a Strategic Spatial Energy Plan, which could be the key to facilitating more anticipatory and less reactive approach to network planning. We believe this is a key role for the future system operator, and we're really keen to support this. But the reality is that the sector is moving faster than the reform, and there is more piling in the back of the queue than we are getting out, more work to reduce or reorder the queue is needed in the short term, or we will continue to hear well justified complaints about grid connection lead times. We intend to drive change through our position on the Connections Delivery Board. This is made up of representatives from government, Ofgem, industry and it provides a really influential voice to determine where further action is required. This body is exactly the cross-industry governance we need to tackle a large suite of actions from the tactical to the interim to the enduring solution. So we've talked a lot now about connections reform, but that's not the only area that we need reform to speed up connection times. As I mentioned, in many cases, the lead time for transmission projects is driven by the need for new overhead lines. And as we move from a grid built around coal seams to one built around renewable sources, we know that the level of new infrastructure needed is significant. That's why we've been advocating for changes to the planning system and to how we reward communities for their critical role in this transition. We were delighted to see these reflected in the Autumn statement as well. This included the Transmission Acceleration Action Plan, which looks to shorten the delivery of new transmission infrastructure to 7 years, a commitment to develop a Strategic Spatial Energy Plan, which has planning and consenting benefits as well as the network development ones I mentioned. Updated National Policy Statements, which are the essential planning guidelines that we work to. And a minded to position from government on community benefits associated with new infrastructure. Now all of this focus on how we accelerate the best of future projects and the reform needed can actually divert attention away from the amazing progress being made to date on connecting real clean energy projects, and I'm really proud of that work because we're connecting record amounts already today. So before I wrap up, I wanted to give you a flavor of that. 2023 was a year of really impressive first. The first stage of the world's largest offshore wind farm, Dogger Bank, was connected to our network. We connected the world's longest subsea interconnector Viking Link. We connected the U.K.'s first transmission level solar farm at Larks Green, and we connected the country's first zero-emission stability connection at Lister Drive, which is essential to allowing more connection -- more renewables to connect into the grid. We've connected 3 gigawatts of new projects in the last 6 months alone as well as progressing the connection of Hinkley Point C, the rewiring of London through our LPT 2 project and accelerating our overhead line upgrades to bring forward over 175 new green projects. In the project development space, we've made huge progress as well. We've worked intensely with local stakeholders to create regional blueprints, and we're partnering with industry to deliver the demand connections they need to decarbonize. In the last 12 months, we've developed 20 such connection sites facilitating connections for giga factories, data centers and green steel production, many of which you'll have heard about in the news. These projects have significant economic job creation potential for these sectors and for their communities. We know that grid connections will be critical to ensuring secure energy future for our country and for lowering bills for GB consumers. So there are 2 key messages you can take from today. First, the connections process must be reformed. This has started with real results, but it needs to go further and faster for businesses and society to have confidence in the energy transition. Second, the grid is changing. Over the coming decade, we must build out new transmission infrastructure at a rate and scale that has not been seen before. We need to reform to set out -- we need the reform that was set out in the Transmission Acceleration Action Plan to be implemented to maintain that pace. Early reforms are working and the right governance has been put in place, but we need to go further and faster. We're connecting at record levels today, and we need to ramp up. But with the right focus as an industry, we can stay on track to connect the projects that are needed to meet the government's 2035 decarbonization goals, and that gives us line of sight to net zero. So with that, let me hand over to Cordi to talk about electricity distribution before I come back for questions. Over to you, Cordi.

