UK: Energy and connections updates

Clean Power 2030

On 13 December 2024, the UK government published its report: “Clean Power 2030 Action Plan: A new era of clean electricity”, setting out its pathway to a clean power system.  Considering a number of topics relating to the delivery of clean power, the report recognises three of the biggest challenges in the UK’s efforts to achieving clean energy:

• maintaining a secure and affordable energy supply in an increasingly unstable world;
• creating new industries and investment around the country; and
• protecting the environment from the most damaging effects of climate change.

The report outlines the government’s ambitions for 43-50 GW of offshore wind, 27-29 GW of onshore wind, and 45-47 GW of solar power, complemented by flexible capacity and reducing reliance on fossil fuels.  Key focus areas of the action plan to achieve clean power include planning and consenting, long and short duration flexibility, reforming electricity networks, connections and markets, and supply chain and workforce.  These areas are all reflected across the energy sector, including in relation to grid connection reform, the review of electricity market arrangements and the hydrogen sector.  For more on these particular developments areas, please see below.

Looking to the future and implementation of the Clean Power 2030 Action Plan, the UK government is keen to leverage the UK’s industrial expertise.  This has already been seen in the development of offshore wind technologies and is being further evidenced in the hydrogen sector, learning lessons from the UK’s extensive oil and gas expertise.  Supporting the delivery of the system as a whole will be a priority for the government, with a Clean Power 2030 Unit taking a whole system approach, tracking power generation, transmission and distribution infrastructure, and focusing on flexibility of power production.  Sharing data and experiences from across government and the clean energy sector will be critical to the success of the delivery of clean power infrastructure, alongside efforts to proactively plan and coordinate supply chain and workforce delivery.  Collaboration is key, and the action plan sets out the envisaged roles for the devolved governments, and power sector actors, such as Ofgem and industry, to enable the UK to achieve its Clean Power 2030 ambitions.

Grid connection reform

Since its formation on 1 October 2024, the National Energy System Operator (NESO) has kept the UK energy industry busy with numerous updates on its proposals to improve the grid connections queue.  In our earlier briefing, Connections, Reform and Clean Power, we looked at NESO’s advice to the UK government on Clean Power 2030 (ahead of the Clean Power 2030 Action Plan), and the consultations on connection methodologies and the proposed Capacity Commitment Fee.

In December, NESO continued to move forward with proposals for connections reform, proposing that certain categories of projects could be deemed to have met strategic alignment under the Gate 2 criteria, provided they could evidence the following by the close of the Gate 2 to whole queue evidence submission window (to the extent relevant):

• submitted an application for planning consent before the date NESO submitted its final connections methodologies proposals to Ofgem (this was 20 December 2024 – see further details below) and secured planning consent by the close of the Gate 2 to whole queue evidence submission window;
• been awarded a Contract for Difference;
• obtained a Capacity Market contract;
• received an Ofgem cap and floor or merchant route regulatory approval for interconnector or offshore hybrid assets projects.

Any projects satisfying the criteria must still meet the readiness element of the Gate 2 criteria to proceed. 

On 20 December 2024, NESO confirmed that it had submitted its package of “ambitious connections reform actions” to Ofgem for approval.  These include the proposals on the Gate 2 Methodology, Project Designation Methodology and Connections Network Design Methodology.  Ofgem’s decision on the package of proposals is expected during Q1 2025, with the intention that the evidence submission window will open in Q2 2025 (subject to Ofgem approval) where existing projects in the connections queue will be invited to submit evidence to the ‘Gate 2 to Whole Queue’ process.

The grid connections developments have continued into 2025, with NESO announcing a series of new transitional measures to be implemented to facilitate the implementation of TMO4+.  We have published a separate briefing on these measures (UK: NESO updates connection reform proposals), but in summary NESO implemented a ‘pause’ on accepting and processing new applications on 29 January 2025.  The ‘pause’ period will continue until TMO4+ is implemented (or Ofgem decides that it will not be proceeding) and will apply to all new, modification, BEGA, BELLA, and Project Progression applications.  Distribution Network Operators will continue to process new applications and issue offers during this period, but will not submit any Project Progression applications to NESO.

