17 July 2025 • 14 minute read
Energy Regulatory Update (UK) – May
Electricity connections reform
There have been developments in May following Ofgem's approval decision of 15 April 2025 in respect of the connections reform package known as Target Model Option 4 (TMO4+).
CMP446 – Transmission Impact Assessment threshold
On 12 May 2025, Ofgem announced that it had decided to approve Workgroup Alternative Connection and Use of System Code (CUSC) Modification (WACM) 1 of the CUSC modification proposal (CMP) 446 (CMP446). The decision on CMP446 is contained in Ofgem's document headed 'Connection and Use of System Code (CUSC) CMP446: Increasing the lower threshold in England and Wales for Evaluation of Transmission Impact Assessment'.
The Evaluation of Transmission Impact Assessment (TIA) is the process by which National Energy System Operator (NESO) assesses the impacts that a project seeking to connect to the distribution network will have on the transmission network, in order to identify whether reinforcement work is required to facilitate the connection. If the project is assessed to have sufficient impact, its connection will be subject to completion of the required works on the transmission network, resulting in increased costs and potential delays. Under existing arrangements, a TIA is required for projects above 1MW in size in England and Wales and 200kW in Scotland – this is the “TIA threshold".
It has been recognised that amending the TIA threshold ahead of the process of applying the TMO4+ Gate 2 criteria to the existing queue (called 'Gate 2 to Whole Queue', a process expected to start in summer 2025) could improve the connection process for smaller distributed generation projects which have minimal impact on the transmission system. That is because, if the TIA threshold is increased ahead of Gate 2 to Whole Queue, fewer projects are likely to require transmission reinforcement works, which could lead to accelerated connection dates.
The decision taken by Ofgem, published on 12 May, is to increase the TIA threshold in England and Wales from 1MW to 5MW for distributed generation projects. This means in practice that projects in England and Wales between the pre-decision threshold of 1MW and the new post-decision uplifted threshold of 5MW will now sit outside of the TIA process, meaning they can no longer trigger reinforcement works as part of their connection. (Scotland is outside of the CMP446 proposal and so the TIA threshold in Scotland remains at 200kW.)
As a result of Ofgem's decision, in England and Wales new connection applications and unconnected projects currently in the queue, in each case below 5MW, will no longer require a TIA evaluation. Please refer to Ofgem's decision document for further detail.
PMO142 (Application of Gate 2 Criteria to existing contracted background) and PMO143 (Implementing Connections Reform)
On 16 May 2025, Ofgem published its decision approving PMO142 (Application of Gate 2 Criteria to existing contracted background). This is the code modification published by NESO on 7 February 2025, which is related to the TMO4+ reform package and is aimed at making changes to certain of the System Operator Transmission Owner Code Procedures (STCPs) (STCPs are part of the broader System Operator Transmission Owner Code (STC)). The modification proposes to introduce STCP 18-8: a one-off, time-limited STCP to facilitate the introduction of CUSC modification CMP435 (Application of Gate 2 Criteria to existing contracted background) by establishing the contractual relationships between NESO and the transmission owners (TOs).
Also on 16 May, Ofgem published its decision approving PMO143 (Implementing Connection Reform). This is the code modification published by NESO in February 2025, which again is related to the TMO4+ reform package and is aimed at making changes to certain of the STCPs. As noted in the PMO143 proposal form, this modification directly follows on from STC modification CM095 (Implementing Connections Reform), which itself interacts with CUSC modification CMP434 (Implementing Connection Reform). The proposed change to STCP16-1 under PMO143 also interacts with CUSC modification CMP435. PMO143 aligns the STCPs with the changes proposed under CM095 and the wider connections reform work.
Extension to the transition for connections reform
On 21 May 2025, Ofgem published a letter to NESO setting out its support given to NESO and the TOs in extending the previously approved (on 15 January 2025) modified connections transitional arrangements, with the extension being until the implementation of the approved connections reform code modifications on 10 June 2025. The decision letter of 21 May is headed 'Ofgem decision on Joint Direction and Letter of Comfort requests from NESO and all three GB Transmission Owners (NGET, SSENT and SPT) – Extension of Transitional Arrangements Reliefs'. The approval of 15 January 2025 related to modifications to the connections transitional arrangements which had been approved by Ofgem on 21 August 2024 and which took effect from 2 September 2024. The modifications in the decision letter of 15 January (which also granted related comforts / reliefs) comprised three elements all as summarised in the 'Context' section of Ofgem's decision letter of 21 May. The decision made by Ofgem in the letter of 21 May has the effect that NESO and the TOs will continue to be responsible for implementation and administration of the current phase of the transition process up until TMO4+ connections reform implementation on 10 June 2025. The reliefs granted in the decision of 15 January are extended up to the end of the day on 9 June 2025. The date of 10 June 2025 marks the end of the statutory 56-day standstill period following Ofgem's decision of 15 April 2025 to approve TMO4+.