Thank you, Alice, and good afternoon, everyone. I'm really excited to be able to talk to you today about the work we're doing on grid connections in NGED, our U.K. Electricity Distribution business. We have made some great strides in this area, and I'm pleased to be able to share some of this progress today. Of course, there's more to be done and connection reform will remain a key focus area as distribution companies take a much larger role in the decarbonization of local communities, connecting low-carbon technologies and facilitating an active role for customers in the energy system. The role DNOs play today is very different than in the past. Generation connections and smart system operation was largely a transmission-only activity, whereas today, we are very active in this space too. As the U.K.'s largest distribution network operated by geography covering 1/4 of the country and serving around 25 million customers, the need for a simple and speedy connections process cannot be overstated. Over the next 5 years, we'll be investing GBP 7.5 billion in our networks to ensure reliability, build capacity and facilitate connections, all whilst developing new flexibility markets that allow smart, dynamic operation of the local system and the continued integration of renewable distributed generation. Of our GBP 7.5 billion investment, GBP 2.1 billion will be ensuring customers can connect to the network. With 75% of that connected investment focused on demand, and 25% with generation customers. Across our region, generation connections are typically small scale solar, wind and battery storage projects. Demand connections are the requests we receive from residential and industrial customers to allow heat pump and vehicle charging at home and in places of work. Before I get into the details, I wanted to land some key points on distribution connections. Firstly, we have seen an exponential increase in requests to connect generation and industrial scale demand to the distribution grid in the past 5 years. Our connections pipeline now sits at 46 gigawatts and we're enacting critical reforms to clean up the queue and connect shovel-ready projects earlier. Secondly, we continue to see a steady rise in domestic demand connections such as EV charge points and heat pumps to our grid. And that's in addition to that 46 gigawatts. Understanding consumer adoption of new technologies, the speed of uptake and the impact this could have on our networks will be critical looking forward to strategic investment. And then thirdly, and perhaps more importantly, the distribution grid is not full. We are connecting customers every day, both generation and demand, through investment in our network and by dispatching flexibility solutions via our distribution system operator function. Let's take each point in turn. As John mentioned earlier, of the nearly 400 gigawatts of projects that want to connect to the grid, 46 gigawatts sit directly in our U.K. electricity distribution pipeline. More than 3/4 of which is for solar and battery storage projects. For context, the total electricity distribution pipeline in Great Britain is 156 gigawatts. Today, we have 12 gigawatts connected to our network and our latest distribution future energy scenarios estimate that we need around 20 gigawatts of additional generation to connect in order to reach our goal of a net zero local network by 2035. So as you can see, the pipeline waiting to connect is vastly more than is what is required. In fact, it's more than double. It's therefore critical that we drive real change and are able to bring forward those viable mature projects in a timely manner ahead of the Zombie projects. Now you're likely wondering how we find ourselves in this situation while for the same reasons Alice described earlier. A legacy first come, first served approach to connections, where each new connection request takes the ticket and waits in line for their turn. Second, low barriers to entry, for example, I could take a slot in the connections pipeline today, and all I would need is a map of the proposed site. There's no requirement to demonstrate land ownership, planning or project finance in place. And third, not enough historic action to tackle Zombie projects. The sector needs to be more effective when it comes to milestone management and the removal of stalled projects, meaning there is a significant ramp that needs to be addressed now. It's clear to see the scale of the challenge that lies ahead of us, which is why collaborative action with industry, the regulator and government is critical. After extensive engagement with these stakeholders, the Energy Networks Association published the DNO 3-point plan, last spring. We were a key contributor to the formulation of the plan and the 3 immediate priority areas it sets out will allow us to unlock capacity and better support customers. To deliver the plan, we are firstly reforming the distribution network connections pipeline, promoting mature projects that are closer to delivery above those that may be stalled, blocking other customers behind them. Based on estimates issued by the Electricity System Operator, around 60% of projects fail to materialize or connect to electricity networks, which translates to a potential 27 gigawatts of our connections pipeline at the distribution level. We've already started to act on the stalled projects and have removed 45 schemes totaling over 1.2 gigawatts of volume from our pipeline this year. Second, changing how transmission and distribution networks coordinate connections to create a more streamlined and equitable customer experience for distribution customers whose projects require transmission reinforcement. We've seen some great success in this area, collaborating with Alice's team in NGED and with colleagues at the ESO, we've been able to release 10 gigawatts of additional capacity for customers in our region to come forward on non-firm contracts. And then third, giving greater flexibility for storage customers by treating storage differently. The way we've historically modeled network capacity for storage projects needs