17 July 2025 • 18 minute read
Energy Regulatory Update (UK) – June
Spending review and infrastructure strategy
Spending Review
The final phase of the multi-year Spending Review 2025 was delivered by the Chancellor of the Exchequer and HM Treasury on 11 June 2025, finalising government departmental settlements for the full Spending Review 2025 period (for departmental capital spending plans this is for the period until financial year 2029/30). The announcements are set out in the Spending Review 2025 document published that day. Chapter 4 addresses growth and clean energy - there is a subsection at paragraphs 4.52 to 4.62 setting out the government's spending plans in respect of energy security and climate resilience. Chapter 5 (Departmental settlements) includes paragraphs 5.87 to 5.96 on the work and spending of the Department for Energy Security and Net Zero (DESNZ). The next day, DESNZ issued a press release headed 'Funding secured for Britain's industrial future' – this relates to two carbon capture projects (Acorn in Aberdeenshire and Viking in the Humber), both of which were allocated development funding in the Spending Review.
Infrastructure Strategy
On 19 June 2025, HM Treasury and the National Infrastructure and Service Transformation Authority (NISTA) published a strategy document titled 'UK Infrastructure: A 10 Year Strategy' (Infrastructure Strategy), together with a press release headed 'Decade long Infrastructure Strategy to deliver stability, investment and national renewal'. One of the key aims is to provide the certainty and stability needed to attract investment across all types of infrastructure, including energy.
Chapter 4 (Becoming a clean energy superpower) of the Infrastructure Strategy provides the detail on the government’s mission to make the UK a clean energy superpower by delivering the Clean Power 2030 Action Plan and accelerating to net zero.
The industrial strategy and clean energy industries sector plan
On 23 June 2025, the Department for Business and Trade (DBT) published the UK's Modern Industrial Strategy (Industrial Strategy). This is a 10-year plan which focuses on 8 growth-driving sectors, one of which is Clean Energy Industries. It was accompanied by the following joint press releases from the DBT and DESNZ: 'Powering Britain's future: Electricity bills to be slashed for over 7,000 businesses in major industry shake-up', 22 June, and 'Powering Britain's Future', 23 June.
In the section of the Industrial Strategy headed 'Reducing electricity costs, accelerating grid connections and promoting industrial decarbonisation' there is, at pages 30 and 31, a description of the government's commitment to “Support the development of the Corporate Power Purchase Agreements (CPPA) market in the UK, as a potential route for energy consumers to secure more stable electricity prices for the long term. CPPAs also create alternative routes to market for low-carbon electricity generators. The Government will launch a call for evidence on how the market for CPPAs can be developed and improved for industry, including where the UK can draw from international best practice to improve competitiveness”.
Each of the eight growth-driving sectors referred to above has its own bespoke 10-year plan, including the Clean Energy Industries Sector Plan which was published by DBT and DESNZ on 23 June and signals the government's priorities for the UK's clean energy economy.
Long duration electricity storage
On 19 June 2025, Ofgem published a consultation seeking views on its proposed financial framework for long duration electricity storage (LDES) projects that apply successfully under application window 1 of the cap and floor revenue support regime which opened on 8 April 2025.
The consultation document is entitled 'Financial Framework: LDES Window 1 Cap and Floor regime'. The framework is designed to ensure developers can raise the necessary financing in a timely manner, minimise potential market distortions, and protect consumer interests. It covers the approach to setting cap and floor levels and designing incentive mechanisms to support timely project delivery and to control costs. It also sets out Ofgem's proposed 'truth telling' incentives to discourage inflated or strategic bidding, and it includes a section on the LDES cap and floor financial model (which relates to the calculation of the cap and floor revenue levels).
The consultation document was published together with the 'LDES Window 1 Cap and Floor Financial Model Handbook' and a draft 'LDES Window 1 Cap and Floor Financial Model'.
Contracts for Difference scheme
The Contracts for Difference (Miscellaneous Amendments) (No. 2) Regulations 2025 (No. 772) were made on 25 June 2025 in exercise of the powers conferred by sections 6(1) and (6), 10(3) and 21(1)(c) of the Energy Act 2013. They were published with an explanatory memorandum.
This instrument enables support to be provided to existing biomass generators through a contract for difference (CfD). It also allows biomass sustainability obligations in any such CfD to be updated. This is to facilitate support for large-scale biomass generators. Section 5 of the explanatory memorandum provides the policy context, from which the following summary is drawn.