Gate 2 to Whole Queue (CMP435) / Evidence Handbook
Those in the existing connections queue (ie. with connection agreements at the time of TMO4+ implementation) who wish to apply for Gate 2 connection agreements will have to submit their evidence (against the Gate 2 readiness criteria) in the CMP435 application / evidence window – this window is expected to open in summer 2025. This is a one‑off exercise, known as the 'Gate 2 to Whole Queue' (G2TWQ) process. In May, NESO published on its 'Evidence Handbook' page (within the 'Connections Reform' part of its website) a handbook designed to support project developers and investors in navigating the G2TWQ process – this is called the 'Connections Reform Evidence Submission Handbook: A guide for Transmission and Distribution connections'. It was published along with a NESO news item of 19 May 2025 entitled 'New evidence handbook to guide projects through Connections Reform'. The handbook supports customers supplying evidence to both NESO and to distribution network operators (DNOs) for projects in-scope for a Gate 2 offer. As regards DNOs and in-scope small and medium embedded generation projects, note that NESO's 'Evidence Handbook' page also includes a link to the Energy Networks Association's 'Connections reform – evidence submission' page as a further useful resource.
Contracts for difference
Changes to the CfD scheme
On 6 May 2025, the Department for Energy Security and Net Zero (DESNZ) published the government's initial response regarding its February 2025 consultation seeking views on potential changes in respect of contracts for difference (CfD) for allocation round 7 (AR7). This initial response, contained in a document headed 'Government response to the legislative proposals in the consultation on further reforms to the Contracts for Difference scheme for Allocation Round 7', covers only the elements that will require legislation. DESNZ will publish a second final government response before AR7 opens in summer 2025. This split approach is to allow the changes requiring legislation to be implemented, by way of secondary legislation, in advance of AR7 opening.
On 27 May 2025, DESNZ published a consultation on potential drafting changes to the CfD standard terms and conditions (STCs) ahead of AR7. The drafting changes concern the practical implementation of the proposal to relax eligibility requirements for unconsented fixed-bottom offshore wind projects, in the event the government decides to proceed with that policy (this policy was the subject of the February 2025 consultation). DESNZ’s final decision on whether to proceed will be confirmed before AR7 opens to applications this summer. The new consultation is set out in a document entitled 'Consultation on potential technical amendments to the CfD scheme to relax eligibility criteria for fixed-bottom offshore wind projects from Allocation Round 7'.
Clean Industry Bonus
On 7 May 2025, DESNZ published the final version of the Clean Industry Bonus (CIB) Allocation Round budget notice sent by DESNZ to NESO and entitled 'Contracts for Difference (CfD): Final Budget Notice for the Clean Industry Bonus Allocation Round 7'. This notice for AR7 is given pursuant to regulation 13A of the Contracts for Difference (Allocation) Regulations 2014 which is set out in a schedule to the notice. As stated in the budget notice, the CIB refers to the scheme set out in the Contracts for Difference (Allocation) Regulations 2014 and the Electricity Market Reform (Regulations) 2014, as amended by Contracts for Difference (Sustainable Industry Rewards) Regulations 2024, known in the regulations as Sustainable Industry Rewards (SIRs). The SIRs, as referred to in the regulations, have evolved and become the CIB. On 9 May 2025, DESNZ published a press release headed 'Funding boost for Clean Industry Bonus as bids smash expectations' – this reports on higher than expected demand for the CIB in advance of AR7, and a consequent increase by the Energy Secretary of the available bonus amount.