to be refined to reflect actual network usage by these asset classes. In particular, how battery storage is a complementary technology to managing peak demand and constraints on the network. We're now offering new or accelerated storage connections by making these changes. Overall, these reforms will help us release a significant amount of latent capacity in our network and facilitate earlier connections. Alongside this package, we spent time meeting and listening to some of our biggest customers and directly co-creating solutions specifically on the data and reporting they need to improve their decision-making and target their connection requests. Our new reporting suite ClearViewConnect brings together really valuable connections data and insights for customers and developers in a single, easily accessible format. It provides access to technical capacity data and information on reinforcement works at all of our grid supply points, thereby informing developers, which network area offers them the most realistic prospect of the quickest and cheapest connection. It also provides an unrealized view of the third-party projects already in the pipeline, enabling customers to see what their connection time could look like pre-application and any potential curtailment that would be required if their connection was accelerated under those new firm contracts. Now let me turn to demand connections like EV, home chargers and heat pumps. We continue to play a critical role in energizing this ever-increasing volume of applications and connections to our network. Let me add some color to this. Five years ago, we would receive around 700 connection requests a month. Today, we see around 7,000 each month. That's a 900% increase. We've connected more EVs in the last 2 years than in all previous years combined. And in fact, we have 8x more EVs on our network today than this time 5 years ago. We are seeing that growth trajectory follow through with heat pumps too, with 3x more on the network today than back in 2019. The challenge here is to ensure we can keep pace with this very large volume of small-scale connections, ensuring customers can plug into the grid easily at a time when they are ready. As well as the infrastructure solutions, we're looking at digital innovation. We're bringing new self-serve connection products to the residential market, allowing customers to complete EV applications and submit Connections case online and get an instant reply. 60% of our EV connections are now approved in 2 seconds rather than 2 days, helping us rapidly process a high-volume of these low-voltage connections. We're also taking practical steps working across industry processes. Today, we've announced a new way of working with Octopus Energy. We've signed an agreement with them that will allow them to carry out upgrade and replacement work on fuses when installing heat pumps, meaning we no longer need to resource that work and the process is sped up and simplified for customers. Connecting these assets also creates an opportunity to deepen flexibility markets, which ensures smart operation of the local grid. Our Equinox heat pump trial, which is also with Octopus is helping us to explore the potential scale of domestic flexibility that can be released using heat pump turn down schemes, and we're engaging in conversations about where vehicle-to-grid could potentially provide flexibility or even emergency power for vulnerable customers in an outage. I want to close by speaking about some of the progress we've made already in this first year of ED2 on grid connections. Over the first half of this financial year, we've connected 51 new renewable projects, 750 energy storage technologies, 7,700 EV chargers, 3,500 heat pumps and over 15,000 solar installs. Equating to just over 700 megawatts so far, we're forecasting to connect 25% more volume by the end of the financial year compared to last. In terms of our progress against the ENA connection 3-point plan, we've removed 45 Zombie projects from our connections pipeline where developers haven't met milestones, totaling 1.2 gigawatts. This is equivalent to around 10% of the new offers accepted over the last year. Of the 10 gigawatts of additional capacity released on our network by working with the ESO and transmission, we're in contractual discussions with over 200 customers for new connection dates where their shovel-ready projects can move forward to connect. It's early days, having only started this process in October, but we've already signed 4 contracts that accelerate over 150 megawatts with an average improvement in connection date of 5 years. By connecting these renewable assets, we also create the opportunity to further develop and manage a smart interoperable system. Our distribution system operator is integral to this and continues to take steps to build and utilize local flexibility. Last year, we were recognized as the biggest procurer of distribution and flexibility in the industry, and we're the first who offer products on the low-voltage network. We've had over 1.1 gigawatts of flexibility opportunities made visible and controllable through our Market Gateway platform, and we've also entered a new partnership with Piclo, a third-party market platform provider. These actions have opened flexibility opportunities to hundreds more flexibility service providers, which means over 176,000 customers can now engage in local flexibility services on our network. All this work is going to be critical as we look to the future, allowing new commercial models for customers to connect and interact with a dynamic, multidirectional and responsive local grid. Looking forward, I'm encouraged by the significant movement and cooperation we've already seen on connections reform between industry, government, Ofgem and customers. We will continue to focus on accelerating the grid reforms, taking a direct role where we are able to deliver the action needed, and working across the industry where we can influence positive outcomes for customers more broadly. With that, I'll hand you back to John to close out ahead of Q&A. Thank you.

