Energy Regulatory Update (UK) – August

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.

 

CONTRACTS FOR DIFFERENCE SCHEME

On 7 August 2025, the application window opened for allocation round 7 (AR7) of the contracts for difference (CfD) scheme for low carbon electricity, a successful outcome to which is important in terms of the government's Clean Power by 2030 objective and its mission to make the UK a clean energy superpower. The window closed on 27 August 2025. Updates on AR7 and the AR7 timelines (for offshore wind technologies and other technologies) are available on the CfD Allocation Round Resource Portal. For further information on the scheme, please see the 'Collection: CfD AR7' page of the Department for Energy Security and Net Zero (DESNZ) and the 'Contracts for Difference' page of the National Energy System Operator (NESO).

On 23 August 2025, DESNZ announced an open consultation titled 'The Contracts for Difference Clean Industry Bonus: Consultation on regulatory reform for Allocation Round 8'. This relates to proposed regulatory reforms to the Clean Industry Bonus (CIB) scheme ahead of CfD allocation round 8 in 2026. The proposed reforms include: (i) introducing a new criterion aimed at strengthening workforce protection by encouraging developers and suppliers to commit to discussions on a new offshore wind fair work charter to improve jobs in the industry; (ii) introducing a new criterion aimed at increasing skills investment, either through a pooled fund targeting industry-wide needs or through project-level initiatives; (iii) extending the CIB to onshore wind, recognising its vital role in delivering clean power and the opportunity to support investments in cleaner and shorter supply chains; and (iv) implementing technical improvements to ensure the scheme continues to function as effectively as possible. On the same day, DESNZ published a press release headed 'Plan for wind developers to pay for skilled job training'. This relates to the fair work charter.

 

NUCLEAR PROJECTS

Sizewell C new nuclear power project

On 20 August 2025, Ofgem published a notice headed 'Sizewell C Economic Guidance'. This relates to Ofgem's document titled 'Guidance: Our approach to the Economic Regulation of Sizewell C' (Economic Guidance), which outlines aspects of Ofgem’s approach to the economic regulation of Sizewell C Limited (referred to as the 'nuclear licensee'). Sizewell C is the first nuclear power station in the UK set to be funded through a regulated asset base (RAB) model (this is pursuant to the Nuclear Energy (Financing) Act 2022). Ofgem's notice also includes a link to a report prepared for Ofgem titled 'Study to support the setting of an indicative asset beta for Sizewell C in the operational phase'.

Ofgem's notice states that the Economic Guidance should be read alongside the electricity generation licence for Sizewell C and the special modifications to it as set out by DESNZ in what is described as the 'Nuclear Regulated Asset Base (RAB) Licence' – the latter is the 'Electricity Generation Licence: Special Conditions for Nuclear Generator' document (this is the economic licence / RAB licence).

Further information on the funding model for Sizewell C is available on DESNZ's 'Sizewell C: Regulated Asset Base (RAB)' page.

Compensation for nuclear damage

The Nuclear Installations (Compensation for Nuclear Damage) (Amendment) Regulations 2025 (No. 915) were made on 22 July 2025 in exercise of the powers conferred by section 306(1), (2) and (3) of the Energy Act 2023, coming into force in accordance with regulation 1(2). These regulations (which were published with an explanatory memorandum) amend the Nuclear Installations Act 1965, as amended by Schedule 22 to the Energy Act 2023 (Schedule 22). Schedule 22 contains the amendments necessary to implement the Convention on Supplementary Compensation for Nuclear Damage (CSC) in the United Kingdom. The CSC is an international nuclear third party liability treaty that aims to establish a minimum national compensation amount amongst the CSC contracting parties and to further increase the amount of compensation to be made available through public funds by the CSC contracting parties, should the national amount be insufficient to compensate the damage caused by a nuclear incident. Schedule 22 will come into force on the day on which the CSC comes into force in respect of the United Kingdom and these regulations come into force on the same day as Schedule 22. See the explanatory memorandum for more information.

