Energy Regulatory Update (UK) – July

Our energy regulatory teams across Europe provide updates to clients on a regular basis. This newsletter contains a selection of recent UK news items of relevance to the energy transition and more generally to the energy and natural resources sector. It identifies developments of a policy or regulatory nature considered to be of interest by the contributors.

 

THE REMA SUMMER 2025 UPDATE INCLUDING THE DECISION ON ZONAL PRICING

The Review of Electricity Market Arrangements (REMA), which started in 2022, has been considering how market arrangements may need to change to ensure that generation resources can be used most efficiently in the future. The key issue for decision this summer was whether to: (i) introduce a zonal pricing model, splitting the wholesale electricity market into several zones across Great Britain (GB), where electricity prices vary by zone; or (ii) proceed by way of a reformed national pricing model, retaining a single GB-wide price in the wholesale electricity market.

On 10 July 2025, the Department for Energy Security and Net Zero (DESNZ) published a press release headed 'Government sets out reform to create a fair, secure, affordable and efficient electricity system', together with the 'Review of electricity market arrangements (REMA) summer update, 2025' (REMA Summer Update). These publications set out the government's decision, which is to reform the national pricing system (rather than adopt zonal pricing) by introducing a package of measures to address the current misalignment between where GB's renewable energy is generated and the availability of transmission assets to get the power to consumers.

This approach (i.e.. reforming the national wholesale electricity market) is considered preferable to introducing zonal pricing which, it is stated in the update, would create unnecessarily high instability and uncertainty around future prices and zonal boundaries, which investors have advised they would find difficult to price, and which would be passed onto consumers in higher prices.

 

SIZEWELL C FINAL INVESTMENT DECISION

The Sizewell C project is for the construction and operation of a new twin reactor nuclear power facility close to the existing Sizewell B facility on the Suffolk coast, deploying two European Pressurised Reactors with total planned 3.2 GW capacity. The project’s construction will benefit from efficiencies gained through replicating many aspects of Hinkley Point C’s design (the ongoing Somerset-based project) and can draw on the existing common supply chain and expertise shared with that site.

On 22 July 2025, DESNZ issued a press release headed 'Sizewell C gets green light with final investment decision'. This reports that the Energy Secretary had that day signed (for the British government) the final investment decision (FID) for the Sizewell C project (note: Sizewell C Limited is a designated nuclear company under the Nuclear Energy (Financing) Act 2022).

The government, one of the two existing shareholders, has confirmed it will take an initial 44.9% stake (which means it will be the single biggest equity shareholder in the project).

The other existing shareholder, EDF (the original project sponsor / developer), will take a 12.5% stake in the project (as first announced on 8 July 2025).

The new shareholders in Sizewell C will be:

• La Caisse with 20%;
• Centrica with 15%; and
• Amber Infrastructure with an initial 7.6% (on behalf of International Public Partnerships Limited).

This comes alongside a proposed GBP5 billion debt guarantee from France’s export credit agency, Bpifrance Assurance Export, to back the nuclear company’s commercial bank loans (see below).

The National Wealth Fund (NWF) (which is the government’s principal investor and policy bank) is to make its first investment in nuclear energy. It will provide the majority of the project’s debt finance, working alongside Bpifrance Assurance Export.

 

CONNECTIONS REFORM

Under the National Energy System Operator's (NESO's) reformed grid connections process, known as TMO4+, which was approved by Ofgem on 15 April 2025, it will be projects that meet the readiness and strategic alignment criteria (as per NESO’s Gate 2 methodology) that are prioritised in the reformed connections queue. Developers, including for interconnection and grid-scale battery projects, are required (under the TMO4+ process) to demonstrate key milestones, including possession of exclusive land rights and planning consents to obtain and retain Gate 2 connection agreements. Projects will be allocated connection offers within the permitted capacity of the relevant designated strategic document (initially this is to be the Clean Power 2030 Action Plan, and in future it is likely to be the Strategic Spatial Energy Plan). Those projects that do not meet the readiness or strategic alignment criteria will be placed in Gate 1, which means they will not receive a confirmed connection date but will have the opportunity to reapply through future application windows for a Gate 2 status or, alternatively, to terminate their connections request.