Okay. Many thanks, Cordi. I appreciate that we've given you an awful lot of detail, but I hope it helps to give you a better understanding of what is an important and very complex issue. I'm encouraged by the progress that we've been making in conjunction with the wider industry, but the scale of the challenge ahead is significant. The good news is that we have a line of sight to net zero, as you heard from Alice. We believe there's more than enough credible projects to deliver 75 gigawatts that are needed across our networks to meet the government's target of 2035 of decarbonizing the electricity grid. So we'll continue to work with industry and Ofgem and government to push for further reforms to address the barriers, blocking timely connections, whilst in the meantime, we'll continue to do everything we can in our power to connect viable projects as fast as we possibly can. So with that, I'm going to stop there, and we'd love to take your questions first in the room, but we also have questions, I think, online as well. So we'll start with questions in the room. Go, Mark?

It's Mark Freshney from UBS. If I could ask, John, if you had a wish list of 3 things on planning that you still need -- reforms that need to be made what would they be? And my second question, and I apologize to you because I ask you this every time in a different permutation, but of the GBP 11 billion in RIIO-T2 and GBP 7.5 billion in ED2. What kind of numbers could we be looking at in your scenario analysis if some of these things play out?

Well, let's start with planning reform. So as Alice, I think we're really pleased with the progress that's been made actually and the announcements that were made is part of the Autumn statement. I think a lot of the recommendations that Nick Winser, my ex-colleague actually is the Network Commissioner made, make a lot of sense. But if I have a wish list, I guess, what we saw in the Autumn statement was an articulation of the need for a Strategic Spatial Energy Plan. And we also saw that there's going to be an obligation on the future system operator to have a centralized strategic network plan. One of the things that I think is important to sort of cut the time frame on planning is actually the national planning statements at the moment, don't have a tight connection between what's in the network plan and actually the special plan. So if I had one wish, it would be as we see future iterations of the National Policy Statement is that it's firmly linked to what the future system operator sets out the network needs. And if we have that, I think it will make the needs case for any project a lot simpler, and therefore, it will accelerate the time it takes to build transmission. So I think that is a significant sort of wish for us, and it's something that we're in dialogue and discussions with government on. I'll give one other. We were really pleased to see the government consultation on community benefits was something they intend to take forward. They're planning on setting out their framework for that this year. I think that's really important as well. Again, as you heard from Alice, there's a huge amount of infrastructure that needs to be built in communities that haven't historically hosted that infrastructure, and we think it makes a lot of sense for communities to benefit from hosting that on behalf of the whole of the U.K. So that would be our second wish is that we see that framework document pretty soon, and then we can implement that to help us on the projects we're doing. In terms of the second question, just...

On the CapEx for totex -- CapEx could go to and EV2 -- ED3 and T3...

Yes, at the moment, Mark, I mean, my position is the same as it was when we talked at the entrance. So at the moment, we're working through 3 things. The first of all is make sure we're clear about what the regulator wants National Grid to do. We're starting to get more clarity. I think I said at the interim results, the mist is starting to clear, and it certainly is, but more work to do there. Most importantly, we then need to know what the profile of that investment is, and that will be a function of some of the implementation of the policy changes the government announced as part of the Autumn statement. And then finally, of course, we need to make sure we're clear on the regulatory framework as well. And of course, we all saw the sector-specific consultation document come out in December. We look to see the decision document probably around June time, I guess. So once we've got that clarity, we will be the first to be able to articulate exactly what that means beyond 2026, and we've set out our frame up until 2026.

It's Martin Young from Investec. I got this question is for Cordi. You talked a bit about the significant increase in domestic connection request, it is plausible if somebody wants to have a heat pump, have EV, have solar that they will need an upgrade to a free phase supply at the moment, they would have to pay for that free phase supply, they'd have to pay for the restoration of their pathway or their driveway. Is there anything going on in terms of policy development that could see that cost socialized because I can potentially see us becoming a barrier to uptake at some stage.

I mean, we're continuing, obviously, to understand all the work required to deliver all of this behind the meter connections. We've got a good framework within ED2 that allows us now to target strategic reinforcement. How costs are allocated and shared will be a learning point for us as we go through the deal. But at the moment, we've got plenty of work to do that will be delivered within the GBP 7.5 billion commitment. And I think it's a watching brief on how we look at that for ED3.

It's Jenny Ping from Citi. Two questions, please. It sounds like very much the planning issue is the bottleneck. But I just wondered whether there's any other supply chain restraints, which certainly is a topic that we've talked about ASTI projects in general in terms of risks and whether that the same applies to connection. And then secondly, I was very intrigued to read about Octopus entering into the network business of late and having conversations with Ofgem. I just wondered in the context of what we're talking about today, what is your thoughts on where their value add would be and how that could sort of accelerate the whole transition to net zero.

