Energy Regulatory Update (UK) – December

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 – allocation rounds

Notices and auction timelines for allocation round 7

There are two parts to contracts for difference (CfD) allocation round 7 (ie. the current one), namely:

• the allocation round for offshore wind and floating offshore wind (known as AR7); and
• the allocation round for all other eligible technologies (known as AR7a).
• On 8 December 2025, the Department for Energy Security and Net Zero (DESNZ) updated its 'Contracts for Difference (CfD) Allocation Round 7: statutory notices' page to add the following:
• the 'CfD Allocation Round 7a Budget Notice' (AR7a Budget Notice) given by DESNZ to the National Energy System Operator (NESO) (the CfD scheme delivery body);
• and an accompanying note.

The AR7a Budget Notice was issued pursuant to regulation 11 of the Contracts for Difference (Allocation) Regulations 2014 (as amended) and applies to AR7a, in respect of Pot 1 and Pot 2.

• Pot 1 (Established Technologies) comprises: Energy from Waste with CHP, Landfill Gas, Hydro (>5MW and <50MW), Onshore Wind (>5MW), Remote Island Wind (>5MW), Sewage Gas, and Solar PV (>5MW).
• Pot 2 (Emerging Technologies) comprises: Advanced Conversion Technology, Anaerobic Digestion (>5MW), Dedicated Biomass with CHP, Geothermal, Tidal Stream, and Wave.

The administrative strike prices applicable to the technologies in this allocation round are set out in the AR7a Budget Notice.

The Budget Notice for AR7 in respect of offshore wind (ie. technology Pot 3) and floating offshore wind (ie. technology Pot 4) was published back on 27 October 2025 (with an accompanying note) and is available on the above statutory notices page. The accompanying note linked above makes the point that the offshore wind budget (Pot 3) could be revised subject to sight of bids.

The Low Carbon Contracts Company issued a CfD allocation round update advising that on 16 December NESO had submitted the Notice of Auction to all qualified non-offshore wind applicants in AR7a, informing them that an auction will take place. The Sealed Bid Window for all non-offshore wind technologies opens on 5 January 2026 and closes on 9 January 2026.

The AR7 Timeline page in the CfD Allocation Round Resource Portal gives links to:

• the indicative non-offshore wind technologies timeline (AR7a) - the sealed bid window for this is (as noted above) between 5 and 9 January 2026, with the allocation / auction process taking place between 12 and 30 January 2026. The results of the allocation are to be notified by NESO to applicants between 6 and 9 February 2026 and the successful projects published by DESNZ in the same time window (subject to any timeline revisions); and
• the revised indicative offshore wind technologies timeline (AR7) - the allocation / auction process for this is taking place between 5 and 9 January 2026 (the earlier sealed bid window was in November 2025), with results of the allocation to be notified by NESO to applicants on 14 January 2026 and the successful projects published by DESNZ on the same day along with confirmation of the final budget (subject to any timeline revisions).

The Sealed Bid Guidance document, which covers both AR7 and AR7a, is available on NESO's website within the 'AR7 Guidance Documents' section – it is titled 'Contracts for Difference Sealed Bid Submission Guidance: Allocation Round 7 and 7A', version 1.1, November 2025.

On 17 December, DESNZ published its annual update to Parliament pursuant to section 5(4) of the Energy Act 2013 on progress made on the policy mechanisms implemented under the Electricity Market Reform programme, including the CfD scheme. The 2025 update sets out headline achievements over the past 12 months, including the reforms made for CfD allocation round 7.

Consultation on AR8 Policy and Contract Changes

On 16 December 2025, DESNZ published a consultation document titled 'Consultation on proposed refinements for Allocation Round 8 and future rounds'. The government is seeking views on potential policy and contract amendments for the eighth allocation round of the CfD scheme (ie. the next one). These amendments will support the government’s mission to deliver Clean Power by 2030. The consultation will close on 30 January 2026. A summary of the proposals covered in the consultation is given on the consultation page. The proposed drafting changes are shown as tracked amendments in the CfD contract documents, published on the consultation page. Also on 16 December, DESNZ set up its 'Collection: Contracts for Difference (CfD): Allocation Round 8' page.

Contracts for Difference and existing nuclear generating assets

On 10 December 2025, DESNZ launched a 'Consultation on financial support for nuclear lifetime extensions'. This seeks views on amending the CfD legislation to enable existing nuclear generating assets to be eligible for CfDs to incentivise investment in lifetime extensions of operating nuclear plants, subject to value for money considerations and relevant approvals (nuclear electricity generation is already eligible for support under the CfD scheme for new-build capacity). As noted in the 'Context' section of the consultation document, over the course of the next 10 years the UK’s existing operational nuclear fleet is set to begin decommissioning, with the 4 Advanced Gas-Cooled Reactors currently expected to come offline between 2028-2030, and Sizewell B, the UK’s only Pressurised Water Reactor, due to begin decommissioning in 2035. Against this background, there may be a case to provide an appropriate underlying commercial model to promote investment in the works needed to safely extend the operating lives of nuclear plants. This could help to ensure a smooth transition, as additional nuclear generation capacity is brought online at Hinkley Point C and Sizewell C. It could also support the government’s Clean Energy Superpower mission through the continued supply of low carbon, baseload energy to the grid for as long as possible.

