Go to ElementalDefs.XML and try changing the line

<PlayerStartingPopulation>30</PlayerStartingPopulation>

to have a different number (such as 50, the required population for a level 2 city) inside the tags, and see if that works. I don't know if it'll have any effect on subsequent cities, nor do I have an idea of where you'd look to change the starting population for those.

What you want is to mess with city hubs. You can set the city hub types a faction creates when a sovereign or pioneers use the 'build' command.

See this thread where Primal Savage helps me out

Try setting that faction's hub type to the conclave, fortress, ortown - but then you can only build the one city type you choose!

Alternative solution is to create a spell that gives you 50 population instantly (This gamemodifier would be found in the quests xml, look for the quest that allows you to add population to your capital).

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Looks like this should be changed for this:

<SelectedAbilityBonusOption>Test1001</SelectedAbilityBonusOption>

Anyways, it levels up to level 2 but it does not trigger the levelling script.

Yep - you're right, it does seem to work quite well. Thanks again.