On 8 July 2025, NESO published a news item headed 'Clean energy projects to be prioritised in grid connections reform as evidence window opens'. This reported that on 8 July NESO opened its connections reform evidence submission window for the one-off 'Gate 2 to Whole Queue' (G2WQ) exercise applicable to those in the existing connections queue but who have not yet connected to the grid. Originally, the G2WQ evidence submission window was to have remained open until 29 July 2025, but, by way of a notification on 16 July and an update on 25 July, the window has been extended by NESO, with NESO to give ten working days’ notice before the evidence submission window closes, and with that notice to be issued no earlier than 4 August 2025. For further information, see NESO's 'Update on Connections Reform process' – this notes that distribution network operators (DNOs) have agreed to mirror NESO’s arrangements for an extension – and refer to NESO's 'Evidence handbook and other G2WQ submission resources'.

The Final Modification Report on introducing a Progression Commitment Fee to the Gate 2 connections queue was published on NESO's CMP448 page on 4 July 2025, with implementation (if approval is given) scheduled for quarter 4 of 2025. As noted in the Final Modification Report, the CMP448 proposal needs to be implemented prior to Gate 2 offers being issued, and applied to all projects between their acceptance of the project’s Gate 2 offer and 'Milestone 1'. Only then will it be able to fully achieve its intent. The issue, as noted in the summary in the Final Modification Report, is that the reformed connections process may not sufficiently incentivise developers of projects which have become unviable to exit the connections queue in a timely manner – the CMP448 proposal will, if approved by Ofgem, establish a framework to introduce an additional financial requirement (the Progression Commitment Fee) on generation and interconnector developers, if needed, and a mechanism for its potential activation to provide such an incentive to exit.

 

CONTRACTS FOR DIFFERENCE – REFORMS AND ALLOCATION ROUND 7

On 15 July 2025, DESNZ announced the publication of the second and final government response to the proposals that were contained in the consultation on reforms to the contracts for difference (CfD) scheme for allocation round (AR) 7 as published by DESNZ on 21 February 2025. The first and initial response to that consultation, as published on 6 May 2025, concerned legislative proposals (i.e.. the elements of the consultation proposals that require secondary legislation / regulatory amendments) - this first response and the CfD amendment regulations detailed below are connected. The response of 15 July 2025 concerns all policy proposals not addressed previously and is headed 'Government response to the policy proposals in the consultation on further reforms to the Contracts for Difference scheme for Allocation Round 7'.

The summary of the government's decisions following the consultation is set out on page 7 of the above response document. Those decisions include (amongst others): (i) implementing the proposal to relax eligibility requirements to allow fixed-bottom offshore wind projects to apply for a CfD while awaiting full planning consent. The government has decided to adopt an amended eligibility threshold, so that 12 months must have passed between the project reaching the relevant planning stage and the CfD application deadline; (ii) using new regulatory powers to change the information the Secretary of State uses to inform the final budget. For fixed-bottom offshore wind, the budget will be published before the sealed bid window; only bid information on projects that breach the budget level will be viewed by Secretary of State; and a budget increase will only be considered if there is a benefit to consumers; and (iii) increasing the length of new CfD contracts from 15 to 20 years for fixed-bottom offshore wind, floating offshore wind, onshore wind and solar technologies.

The Contracts for Difference (Miscellaneous Amendments) (No. 3) Regulations 2025 (No. 903) (Amendment Regulations) were made on 21 July 2025, and came into force on 22 July 2025. They were published with an explanatory memorandum. The Amendment Regulations amend the Contracts for Difference (Allocation) Regulations 2014 (No. 2011) and the Contracts for Difference (Electricity Supplier Obligations) Regulations 2014 (No. 2014). The amendments fall into three categories: (i) amending the Contract Budget Notice publication process; (ii) amending the information the Secretary of State has access to during the allocation round; and (iii) amending the Low Carbon Contracts Company calculations to include Clean Industry Bonus payments. All of the above amendments are made in support of policy changes to the CfD, as outlined (with the policy and legal contexts) in the explanatory memorandum. They are expected to be implemented before the contract application window opens for allocation round 7 on 7 August 2025.

On 23 July 2025, DESNZ published its response to the technical amendments consultation launched on 27 May 2025 regarding potential eligibility changes for AR7. The government's decision is to implement the necessary contract changes - this concerns amendments to the CfD Standard Terms and Conditions.

Allocation round 7 timelines

The AR7 Timeline page on the CfD Allocation Round Resource Portal gives:

• a link to the timeline for non-offshore wind technologies (i.e.. all eligible technologies other than offshore wind). The allocation round for these technologies is being referred to as AR7a – this was established on 23 July 2025; and
• a link to the timeline for offshore wind technologies (i.e.. fixed bottom offshore wind and floating offshore wind). The allocation round for these technologies is being referred to as AR7 – this was established on 12 November 2024.

