Gate 2, Grid Queues and the 90GW BESS Backlog: Could Grid Reform Trigger a Wave of Energy Sector Restructuring?

The UK’s energy transition has a problem, although perhaps not the one many expected.

For years, developers struggled to secure grid connections. Today, the challenge is that the connections queue contains far more projects than the system is expected to need. Battery storage is a particularly stark example, with the capacity of projects progressing through the connections process significantly exceeding the level anticipated to be required under Clean Power 2030. Put another way, there are more than three times as many battery projects waiting for connections as are likely to be required.

To tackle this, the industry has introduced a reformed connections process, including Gate 2, designed to prioritise projects that are sufficiently advanced and strategically aligned with the UK’s energy needs. Alongside this, proposals for additional financial commitments could require developers to put more capital behind projects in order to retain their position. If introduced, this could materially change the economics of holding development-stage projects.

Most of the debate has focused on improving the efficiency of the grid connection process. However, there could be a much bigger consequence: pressure on developers, investors and lenders that leads to restructuring activity across the sector.

The End of “Holding a Place in the Queue”

Until now, securing a grid connection has often been seen as an asset in its own right.

Developers could secure land, obtain a grid position and then spend time seeking planning permission, funding or a buyer. Keeping a place in the queue was relatively inexpensive compared with the potential future value of the project.

If developers are required to commit meaningful sums of money to retain their position, that changes.

Projects that lack funding, planning certainty or a clear route to construction may become much harder to justify. Developers will have to decide whether a project is worth backing with real capital or whether it is time to walk away.

Tough Choices for Developers

Many developers operate portfolios containing numerous projects, fully expecting that only some will ever reach construction.

That model works when the cost of holding a project is low. It becomes more difficult if every project starts requiring additional capital simply to remain in the queue.

Smaller developers may feel this most acutely. Many have already invested heavily in land agreements, planning work and development costs. If a project loses its place in the queue, or becomes too expensive to maintain, the value of that investment could fall sharply.

Investors and lenders may also need to reassess how they value development projects. For some schemes, a significant part of their value is linked to their grid connection position. If that position is lost, delayed or becomes costly to retain, valuations could come under pressure.

Could This Create Financial Distress?

The renewables sector has benefited from strong investor appetite for many years. However, conditions have become more challenging.

Adding another funding requirement could become the tipping point for some businesses.

As a result, we may see developers selling projects to generate liquidity, reducing the size of their portfolios and focusing only on their strongest opportunities. The sector may also experience greater consolidation as larger, better-funded players acquire assets from those under financial pressure. At the same time, businesses may seek additional funding, refinance existing facilities or attract fresh equity investment to support their development pipelines. Where funding cannot be secured, some developers may ultimately need to pursue formal restructuring or insolvency processes.

For restructuring professionals, this could represent a significant shift. Future distress may not be limited to individual projects. Instead, it could affect groups holding large portfolios of development-stage assets whose value depends heavily on their position in the grid queue.

Not All Bad News

There is another side to the story.

A queue made up of projects that are genuinely capable of being built should improve the overall efficiency of the market. Well-funded developers could benefit from faster connection dates as weaker or speculative projects fall away.

There may also be opportunities for investors. Projects with planning consent, secured land rights and significant development work behind them could become available at attractive prices if existing owners struggle to fund them.

The key challenge will be identifying which projects are suffering from short-term funding pressures and which are unlikely to be viable at all.

Looking Ahead

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