Yes. Thanks, Jenny. Why don't I get Alice to answer the Octopus one in terms of the transmission comment made in the press recently. I mean in terms of supply chain, we've been doing a huge amount of work, obviously, on ASTI for National Grid, but for other network providers. There is a significant ratchet up in the amount of equipment that's going to be needed. So we've been focusing on the sort of key critical items for things like HVDC cables, converted stations. There is a limited capacity available, and therefore, it's really important for the supply chain to have the transparency and clarity of what that order book looks like for a long period of time. So you know that National Grid has set up its own strategic infrastructure function to be able to deliver the ASTI projects. And our focus at the moment is actually putting the supply chain in place, both for equipment, of which we will have a framework agreement with the key manufacturers but also for the contractors who actually do the physical work, and we're about in a month or so is time to announce what we're calling the enterprise agreement. We'll be looking to partner with a number of our supply chain over a very long period of time so that we can give them that transparency. So it's something that we're very mindful of. If I step back and do the 10,000 feet, answer, there is a need for incremental capacity in certain manufacturing areas such as HVDC cable, globally. And hopefully, by giving transparency to manufacturers, then hopefully, those manufacturers will start to increase capacity over time. But for us, we've gotten the framework agreements in place now. Alice, Octopus?

Octopus, yes. So the piece Octopus are interested in. We've worked really collaboratively on -- there was in fact a meeting on it yesterday. So we're really supportive of it. It's a change to the codes that would allow developers to do the last mile of direct connection for their project. And we think that has opportunity for the industry. It's an extension of mechanisms that are already in place. I think within the article and Octopus have talked about advanced modeling technologies. And those are technologies we already deploy and they are bringing real benefits to how we plan projects, so we think that adds a lot of value. But ultimately, Octopus and anyone else will find themselves subject to the same planning and consenting constraints the same community challenges. So I think it is on us all now as an industry to work on the reform that's needed and to look for every opportunity to accelerate connections.

It's Harry Wyburd from Exane. So a couple, they're both for Cordi. If I can see. So first, on the demand -- as a follow-up to Martin's question on the demand connection request, how far are we away from having a queue for demand connections? And how easy/difficult is it to spot where those might arise and I'll be quite interested to know how you manage the kind of political and public relations fall out if you couldn't connect your EV charger or heat pump because there's a queue? And then the second one, I was -- I'm very interested to see the sheer scale of the storage connection requests, it's about 20 gigawatts. And clearly, if that got built, it would have very significant implications for the way we balance and manage the grid, which should then come back again presuming other areas of distribution spend. So what do you think the chances of that anywhere near that amount getting build, can you give us a bit of an insight into how viable these projects really are? And how does that play into how you look forward in other areas of the business?

Okay. That's two good questions, I think. So on the first one, where we're doing a great job matching energization rates for demand customers as they've been rising. And it's really great to have these new digital processes that give us really good visibility to that coming through. We've also got the ability through our demand forecasting in the system operator to look at the loading of the network over time and then to look at where we might have hotspots and need to do strategic reinforcement. And we're already activating those processes between the distribution system operator into the network operator. So I think we've got -- the ED2 frame asks us to do that. We have really robust forecasting processes to determine the need and then we direct the work. So you'll see that continuous flow happening each year of ED2. So that's in hand and working. On batteries, and the queue and how many projects will come forward. I mean I thought the most compelling stat from the ESO was only 60%, if any of these go ahead. So you could already start to downsize what projects might come forward. From a distribution perspective, we see what we call sort of harmonious operation between storage and the network. So actually, with the market price signals that determine when the battery comes on and off, it's typically correlated to when we've got lots of demand on our network, we've got constraints. So we are technology neutral. We connect any viable material product that comes forward. But we are using and seeing flexibility service coming from batteries to storage.

Pavan Mahbubani from JPMorgan. I have two questions, please. Firstly, John, you spoke about the mist clearing in terms of transmission and needing to see a profile for investment. Can you give a bit more on what milestones we need to see? So is it just the centralized strategic network plan? Or is there more we need to see this year to start to get more of a line of sight on that profile? And then my second question relates to downside risks in potentially in the totex where transmission and distribution, given particularly on the distribution side, we see headlines around delays to EV targets or heat pump targets. And maybe in transmission, we might start to see because of logistical reasons being unable to hit 50 gigawatts of offshore wind by 2030. I mean do you see any downside risk to your ET2 or ED2 plans if those were to happen?