Statutory notices for CfD allocation round 7

On 23 July 2025, DESNZ published:

• an Allocation Round Notice (this is for AR7a – see above), a Contract Framework Notice and the Pot and Price Notice for AR7 / AR7a – these are on DESNZ's CfD AR7 statutory notices page;
• the final Contract Allocation Framework for AR7 / AR7a, which sets out the rules for allocation round 7 and the eligibility requirements for applicants – this is available (with other documents) on DESNZ's CfD AR7 allocation framework page; and
• the CfD AR7 administrative strike prices methodology, available on DESNZ's administrative strike prices methodology page.

On 24 July 2025, DESNZ published on its CfD AR7 statutory notices page the following in respect of allocation round 7:

• the CfD Counterparty Costs Notice – this is made further to regulation 7(6) of the Contracts for Difference (Standard Terms) Regulations 2014 (as amended);
• the Application Window Notice – this is made further to regulation 4A of the Contracts for Difference (Allocation) Regulations 2014 (as amended) – the application opening date for AR7 and AR7a is 7 August 2025 (with an application closing date of 27 August 2025 in both cases); and
• the Standard Terms Notice – this is made further to regulation 9 of the Contracts for Difference (Standard Terms) Regulations 2014 (as amended) and is given to the Low Carbon Contracts Company (as the CfD Counterparty). It applies to AR7 and AR7a.

Final CfD contract documents

Also on 24 July, DESNZ published its 'Contracts for Difference (CfD) Allocation Round 7: standard terms and conditions' page which provides links to the final versions of the CfD Standard Terms and Conditions, the front-end generic CfD Agreement, and the various contract variants, in each case for CfD allocation round 7.

For further information on CfD allocation round 7, and ongoing updates, please visit the CfD Allocation Round Resource Portal. See also DESNZ's 'Collection: CfD Allocation Round 7'.

 

OFFSHORE WIND DEVELOPMENT

On 22 July 2025, the Department for Environment, Food & Rural Affairs (DEFRA) announced the opening of the 'Consultation on Offshore Wind Environmental Compensatory Measures Reforms'. The reforms are intended to provide more clarity on requirements for environmental compensation when unavoidable damage to a Marine Protected Area (MPA) occurs during offshore wind development. DEFRA proposes introducing a more flexible and pragmatic approach to compensation which includes broadening the range of measures that can be used as compensation, whilst protecting the marine environment. The proposed environmental compensatory measures reforms (ECMR), as set out in DEFRA's document 'Consultation: offshore wind environmental compensatory measures reforms' (Consultation Document), will be delivered using powers granted under the Energy Act 2023 (see Chapter 1 of Part 13), through a statutory instrument and associated guidance. As noted at numbered paragraph 67 of the Consultation Document, section 293 of the Energy Act 2023 gives the Secretary of State powers to make provisions in relation to environmental assessments and compensation measures for relevant offshore wind activities. ECMR would use these powers, bringing forward secondary legislation and associated guidance which amend the Habitats Regulations to make it easier and quicker for offshore wind developers to access the wider range of compensatory measures. Please refer to the Consultation Document for further information.

 

EARLY COMPETITION IN ONSHORE ELECTRICITY TRANSMISSION

On 2 July 2025, Ofgem published its 'Decision and updated policy position on the onshore electricity transmission Early Competition commercial framework'. This document, which followed Ofgem's consultation of 21 October 2024, summarises Ofgem's policy position on NESO's proposals for the commercial framework for the early competition (EC) regime. The EC commercial framework refers to the arrangements that will apply to a competitively appointed transmission owner (CATO) to finance, build, operate and maintain assets on the onshore electricity transmission network.

On 30 July 2025, Ofgem published a letter headed 'Ofgem response to NESO's request to competitively tender a component of WCN2 through onshore early competition in electricity transmission'. This notes how, in November 2024, NESO made a request to competitively tender a sub-component of the project WCN2 (new double circuit between North West England and South West Scotland) as the first project to be tendered through the new onshore early competition framework in electricity transmission. The Electricity (Early-Model Competitive Tenders for Onshore Transmission Licences) Regulations 2025 (Tender Regulations) were not in force at the time of the above tender request; however, it was a request for WCN2 to be tendered once the Tender Regulations had come into force, which they did on 25 April 2025.