CfD AR7 – exemptions request notice / prospective commencement date for AR7
On 29 May 2025, DESNZ published the 'Contracts for Difference (Allocation) Regulations 2014 Exemptions Request Notice' (Exemptions Request Notice) made further to regulation 14C of the Contracts for Difference (Allocation) Regulations 2014 (as amended) (regulation 14C (Requests for exemption certificates) is set out in the Schedule to the Exemptions Request Notice). Those regulations state that where an eligible generator has allowed the offer of a CfD to lapse following a CfD allocation round, or if a CfD was entered into and terminated in certain circumstances, the eligible generator is excluded from participating in a specified number of subsequent CfD allocation rounds. The Exemptions Request Notice sets out the procedure that an excluded generator must follow should they wish to apply for an exemption from their temporary site exclusion in order to be eligible to participate in AR7. The prospective commencement date for AR7 to open for applications is 7 August 2025 – the firm commencement date will be confirmed in an Application Window Notice which will be published on DESNZ's CfD Allocation Round 7 Statutory Notices Details of excluded sites are placed on the Register of Temporary Site Exclusion as published and updated from time to time by the Low Carbon Contracts Company.
Great British Energy Act 2025 and designation of Great British Energy
On 15 May 2025, DESNZ issued a press release headed 'Great British Energy legislation passes through Parliament'. The subject matter is the publicly owned energy company Great British Energy. On the same day, the Great British Energy Bill page on the Parliament site was updated to show that Royal Assent had been given for the Bill on 15 May - the Great British Energy Act 2025 has since become available on the government's legislation site. Section 1 of the 2025 Act provides that the Secretary of State may by notice designate a company as Great British Energy. On 19 May 2025, DESNZ published a notice whereby the Secretary of State for Energy Security and Net Zero, in exercise of the powers in section 1, designated Great British Energy Group Limited (Company Number: SC825539) as Great British Energy. This notice of designation has effect on 21 May 2025.
Long Duration Electricity Storage Project Assessment
Long Duration Electricity Storage (LDES) refers to energy storage systems that can store and release electricity for long periods, typically eight hours or more. LDES systems help balance the supply of and demand for electricity, especially when using renewable energy sources like wind and solar. On 28 May 2025, Ofgem published a consultation entitled 'Selection of LDES projects for Window 1 Cap and Floor regime'. This concerns the approach to be taken by Ofgem, working with NESO, in deciding which LDES projects should be awarded support under Ofgem's new cap and floor regime (as introduced to encourage investment in LDES), with regard to those projects that apply following the opening of the first application window on 8 April 2025.
The assessment and selection process, to be applied to eligible projects under the LDES cap and floor scheme, will involve a multi-criteria assessment (MCA) across three key dimensions - ie. economic assessment, strategic assessment and financial assessment (the consultation document includes a section on each of those, and one on market modelling).
Ofgem's decision on the project assessment approach / framework (ie. the final version) is expected to be published in quarter three of 2025. This will detail the information that eligible projects will need to submit. Ofgem plans to make the final decisions on project approval (ie. cap and floor awards) in quarter 2 of 2026.
Capacity market – responses to consultation and call for evidence
On 6 May 2025, DESNZ published the government's response to its consultation seeking views on a series of proposed changes to the capacity market (CM). The aim is to maintain a strategic reserve of unabated gas-fired electricity generation capacity as necessary for security of supply, whilst enabling the unabated gas to transition to a back-up role and providing routes for its decarbonisation.
The government now plans to: (i) lower the capital expenditure (capex) threshold for ‘refurbishing’ three-year CM agreements to £65/kW for Capacity Market Units (CMUs) prequalifying in 2025, to support the economic case for investment to extend the life of ageing plants (in subsequent years, the capex threshold will be adjusted in line with inflation); (ii) ensure that all substantially refurbishing or new combustion power plants participating in the 2026 T-4 CM auction (for the 2029/30 delivery year) commit to having a credible plan in place to decarbonise, either through converting to hydrogen to power (H2P) or to power with carbon capture, usage and storage (power CCUS); and (iii) introduce an exit pathway (managed exit) to enable the decarbonisation of unabated gas by allowing multi-year CM agreement holders to leave without penalty and transfer to a dispatchable power agreement (DPA), enabling conversion to power CCUS. This pathway is subject to the capacity provider becoming party to a DPA, and subject to transport and storage (T&S) capacity, value for money and affordability.
Also on 6 May, DESNZ published the government's response to the call for evidence launched on the same day as the above consultation, on the same topic, ie. proposed changes to the CM to maintain security of supply and enable flexible capacity to decarbonise. The call for evidence sought evidence on three decarbonisation pathways.