Amendments to the CfD scheme
The draft Contracts for Difference (Miscellaneous Amendments) (No. 3) Regulations 2025 (2025 Regulations) were laid in Parliament on 2 June 2025 under the draft affirmative procedure – progress can be tracked on the relevant SI page on the UK Parliament site – they have been published together with a draft explanatory memorandum.
As set out (with further detail) in the explanatory memorandum, the 2025 Regulations will amend: (i) the contract budget notice publication process (these amendments are to enable the contract budget to be set efficiently and to maximise deployment of renewable generation to aid the delivery of the Clean Power 2030 Action Plan); (ii) the information the Secretary of State has access to during an allocation round (these changes will allow the Secretary of State to see anonymised bid information earlier, allowing him to make more informed budget decisions which support renewables deployment); and (iii) the calculations made by the Low Carbon Contracts Company, so as to include the Clean Industry Bonus (CIB) payments (the CIB allows offshore wind developers applying in a relevant allocation round to compete for ‘bonus’ payments in return for committing to invest in the development and sustainability of supply chains).
The above amendments are all to be made in support of policy changes to the CfD scheme, as outlined in the explanatory memorandum (see the 'Policy Context', 'Legislative and Legal Context' and 'Consultation' sections of the memorandum). The amendments under the 2025 Regulations are expected to be implemented before the CfD application window opens for allocation round 7 (AR7) in 2025 - according to the indicative AR7 Timeline made available on the CfD Allocation Round Resource Portal, AR7 is due to open to applications on 7 August 2025.
Connections reform
On 10 June 2025, National Energy System Operator (NESO) published a news item headed 'Setting out the timeline for Connections Reform'. This relates to the issue by NESO that day of its timeline for the delivery of connections reform, to provide clarity to developers as part of the once-in-a-lifetime reordering of the electricity connections queue.
Between 8 July 2025 (the opening of NESO's transmission evidence submission window) and 29 July 2025 (the closing of the window), developers and distribution network operators (DNOs) can submit evidence regarding project maturity (readiness). This evidence submission window is crucial for positioning a project in the re-ordered connections queue. Once the evidence submission window closes, NESO will start to reorder the connections queue. From autumn 2025 it will begin to issue new connection agreements, prioritising first needed, first deliverable projects critical to the success of the Clean Power by 2030 objective.
Onshore wind and solar and the consenting regime
The following two statutory instruments, which are related, were made on 9 June 2025 and both come into force on 31 December 2025:
the Infrastructure Planning (Onshore Wind and Solar Generation) Order 2025 (No. 694) (Order 694), made in exercise of the powers conferred by sections 14(3) and (4) and 232(3) of the Planning Act 2008 and published with an explanatory memorandum; and the Electricity Act 1989 (Requirement of Consent for Solar Generating Stations) (England) Order 2025 (No. 762) (Order 762), made in exercise of the powers conferred by sections 36(2) and (3) and 111(2) of the Electricity Act 1989 and published with an explanatory memorandum.
Order 694 amends the Planning Act 2008 by bringing onshore wind generating stations with a generating capacity of over 100 MW back into the Nationally Significant Infrastructure Projects (NSIP) regime for England. The Order also increases the capacity threshold from 50 MW to 100 MW above which solar energy projects are consented through the NSIP regime in England. The NSIP regime provides a route for large scale projects to seek planning consent via the Secretary of State. As noted in the explanatory memorandum, the government considers it appropriate to reintroduce onshore wind into the NSIP regime at a threshold of 100 MW. Similarly, due to the advancements in technology, the government considers it appropriate to reconsider the threshold at which solar projects are determined to be nationally significant, raising it to 100 MW. See the Order and memorandum for further detail.
Order 762 removes the requirement under the Electricity Act 1989 for solar projects in England with a generating capacity of between 50 MW and 100 MW to apply to the Secretary of State for consent. Solar projects below 100 MW will instead apply to the local planning authorities under the Town and Country Planning Act 1990. This Order is being made alongside Order 694.
UK Solar Roadmap
On 30 June 2025, DESNZ published a document entitled 'Solar Roadmap: United Kingdom Powered by Solar' (Solar Roadmap), together with annexes and two appendices - Appendix I (Action table) and Appendix II (Case studies).
The Solar Roadmap, which was produced through collaboration with industry and presents the final conclusions of the Solar Taskforce, sets out a comprehensive strategy and clear plan of action to achieve the significant increase in solar deployment needed to support the delivery of clean power by 2030, as set out in the government’s Clean Power 2030 Action Plan of 13 December 2024.