The tender request by NESO (as delivery body) was made in accordance with section 6(1) of the Tender Regulations, and Ofgem’s assessment of the tender request was also undertaken in accordance with the Tender Regulations. Under section 6(2) of the Tender Regulations, upon receipt of a tender request, the role of the 'Authority' (i.e.. Ofgem) is to determine whether the request relates to a ‘qualifying project’ in accordance with section 6(3) of the Tender Regulations, which requires the Authority’s satisfaction that each requirement specified in paragraph 1 of Schedule 1 is met. Schedule 1 of the Tender Regulations requires NESO to demonstrate how a project has met each criterion as stipulated in the Electricity (Criteria for Relevant Electricity Projects) (Transmission) Regulations 2024 (Criteria Regulations).

Following assessment of NESO’s request to competitively tender a component of WCN2 through onshore early competition, Ofgem's decision is that it is not satisfied that each requirement specified in paragraph 1 of Schedule 1 of the Tender Regulations has been met, and, therefore, it does not consider WCN2 to be a qualifying project for onshore competition in accordance with section 6(3) of the Tender Regulations.

See the decision letter for further information and for Ofgem's reasoning vis-à-vis the Tender Regulations and Criteria Regulations. Ofgem is continuing to work with NESO towards the ambition of identifying a suitable first project, and subsequent pipeline of future projects, for delivery through onshore early competition.

 

OFFSHORE TRANSMISSION OWNER (OFTO) REGIME

On 10 July 2025, Ofgem published its decision relating to the consultation of 11 December 2024 on a number of issues relating to the 'End of Tender Revenue Stream' (EoTRS) in order to finalise how it expects the offshore transmission owner (OFTO) regime to work in practice for projects nearing the end of the original tender period. The consultation also asked questions on the length of the 'Tender Revenue Stream' (TRS) and whether it should be extended past the current term of 25 years, and on extending the 'Generator Commissioning Clause' and the consequential impacts for the tender period. Section 1 of the decision document of 10 July sets out Ofgem's decisions on the outstanding policy questions relating to the EoTRS; and section 2 gives Ofgem's decisions on the potential advantages and disadvantages of extending the duration of the original TRS term.

On 14 July 2025, Ofgem announced the launch of a consultation under the heading 'OFTO: further evolution of a mature asset class'. This relates to further changes to improve the efficiency of the tender process for the OFTO regime, alongside changes to reflect the technical advancement of wind farms. The introduction to the consultation document sets out the background to the policy thinking and what is being consulted on, with the detail on the consultation topics following in section 2 (HVDC availability), section 3 (Control of OFTO assets), section 4 (Extension of the Generator Commissioning Clause) and section 5 (Bidder Incentive Mechanism). Following receipt of responses to this consultation, Ofgem will issue its decisions on the issues later in 2025.

On 15 July 2025, Ofgem gave notice, pursuant to regulation 12 of the Electricity (Competitive Tenders for Offshore Transmission Licences) Regulations 2015 (No. 1555), of its intention to commence a tender exercise in respect of the Dogger Bank C, the East Anglia THREE and the Inch Cape offshore windfarms. The notice document states that the intention is for the tender round (TR) in respect of these three projects to commence on 2 September 2025 - this will be TR13.

 

HYDROGEN

On 23 July 2025, DESNZ announced the publication of its Hydrogen Update to the Market, July 2025, which summarises progress in the first half of 2025 in the delivery of a low carbon hydrogen economy, and looks forward to upcoming opportunities. This states that the government intends to publish a revamped UK Hydrogen Strategy in the autumn of this year. As noted in the conclusion, the Hydrogen Allocation Rounds (HARs) will keep driving low-carbon hydrogen production in the UK, backed by the Hydrogen Production Business Model (HPBM). In 2026, DESNZ aims to launch the first rounds for the Hydrogen Transport and Storage Models and the new Hydrogen to Power Business Model. And from 2031, DESNZ will aim to roll out the UK’s first regional hydrogen network, enabling local production, storage, and transport of low-carbon hydrogen to power key sectors.

DESNZ published a press release on the same day headed 'Jobs unlocked as first wave of hydrogen projects sign contracts'. This reports that 10 projects from HAR1 (the first phase of the government's hydrogen programme) have signed long-term Low Carbon Hydrogen Agreements and can now begin construction. The 10 projects in question are detailed in the table in the 'Notes to editors' in the press release. The Low Carbon Hydrogen Agreements are available on the 'HAR1 Low Carbon Hydrogen Agreements and the relevant Standard Terms and Conditions' page of the Low Carbon Contracts Company (LCCC). The LCCC is the Hydrogen Production Counterparty for the purpose of the Low Carbon Hydrogen Agreements (it is pursuant to regulation 6 of the Hydrogen Production Revenue Support (Directions, Eligibility and Counterparty) Regulations 2023 (No. 1419) that Low Carbon Hydrogen Agreements are published by the LCCC). Low Carbon Hydrogen Agreements are referred to in Part 2 of the Energy Act 2023 as “hydrogen production revenue support contracts” – see section 65. HAR projects access revenue support from the HPBM via the Low Carbon Hydrogen Agreement (which is a revenue support contract), and capital expenditure support via the Net Zero Hydrogen Fund.