I'll let Cordi answer the second. I mean in terms of the mist clearing, I mean obviously, we've seen some stuff since the interim results, such as the second specific consultation and the tone of that was very positive, I think, but more to do in terms of the specifics of the regulatory framework. We are due to see relatively soon, I think, the transitional strategic network plan, which obviously will set out what the infrastructure to deliver decarbonization road map to 2035 looks like. And from a group perspective, obviously, in the U.S., we've got KEDLI and KEDNY going on at the moment as well. And we've just filed Massachusetts Electric, and we've also filed into Massachusetts, our plans for supporting the decarbonization and meeting the targets there. So there's a lot to be done over the next sort of 6 months or so to give us more clarity. But as I said, we're sort of stepping through that.

And then delays to sort of targets by about 5 years. We haven't really seen any material impact at all in that because actually, we haven't seen that deter the car manufacturers and growing their supply chains quite a lot of extensive innovation in heat pumps. So actually, our forecast still align to where those new supply chains and that innovation is coming from. I think we see every year a little mix variance because you can't get it on a pinhead. So we've had slightly a bit less EV this year, but even more heat pump than we were expecting. So you're going to see a little bit of mix variance. It's not material. But I think the overall -- how the heat pump innovators and the cost -- the manufacturer supply chain is working, that reflects in our forecast and meet our initial sort of projections back in July.

Deepa Venkateswaran from Bernstein. So I had two questions. I think, John, both of them are for you. So first one is on ASTI. In terms of the planning, you've got 17 projects, but you were planning on 3, I think, right now. So what are you assuming? Are you assuming any of the reforms that you mentioned in the slide coming through? Or are you assuming business as usual? And if it is business as usual, I don't see how these will come online by the end of 2030 or '31. So how are you thinking about the planning there? And secondly, the second transitional CSNP that's supposed to come, I guess, imminently. Do you expect that to again add newer projects already this side of 2030? Or would that be more post 2030. And again, I'm guessing that those projects are even early stage. So is that planning the most critical thing and maybe delays things for you and the rest of the industry? Or...

I mean with regards to the 17 ASTI projects, we've got a license obligation to now deliver them. Within that license obligation, we've made it very clear that the planning process has to support the milestones to deliver them in the time scales required. If that planning process doesn't allow us to do that, then those dates will move back, and we left neutral to that. As I said at the half year results, we are progressing the early side of those projects, and they are progressing well. So you'll probably have seen in the press that we are well getting through the sort of nonstatutory and statutory consultation for the first 4 or 5 of those projects and we will continue to do that over the course of the year. So as long as the planning process delivers the time scales that support the projects, then we will deliver them in the time scales that are in our license. Obviously, any rationalization of the planning process that's implemented is unlikely to impact on the early projects in ASTI to be blunt, the ones that we're doing now because we're already in the consultation process, but may benefit some of the later ones as we start to move them forward. But as I said, we're held neutral to it. So our focus is delivering as efficiently as possible, doing a really good job on the planning process. And then hopefully, they don't go to additional review, which can lead to significant delays, as you know. In terms of the second question, do you want to pick up on...

Yes, I can take the TCSNP. So you're right, it is expected to be published imminently, and we've been working really intensely with the other TOs and the ESOs on the options that could be included in there, what it is trying to achieve, how it supports ScotWind and finding the right balance between realistic view of what reforms will be in place when and what are the targets and the customer dates that it's trying to achieve. So it hasn't been published. It wouldn't be right for me to mention anything on specific dates, it's targeting, but it's really aiming to get that balance between deliverability and achieving the objectives that have been set out.

There's a question on the back there. Sorry, I can't see...

Ahmed from Jefferies. Two questions from my side. Maybe you could share some of your thoughts with us about the political stakeholders and the discussions you've had with them? And what are their priorities around sort of the whole grid acceleration, especially the planning process? And then just in terms of when we think through 2024, could you just sort of talk us through sort of the road map to 2024 about the sort of the planning and permitting side of things? And when do you expect to have sort of clarity so that this could be sort of the formulated into a business plan from your side?

Alice, why don't you take the planning one first. The second one.

I didn't quite get it.

Sorry, do you want to -- what's the timetable for planning reform?

The timetable for planning reform. So -- sorry, I didn't quite catch the question. So you were interested in the timetable for the planning reform being introduced. And I don't know the answer, I'm afraid, John.