Offshore Wind
On 17 June 2025, DESNZ published a press release headed 'Great British Energy lands deal to deliver offshore wind jobs'. This reports that the government and Great British Energy (the UK’s publicly owned clean power company) have joined forces with industry and The Crown Estate to invest GBP1 billion in offshore wind supply chains, delivering on the government’s mission to make the UK a clean energy superpower. The Energy Secretary has described this as “an unprecedented collaboration between public and private investors with Great British Energy crowding in millions of private sector investment from industry and The Crown Estate”.
The Energy Secretary has given a conference speech relating to supply chain funding to bring offshore wind jobs to Britain – this was published by DESNZ on 24 June under the heading 'Global offshore wind conference 2025: keynote speech by Ed Miliband'.
Nuclear
Sizewell C
HM Treasury and DESNZ issued a press release on 10 June 2025 headed 'Thousands of jobs to be created as government announces multi-billion pound investment to build Sizewell C'. This reports that GBP14.2 billion is being made available by the government (as part of the Spending Review) for investment in the construction of the Sizewell C new nuclear plant which is being arranged by Sizewell C Limited (a designated nuclear company under the Nuclear Energy (Financing) Act 2022).
On the same day, the following news update was posted on the Sizewell C website – 'Green Light for Sizewell C – The First Majority British–Owned Nuclear Power Plant in Over 30 Years'. This news piece includes the following: “It is the first nuclear power station in the UK that will be funded through a Regulated Asset Base (RAB) model. Under the model, consumers are protected through independent regulation, strict cost controls, and transparent oversight – ensuring families benefit from secure, low-carbon energy without bearing the risk of cost overruns”.
Small Modular Reactors
On 10 June 2025, DESNZ published a press release headed 'Rolls-Royce SMR selected to build small modular reactors'. This reports that Rolls-Royce SMR has been selected as the preferred bidder to partner with Great British Energy – Nuclear to develop small modular reactors, subject to final government approvals and contract signature, marking “a new golden age of nuclear in the UK”. The press release also reports that, as part of the government’s modern Industrial Strategy to revive Britain’s industrial heartlands, the government is pledging over GBP2.5 billion for the overall small modular reactor programme in this Spending Review period. Great British Energy - Nuclear is aiming to sign contracts with Rolls-Royce SMR later this year and will form a development company. Also on 10 June, Great British Energy – Nuclear updated its guidance page titled 'Small Modular Reactors: technology selection process'.
Investment in fusion
On 12 June 2025, DESNZ published a news story headed 'Major funding milestone for world-first prototype fusion plant'. This reports that the government has announced (in the Spending Review) a GBP2.5 billion investment in fusion energy, which includes support for a prototype fusion energy plant in Nottinghamshire. The new prototype plant, known as STEP (Spherical Tokamak for Energy Production) will be built at the site of the former West Burton A coal power station. See also DESNZ's press release 'Fusion energy powers UK's Industrial Strategy', 23 June.
Capacity Market / Power CCUS
On 2 June 2025, DESNZ published the outcome of the consultation launched on 16 December 2024 seeking views on proposed changes to the Capacity Market (CM). The response is contained in a document entitled 'Capacity Market: proposals to modernise Rules and improve participation and delivery assurance of consumer-led flexibility: Government Response'.
DESNZ now plans to implement a number of changes, the main ones being: (i) a series of improvements to clarify the intent of CM Rules and remove outdated passages; (ii) a clarification of the powers of the Delivery Body; (iii) a clarification that existing units can provide an updated Opt-out Notification if their operational circumstances change; (iv) an extension to enable mothballed plants to apply for 2025 prequalification for auctions held in 2026; (v) proposals to address administrative burdens for CM participants and CM Delivery Bodies with respect to aggregated Demand Side Response (DSR) portfolios, and bolstering delivery assurance; and (vi) the introduction of a termination fee for failure to demonstrate agreed DSR capacity ahead of Delivery Years. DESNZ will seek to lay legislation in Parliament to amend the CM Rules and Electricity Capacity Regulations in order to implement these proposals ahead of the 2025 Prequalification Window.
Changes to Capacity Market Rules
On 12 June 2025, Ofgem published a document setting out its decisions on changes to the CM Rules pursuant to regulation 77 of the Electricity Capacity Regulations 2014 – these decisions follow on from the statutory consultation issued on 9 January 2025 on the five Capacity Market Rule change proposals, namely: CP371 – Protection from Very Late Network Connections; CP376 – Clarifying Restrictions on the Role of Agent; CP377 - Increasing Flexibility for Satisfactory Performance Day Portfolios; CP378 - Removing 50MW Limit on Individual Capacity Market Units in a Portfolio; and CP381 – Change to the definition of Station Connection Entry Capacity in Rule 3.5.5.