It is important to note that the ‘pause’ period will not apply directly connected demand projects (ie transmission demand projects), and developers of such projects may continue to submit new applications until 21 March 2025.  In order to receive an offer from NESO, such applications must also be ‘clock-started’ by 4 April 2025. 

There are limited exceptions to the ‘pause’. We have set out the detail of these exceptions in our separate briefing referred to above.

Review of Electricity Market Arrangements (REMA)

The Department for Energy Security and Net Zero (DESNZ) published two documents in December 2024 relating to the Review of Electricity market Arrangements (REMA): a summary of responses received to the second REMA consultation; and the Autumn update on the programme.

Second consultation: summary of responses

The second REMA consultation ran from March to May 2024, and the UK government has reviewed and summarised the responses received.  The second consultation focused on a narrower range of options to deliver an electricity market framework that will work for businesses, industry and households.  The summary document demonstrates how the options from the first REMA consultation have progressed, as set out in the Autumn 2024 update document, and indicates which options DESNZ proposed to discount after the second consultation.  The discounted options include nodal pricing, balancing at a local then national level, and pay-as-bid price formation. 

The responses also highlight the importance of getting the approach to legacy arrangements and compatibility between the options right, with many respondents urging DESNZ to undertake a ‘whole-system’ analysis, and to align REMA with wider initiatives, such as the retail electricity market, the Strategic Spatial Energy Plan, and the Centralised Strategic Network Plan. 

REMA Autumn 2024 update

The Autumn 2024 REMA publication provides an update on REMA options development and the assessment being undertaken, confirming that no decision has yet been taken between zonal pricing or reformed national pricing, with both options remaining under equal consideration.  The number of options being considered has, however, been narrowed down further. 

The update seeks to address some of the concerns raised in the responses to the second consultation around alignment and compatibility with wider initiatives, referring specifically to the Clean Power Action Plan 2030, and how this sets the scene for delivering longer-term electricity market reform through REMA.

DESNZ has confirmed its intention to conclude the policy development phase of REMA mid-2025, to align with the timetable for the next Contracts for Difference allocation round (AR7).  The Department will engage with stakeholders, particularly on the practicalities of how either zonal pricing or reformed national pricing could best work, including in relation to transitional or legacy arrangements.

Whilst there is support for zonal pricing from certain market participants (eg some energy suppliers and academics), a significant number of market participants are concerned about this aspects of REMA, particularly owners of generation projects and offtakers, as this change threatens to undermine investment in new projects and upset existing contracts or cause them to be re-opened.

Hydrogen

Hydrogen continues to be a hot topic in the energy sector, and had its fair share of key developments toward the end of 2024.  For a summary of the announcements made for the hydrogen industry, and a look to potential developments in 2025, see our briefing: UK: Latest hydrogen developments and what’s next for hydrogen in 2025 | Eversheds Sutherland.

Long-duration energy storage (LDES)

Following confirmation by the UK government in October 2024 of its intention to introduce cap and floor support for long-duration energy storage (LDES) (see our briefing: Cap and floor support confirmed for long-duration energy storage), Ofgem launched a call for input in December explaining what Ofgem intends to do in relation to implementing the cap and floor regime to encourage investment in LDES.  It also outlines a timeline for delivery.  The call for evidence, which closed on 9 January 2025, invited input to help shape the final plan and ensure that Ofgem is able to decide on approved LDES projects by mid-2026. 

Ofgem has confirmed that it will publish a joint technical document with DESNZ during Q1 2025, setting out the details of the LDES cap and floor regime, and the allocation and eligibility criteria for approving projects.  Following this, the application window for projects wanting to benefit from the cap and floor regime is intended to open in Q2 2025.  Whilst this provides strong signals that support will be available, a lot of key detail is still awaited to enable projects to meaningfully progress.