Okay. Well, I think let me have a go, sorry I didn't mean that. So I think where we are at the moment is we've seen the consultations come out from the government. We've seen the report from the Commissioner come out. The question is now how quickly they implement it. So there are a number of work streams going on across the industry to actually work through how they implement the different stages of it. So something like the national planning statement actually was designated a couple of weeks ago. So that means we now have a clearer statement, which is the policy by which planning is undertaken. So that is really helpful. There is work to be done on streamlining the planning process. So in the Commissioner's report, he talked about resourcing the planning authority more effectively because of the scale of the work that's being done. And I know there's conversations going on about that. In fact, Nick Winser was at a Select Committee yesterday discussing the importance of moving that forward. We're still waiting for the framework agreement for the community benefit scheme. So that was part of this process. So that is due imminently. So you can define what that means in terms of imminently, but we hope to see that in the next couple of months. And then finally, for the ASTI projects, it's also worth just reminding people that about half of the work that we do isn't linked to the strategic sort of planning authority, but actually is at the local community level. And therefore, we need to see that streamlined as well, which is something that the government is looking to do. So I'm hopeful, I'm being vague because it's not clear, but I'm hopeful that over the next 3 to 6 months, we will see further progress on the planning reforms that are coming. And the first question, sorry, I forgot what the first question was.

Yes. Just asking if you could sort of share recent discussions with various political stakeholders on this issue.

Yes. So to be honest, there isn't much between, I'd say, the government and the Labour Party in terms of how they see both planning reform and also the need to address the connections issue, which is the focus of today. They have both set out that they want to see planning reform. They have both said that they want to reduce their time scales, and they've both been very supportive of some of the changes that were announced in the Autumn statement. So things like raising the barriers to make it harder to get into the queue, actually having milestones that people can be moved away and actually introducing the connect or move all of that. There is quite strong alignment, I think, between both the government and the Labour Party. So I don't see a huge amount of difference. I'd say labor is probably has got more ambition in terms of decarbonization of the network. They got a 2030 target. Obviously, they are conservative to got 2035 target. But actually, when you talk to them, they both recognize the importance of the reform.

Sort of just continuing on that theme in accepting that there's not too much of a difference between blue and red in terms of the ultimate ambition, still the process of going through an election will mean that the civil service enter into the period of purdah, which if we haven't got certain things over the line by that point suggests that we could have delays, how should we be thinking about the risk of delay due to the political cycle during the course of this year or perhaps the early part of next year?

Yes. I think we've always been consistent to achieve the target. It's hugely ambitious, and we will need to see a streamlining of the planning process and the policy recommendations implemented. Whether this year, 2024 results in that slowing down, I'm not seeing that yet. Interesting, we have the Secretary State come to join us in the Board in the last Monday. She was very forceful and no desire to move forward with the recommendations. And similarly, as I said, the Labour Party, if they were to win the election, they have also said that they see it as a priority going forward. So at the moment, I don't see it impacting significantly on the projects that we're moving forward. As I said, we've not assumed major changes in those early projects. Ultimately, though, we do need to do that reform if we're going to achieve the targets that have been set. I'm just going to remind people today, we really want to focus on connections. So people got some questions for Alice. And for Cordi, on connections, then please ask them. And I'm going to be around afterwards anyway, if you've got some questions about the group level that you want to ask me. Any online?

So firstly, from Marica Mansley at LAPFF. This may well be [ for all of us ]. So we'd just like to understand why it takes so long to clear projects at the front of the queue. If they're not ready, can you just move them on and get to the ones that are like about or checking ID. I think that was something maybe you talked about in your speech.

Okay. Yes, absolutely. So the issue is that currently within the contracts that they have, there isn't -- there aren't milestones that they have to meet to get out of the queue. If there -- and so that becomes real right at the front and the projects right at the front are not the issue. It's -- as soon as you get this stacking, as I described, you've already got 3, 4, they're fine. But when you pile in 6, 7, 8 at a connection point, it's that stacking that causes the long lead times. And under current mechanisms, they won't hit a milestone, they won't securities until their turn comes around, and therefore, you don't have that mechanism to get them out. But that is exactly what has been agreed in the reform. Queue management insert those milestones, puts them on the hook for demonstrating they own land early for getting their financeability proven. So that's what queue management is aiming to achieve. And that's why it's such a fundamental step and why we were really, really pleased to see Ofgem support it, and we'll have the support of the ESO in implementing it.