 

OFGEM PRICE CONTROLS – RIIO-3

On 1 July 2025, Ofgem launched a consultation document entitled 'RIIO-3 Draft Determinations Overview Document'. This relates to the next set of price controls for the electricity transmission (ET), gas distribution (GD) and gas transmission (GT) sectors, which will cover the five-year period from 1 April 2026 to 31 March 2031 (RIIO-3) (RIIO stands for Revenues = Incentives + Innovation + Outputs – it is Ofgem's framework to ensure that the monopoly companies operating the gas and electricity networks have sufficient revenue to run and invest in networks). In December 2024, the network companies in the above sectors submitted their RIIO-3 Business Plans to Ofgem for assessment. The consultation document, and the other documents published alongside it, set out Ofgem's draft determinations for the RIIO-3 price controls. The current electricity and gas transmission and gas distribution price controls (known as RIIO-2) end on 31 March 2026. This was followed on 30 July 2025 by the launch by Ofgem of a related consultation headed 'RIIO-3 Initial Licence Consultation' – this sets out for comment the proposed licence conditions required to implement the RIIO-3 price control settlement for the ET, GD and GT sectors.

 

CAPACITY MARKET

On 15 July 2025, DESNZ published a letter to NESO (in its capacity as the Capacity Market Delivery Body) dated 8 July 2025 setting out the Capacity Market auction parameters for the T-1 auction for the 2026 to 2027 Delivery Year, and the T-4 auction for the 2029 to 2030 delivery year.

On 25 July 2025, Ofgem published its decision letter on Capacity Market rule change proposal CP388, setting out Ofgem's decision on changes to the Capacity Market Rules pursuant to Regulation 77 of the Electricity Capacity Regulations 2014. This decision follows its statutory consultation on CP388 launched last month. The decision is to proceed with the proposal to amend the Capacity Market Rules so that assets with an existing grid connection agreement with a connection date beyond 1 October 2029 that have submitted evidence to NESO to request a revised connection date beginning on or before 1 October 2029 in case of receipt of a Gate 2 offer (i.e.. a connection date advancement via the TMO4+ process), can conditionally prequalify specifically for the T-4 Auction for the 2029/30 Delivery Year (TMO4+ is the package of measures approved by Ofgem in April 2025 which reforms the existing connections queue). The above Capacity Market Rule changes will come into effect from the opening of the 2025 prequalification submission window.

The Electricity Capacity (Amendment) (No. 2) Regulations 2025 (No. 917) were made on 22 July 2025, coming into force on 23 July 2025 – they were published together with an explanatory memorandum. The instrument amends the Electricity Capacity Regulations 2014 (CM Regulations) in order to make technical amendments to the Capacity Market aimed at introducing a decarbonisation pathway for unabated gas. Unabated gas plants with Capacity Market agreements of up to 15 years will be allowed to exit from their agreements before the scheduled end date without penalty and transfer to a bespoke support mechanism under a Dispatchable Power Agreement (DPA) (which, outside of the Capacity Market, the government intends to enter as a type of contract for difference). The DPA will enable unabated gas to decarbonise by retrofitting carbon capture equipment, aligning with the government’s objective of a transition to clean power. This instrument also makes miscellaneous revocations to provisions in the CM Regulations, the Electricity Capacity (No.1) Regulations 2019 and the Electricity Capacity (Amendment etc.) (Coronavirus) Regulations 2020. The territorial application of this instrument is Great Britain.

 

GREENHOUSE GAS REMOVALS AND THE UK ETS

On 21 July 2025, DESNZ published the responses to three consultations on the proposed expansion of the UK Emissions Trading Scheme (UK ETS). These include the publication of 'Integrating Greenhouse Gas Removals in the UK ETS: Main Response'. In this, the UK ETS Authority sets out further detail on the design of the UK ETS market for greenhouse gas removals (GGRs), including how GGRs will be integrated into the scheme and the safeguards that will apply. This forms a key step in building a long-term, robust market for high-integrity removals in the UK. The other two responses relate to waste and maritime.