 

ELECTRICITY CONNECTIONS REFORM

Closing of the Gate 2 to Whole Queue evidence submission window

On 26 August 2025, NESO published 'Connections reform evidence submission window is now closed'. This notes how the evidence submission and collection window for the Gate 2 to Whole Queue exercise closed on 26 August 2025 and explains immediate next steps. The Gate 2 to Whole Queue exercise is the one-off process concerning the existing connections queue in which NESO and network operators re-examine existing connection offers and determine whether these meet the criteria of the new connections process regarding both readiness and strategic alignment (ie. alignment in respect of DESNZ's CP2030 Action Plan of 13 December 2024).

Consultation on licence modifications

On 21 August 2025, Ofgem gave notice of the opening of a consultation under the heading 'Modifications to electricity distribution licence Special Conditions to enable TMO4+ connections reform'. The consultation document explains that, following Ofgem’s decision on 15 April 2025 to approve the Target Model Option 4+ (TMO4+) connections reform package, Distribution Network Operators (DNOs) are required to play a role in its implementation, in particular in relation to the Gate 2 to Whole Queue exercise. Completing this exercise may result in the DNOs incurring costs that are not currently funded in their existing allowances under the current price control regime. Ofgem is, therefore, consulting on the insertion of a new cost recovery mechanism into the electricity distribution licences held by the DNOs, to allow the DNOs to pass-through reasonable costs associated with this one-off exercise.

 

CARBON CAPTURE, USE AND STORAGE

On 5 August 2025, DESNZ published a notice headed 'HyNet expansion: project negotiation list'. This lists six projects being taken forward into the negotiations phase following the conclusion of DESNZ's assessment of applications into the Track-1 expansion (T1x) of the HyNet carbon capture, use and storage (CCUS) cluster process. The six T1x projects being taken into negotiations (as listed in the notice) join the existing four Track-1 (T1) projects in negotiations (making a total of ten projects in negotiations to join the HyNet cluster). Of those ten projects, the notice lists the five projects that have been placed on the 'Priority' list and the five projects placed on the 'Standby' list. See the 'Notes to editors' in DESNZ's press release headed '2,800 skilled jobs in Wales and North West as CCUS industry grows'.

 

LONG DURATION ELECTRICITY STORAGE CAP AND FLOOR SCHEME

On 4 August 2025, Ofgem announced it is working closely with NESO in the delivery of the long duration electricity storage (LDES) cap and floor regulatory scheme. Ofgem retains responsibility for designing and delivering the scheme, with NESO providing to Ofgem independent, technical support across several areas in respect of the first cap and floor application window. The announcement includes a link to an open letter from Ofgem to NESO headed 'NESO's support for Ofgem's assessment of Long Duration Electricity Storage (LDES) projects'. This sets out a scope of work for NESO in support of Ofgem's assessment of projects for the LDES cap and floor scheme.

 

DATA CENTRES AND IMPACT ON ENERGY CONSUMPTION

On 14 August 2025, DESNZ published a report entitled 'Impact of Growth of Data Centres on Energy Consumption: Report prepared by Europe Economics' – this examines how the growth of digital services, and the data centres that support them, affects energy consumption in the UK. The report notes that, while digitalisation introduces new electricity demand, it can also displace energy-intensive physical activities. This was followed by the House of Commons Library's publication on 27 August of a briefing entitled 'Data centres: planning policy, sustainability, and resilience'.

 

UK EMISSIONS TRADING SCHEME

On 29 August 2025, DESNZ published a paper entitled 'UK Emissions Trading Scheme (UK ETS): a policy overview' – this summarises policy in respect of the UK Emissions Trading Scheme (UK ETS), the role of the UK ETS in UK decarbonisation, and how the UK ETS Authority is developing the scheme (the 'UK ETS  Authority' comprises the UK, Scottish and Welsh Governments and the Northern Ireland Department of Agriculture, Environment and Rural Affairs).

The UK ETS incentivises investment in decarbonisation in line with climate targets across the UK, by setting a cap on emissions from in-scope sectors and creating a carbon price. The content on the above policy page will be updated to reflect further UK ETS policy updates published by DESNZ.

Earlier in the month, DESNZ announced the publication of technical guidance to assist UK ETS installation operators in complying with the requirements that relate to the Monitoring and Reporting Regulation 2018.