Perfect. And I've got one from Bartek at SocGen. And this looks like it may be for Cordi. And there's 2 parts to it. So what are the 750 storage facilities connected to the distribution grid in H1 '24. Are they all batteries or are they also different technologies? And then secondly, given the fact that you need 75 gigs to meet the energy system decarbonization target by 2035. When do you think transmission investment will peak?

Yes. So I don't have the list of every technology type. But I know it's very disappointing. But the mix, we do see some hybrid storage assets, about 20% and the 80s or so traditional battery. So that's as much as I can give Bartek, today.

Now have a look to see if we can get any more.

Yes.

The second bit on transmission investment peaking.

I think -- I mean, you can add to this, John, but I think this is actually why we really come back to the importance of the queue reform and the need for a queue full of viable projects that are achieving energy net zero ambitions because that gives you something realistic to plan to and to understand that steady ramp up and scale up the transmission network needs.

And the other thing I'd add is what I said earlier, Nick, which is we've talked before, we see waves of investment to deliver net zero over a very long period of time. Actually, things like what's the shape of that CapEx will be a function of the policy implementation on things like planning as to when it actually peaks and when it starts to get to steady state again. I think Mark's got a question there.

I have another question for you, Cordi. Just on the third-party independent connections market. Can you give us an overview of where we are on that? Because my understanding was that it was always a miss in the third parties felt they couldn't compete, you felt they weren't doing the work to the required quality. And then there was some gaming involved where people could approach third parties for quotes and approach you and it wouldn't really work. And it's been a problem for years. Can you remind us of where we are on that and whether it is a top 10 issue or actually whether it's irrelevant.

Yes, I don't have the history but of course, we do have independent connection providers. They're a route to market for customers to do their direct connection. There is a market and a series of organizations doing that work. We work with them because ultimately, they connect into our network. Once that work is done, it becomes part of our asset base. So you have to have really constructive relationships not only on timing and implications for the customer, getting the connection when they want and also ensuring the engineering quality as you take on the ownership of the asset. So I think the -- I don't know the history, but a lot of work has been done now to look at both the efficient processes for the customer when you've got those 2 parties working together and also the quality of the engineering design when you take ownership of the asset.

So I was just wondering whether charging people upfront like a deposit for connections is the easiest way to get Zombies and projects that are not viable out of the way. So is there any talk of also introducing some payments at various stages which...

Yes. So that is absolutely included in the reform proposals for future applications. The challenge is what you do with the huge queue that has already contracted and don't have that in their contracts. So it's the dealing with the retrospective is the challenge. And actually, the queue management reform that we talked about really helps with that because when you have milestones, you have to pay securities. So bringing -- so that is a really important modification to triggering payments earlier from developers and getting them on the hook but future reform will likely look at even more in that space of sort of capacity rent.

It's Marcin Wojtal from Bank of America. Can you talk a little bit on how you engage with local communities and its opposition from local residents? Is that something that is slowing down your CapEx in any meaningful way? Or how are you managing that risk?

Why don't I take this one. We have a very sort of rigorous and very well-defined process that National Grid has to follow to getting planning consent for any infrastructure that's built. It starts with extensive engagement with the local community on what are the options that are available for them to consider. We then go through what's called a statutory consultation where again, local communities are given the opportunity to see what the narrower set of options are and what the implications are. Ultimately, our obligation is to balance the engineering and technical solutions with the environmental, with the costs, with the aesthetics and to make a proposal to the planning authority, which ultimately goes to the Secretary of State and test whether we have taken a balanced view in coming forward with the proposal. So we take the consultation to local communities very, very seriously, which is one of the reasons why we've been such a big advocate for community benefits because with the rewiring that is going on, as Alice described, an awful lot of communities that haven't hosted this infrastructure in the past, particularly in the East Coast will be asked to do so, and therefore, then receiving a benefit for doing that, we think, is quite important. But is an extensive and well-defined process that we do every single project. Okay. No more questions online. Okay. Any final questions? Okay. In which case, I'm going to thank you very much for joining us today. We do really, really appreciate it. For those here in the room, you are welcome to join us for a drink behind you. And myself, Alice and Cordi will be there to continue with any discussions or any questions that you have. For those online, thank you for joining us. And I guess I'll see you all at the results in May. Thanks very much, everybody.