UK ENERGY LAW AND GRID CONSTRAINT AND CONGESTION MANAGEMENT

Meaning and Regulatory Importance

Grid constraint and congestion management concerns the legal, technical and market mechanisms used when the electricity network cannot safely transport all electricity that generators wish to produce to the locations where consumers require it. A transmission constraint is essentially a physical limitation or bottleneck in the network. NESO explains that constraints can arise where generation cannot be exported from an area because transmission capacity is insufficient, or where an area cannot import enough electricity to meet demand.

The issue is increasingly significant because renewable generation is often concentrated in locations distant from major demand centres. Congestion therefore affects electricity prices, renewable curtailment, investment decisions, network expansion and consumer costs.

Legal and Institutional Framework

The principal statutory framework is the Electricity Act 1989, under which electricity generation, transmission, distribution and supply are regulated through licences granted by the Gas and Electricity Markets Authority, operating through Ofgem.

The National Energy System Operator (NESO) manages real-time electricity system operation. Where network capacity prevents scheduled electricity flows, NESO can take balancing actions by instructing generators in constrained areas to decrease output while increasing generation elsewhere. Generators that reduce generation may receive constraint payments through the Balancing Mechanism.

Long-term congestion is addressed through transmission investment and strategic network planning. Ofgem's 2026 framework provides for the Centralised Strategic Network Plan, intended to provide coordinated long-term planning of electricity and other energy networks.

Transmission Constraint Licence Condition

A significant competition-law safeguard is Standard Licence Condition 20A of the Electricity Generation Licence, known as the Transmission Constraint Licence Condition (TCLC).

Where only a limited number of generators can resolve a local constraint, those generators may acquire temporary market power. The TCLC therefore prohibits licensed generators from obtaining an excessive benefit from Balancing Mechanism bids during transmission constraint periods. Ofgem updated its enforcement guidance in June 2024 and continued reviewing the regime in 2025.

Ofgem has also addressed repetitive re-trading by electricity storage assets during constrained periods, demonstrating how congestion regulation is evolving as batteries and other flexible technologies become increasingly important.

Case Law: SSE Generation Ltd v Competition and Markets Authority [2022] EWCA Civ 1472

Facts: SSE challenged decisions concerning the methodology governing electricity transmission charges and the treatment of congestion-management costs.

Legal Issue: The dispute included whether the regulatory definition of “congestion management” and the resulting transmission charging arrangements complied with the applicable legal framework.

Judgment: The Court of Appeal examined the lawfulness of GEMA's charging methodology and the CMA's treatment of the regulatory decision.

Legal Principle/Ratio: Electricity regulators must exercise charging and congestion-management powers consistently with the governing statutory and regulatory framework; administrative convenience cannot validate an otherwise unlawful charging arrangement.

Significance: The case directly demonstrates that congestion costs are not merely engineering questions—they are legally regulated economic costs whose allocation can be judicially reviewed.

Case Law: RWE Generation UK Plc v GEMA [2015] EWHC 2164 (Admin)

Facts: RWE challenged Ofgem's approval of changes to the methodology for Transmission Network Use of System charges. The methodology included investment required to address transmission constraints.

Legal Issue: Whether the revised allocation of transmission infrastructure costs was lawful.

Judgment: The High Court considered the regulatory methodology within the Electricity Act and CUSC framework.

Legal Principle/Ratio: Ofgem has substantial regulatory discretion in designing transmission charging arrangements, provided it acts within statutory objectives and applies rational and lawful methodology.

Significance: Congestion management can legitimately include infrastructure investment rather than relying indefinitely on payments to generators to reduce output.

Case Law: Peak Gen Top Co Ltd v GEMA [2018] EWHC 1583 (Admin)

Facts: Small embedded generators challenged Ofgem's reforms to transmission charging benefits available to embedded generation.

Legal Issue: Whether Ofgem's decision was discriminatory or failed to consider material factors.

Judgment: The High Court rejected the substantive challenge.

Legal Principle/Ratio: Ofgem may reform charging arrangements where justified by system costs, competition and efficient network operation, subject to public-law requirements.

Significance: The case illustrates the close relationship between congestion, transmission charging, distributed generation and efficient network utilisation.

Current Regulatory Development

In September 2026, Ofgem granted NESO a derogation permitting continued use of certain non-market-based Net Transfer Capacity restrictions where necessary, while requiring further review of compensation methodology and calculation policy. The derogation lasts until 30 September 2030.

Conclusion

UK grid constraint and congestion management combines Balancing Mechanism intervention, constraint payments, transmission investment, network charging, competition controls and strategic planning. The legal objective is not simply to remove physical bottlenecks, but to ensure that congestion is managed efficiently, transparently and without exploitation of temporary market power. Case law confirms that both congestion-management decisions and the allocation of their costs remain subject to statutory duties, regulatory principles and judicial supervision.