Ofgem is progressing CP376, CP377 and CP381 with no or minor alterations, and is progressing CP371 with significant alterations. Ofgem is not progressing CP378.
The approved rule changes will take effect once laid before Parliament, ahead of the 2025 Prequalification Window. Note: on 3 July 2025 DESNZ's Capacity Market Rules page was updated to add the Capacity Market (Amendment) (No. 2) Rules 2025, which deal with these rule changes.
Unabated gas-fired electricity generation - moving from Capacity Market to CCUS
On 3 June 2025, the draft Electricity Capacity (Amendment) (No. 2) Regulations 2025 were laid in Parliament under the draft affirmative procedure – they were published together with a draft explanatory memorandum - progress can be tracked on the relevant page on the UK Parliament site.
As noted in the draft explanatory memorandum, these regulations will amend the Electricity Capacity Regulations 2014 (CM Regulations) in order to make technical amendments to the CM aimed at introducing a decarbonisation pathway for unabated gas. Unabated gas-fired electricity plants with CM agreements of up to 15 years will be allowed to exit from their CM agreements before their scheduled end dates without penalty and transfer to a bespoke revenue support mechanism under a Dispatchable Power Agreement (DPA) (the DPA is a type of contract for difference). The DPA (through the support it provides) will enable unabated plants to decarbonise by retrofitting carbon capture equipment. The regulations, therefore, aim to accelerate the decarbonisation of unabated gas-fired electricity generation.
Flexibility markets and integrating intermittent renewable energy
On 4 June 2025, Ofgem published its 'Market facilitator policy framework decision'. This outlines Ofgem's expectations for Elexon in fulfilling the market facilitator role, including defining the scope of the market facilitator function, the enduring roles and responsibilities of Elexon and other key stakeholders, as well as the expected deliverables and performance arrangements. Elexon was appointed as the market facilitator delivery body in July 2024 with a mandate to grow and develop local flexibility markets, and align local and national flexibility market arrangements.
Energy industry Code reform
The Code Manager Selection (Competitive) Regulations 2025 (No. 658) were made on 5 June 2025, in exercise of the powers conferred by sections 189 and 331(2) of the Energy Act 2023 – they come into force on 7 July 2025. These regulations prescribe the procedure by which the Gas and Electricity Markets Authority (which acts through Ofgem) may make a determination on a competitive basis of the person who is to be selected to be the code manager in relation to a document designated by the Secretary of State under section 182(1)(a) of the Energy Act 2023. The regulations complement the Code Manager Selection Regulations 2024 (No. 1081), which contain provisions about the choice of selection route for code managers, and the process for non-competitive selection. The regulations of 5 June were published with an explanatory memorandum.
Hydrogen
Humber Hydrogen Pipeline Project
On 10 June 2025, DESNZ published a letter of direction by the Secretary of State for Energy Security and Net Zero under section 35 of the Planning Act 2008 relating to the Humber Hydrogen Pipeline Project. As noted in numbered paragraph 8 of the letter, the Secretary of State, in exercise of the power vested in him under section 35(1) of the Planning Act 2008, has directed that the proposed Humber Hydrogen Pipeline Project be treated as development for which development consent is required under the Planning Act 2008 (ie. for a nationally significant infrastructure project). The reasons for the decision are set out in an Annex to the letter. It is noted in the Annex that the proposed project is of national significance, taking into account that it is a large-scale hydrogen pipeline project of approximately 50km in length that would facilitate the movement of low carbon hydrogen between production, storage and usage in the Humber region.
New funding for hydrogen transport and storage networks
On 13 June 2025, DESNZ published a press release headed '£500m boost for hydrogen to create thousands of British jobs' – this confirms that the Spending Review of 11 June 2025 allocated new funding to create the UK’s first regional hydrogen transport and storage network, connecting hydrogen producers with vital end users, including power stations and industry for the first time.
The funding will unlock hydrogen’s unique role in Britain’s energy system, where it can decarbonise industrial sectors, including refineries and heavy transport, while providing long-term energy storage that can be deployed during peak demand periods. This major infrastructure boost will help deliver clean energy while creating thousands of skilled jobs in industrial regions such as Merseyside, Teesside and the Humber, as well as in the supply chain.
The funding also enables progress in supporting low carbon hydrogen production through continued Hydrogen Allocation Rounds (HARs), building on the success of the first Hydrogen Allocation Round (HAR 1) which saw 11 projects being allocated over GBP2 billion in government funding.