 

Connections reform

The connections delivery pipeline

On 8 December 2025, NESO published a press release headed 'Unveiling the new project pipeline to deliver Clean Power by 2030'. This reports that, "From today, thousands of projects, from wind and solar farms to battery storage and hydrogen will learn whether they are part of the 283 GW of generation and storage capacity and 99 GW of transmission-connected demand. This defined set of deliverable projects will form a new pipeline as the system moves from a first-come, first-served model to one that prioritises projects ready to meet Great Britain’s energy and economic needs. // Connections reform will ensure Britain has the power it needs post 2030, as electricity demand is projected to almost triple up to 2050. Following today’s notifications, the first batch of protected projects scheduled to connect in 2026/2027 will begin receiving formal offers with confirmed connection dates throughout December and into the new year, with remaining offers to be finalised by Q3 next year. // Projects seeking to reapply for inclusion in the connections process will be able to do so from late 2026. To qualify, they must demonstrate both readiness to progress and strategic alignment with the Government’s Clean Power Action Plan". The press release includes a link to NESO's 'Connections Reform Results' page.

Please refer to NESO's updated 'Connections Reform' page for further information on the re-ordered connections delivery pipeline, and see its 'Connections reform timeline'.

Connections end-to-end review update – proposals for consultation

On 8 December 2025, Ofgem published a press release headed 'Ofgem sets out major reform package in next step to accelerate grid connections'. This relates to Ofgem's ‘Connections end-to-end review update' which proposes, for consultation, stronger licence requirements, financial penalties and tougher enforcement to end unacceptable delays that developers are experiencing at every stage of the connections process – the consultation document is titled 'Connections End-to-End Review – Updated Proposals and Next Steps' – the consultation closes on 27 February 2026.

Long duration electricity storage

On 18 December 2025, DESNZ published its 'Long duration electricity storage: open letter to industry', setting out how Ofgem’s cap and floor scheme will support the delivery of the next generation of long duration electricity storage (LDES) projects.

The open letter highlights, in particular, the role the Planning and Infrastructure Act 2025 (see below) will play in safeguarding the UK’s long-term energy security in a clean and cost-effective manner by enshrining in law a new mechanism to support the delivery of the next generation of LDES. The letter notes how LDES can encompass pumped storage hydro (PSH), compressed air energy storage (CAES) and liquid air energy storage (LAES), and certain types of battery that can supply electricity continuously for eight hours or more without recharging. This 8-hour plus duration, which is significantly higher than existing electricity storage assets, meets a specific electricity system security need. It enables the electricity system to store clean wind and solar power when it is plentiful and use it when most needed. It is a crucial part of making Britain a clean energy superpower. The letter goes on to describe the LDES cap and floor scheme, which is addressed in the Planning and Infrastructure Act 2025 at section 26.

The letter explains how, in April 2025, Ofgem opened the LDES cap and floor scheme for applications (this is the first application window), assessing 171 bids for eligibility over the summer. In September 2025, Ofgem shortlisted 77 eligible projects alongside its publication of the Financial and Multi-Criteria Assessment Frameworks. Ofgem plans to make final decisions on successful projects in summer 2026.

Planning and Infrastructure Bill becomes law / planning policy

On 18 December 2025, the Ministry of Housing, Communities and Local Government issued a press release headed 'Landmark Planning and Infrastructure Bill becomes law' – this reports how the Planning and Infrastructure Act (previously a government Bill) received Royal Assent that day. An overview of the measures in this legislation can be found in the government's 'Guide to the Planning and Infrastructure Bill'. This constitutes an important step in delivering the government's objective of speeding up the delivery of critical infrastructure, including for the energy sector.

The Planning and Infrastructure Act 2025 includes (amongst others) provisions designed to:

• reform the Nationally Significant Infrastructure Project (NSIP) regime;
• update the electricity grid connection process;
• establish a cap and floor scheme in respect of long duration electricity storage;
• grant corporation powers for infrastructure delivery; and
• set up a new Nature Restoration Fund.

The Levelling-up and Regeneration Act 2023 (Commencement No. 9) and Planning and Infrastructure Act 2025 (Commencement No. 1 and Transitional Provisions) Regulations 2025 (No. 1370) were made on 18 December 2025 bringing into force various provisions in the Levelling-up and Regeneration Act 2023 and the Planning and Infrastructure Act 2025 on the specified dates.

Onshore grid investment – RIIO-3 price control final determinations

On 4 December 2025, Ofgem published a press release headed 'Ofgem unlocks £28 billion investment to maintain a safe, secure and resilient energy grid and to upgrade and expand capacity to meet growing demands'. This reports how, through Ofgem's price control announcement (see below), energy network companies have been given the green light for multi-billion-pound investment to strengthen the stability, security and resilience of Britain's energy networks. £10.3 billion of the total is for the electricity transmission network, with the balance for gas networks.

The press release notes that the £28 billion commitment will rise to an estimated £90 billion by 2031 across both gas and electricity networks.

Ofgem's RIIO-3 final determinations for the price control period from 2026 to 2031

Also on 4 December 2025, Ofgem published its RIIO-3 final determination decisions for the network price controls between 1 April 2026 and 31 March 2031 – this was preceded by the submission by the network companies in December 2024 of their RIIO-3 business plans and Ofgem's consultation in 2025 on its draft price control determinations. RIIO stands for Revenues = Incentives + Innovation + Outputs - it is Ofgem's framework to ensure that the monopoly network companies operating Britain's gas and electricity systems have sufficient revenue to invest in and run their networks. These RIIO-3 network price controls relate to electricity transmission, gas distribution and gas transmission. The current electricity and gas transmission and gas distribution price controls (known as RIIO-2) end on 31 March 2026.

Ofgem's consultation on licence modifications for the RIIO-3 price control

On 16 December 2025, Ofgem opened a consultation on the proposed changes to the licence conditions required to implement the RIIO-3 price control settlement for the transmission companies, gas distribution networks and the electricity system operator. This includes changes to the Special Conditions as well as some of the Standard and Standard Specials.

Capacity market

On 2 December 2025, DESNZ announced an open consultation on the Capacity Market (CM) – this is contained in a document titled 'Consultation on proposals to integrate low carbon technologies and enhance delivery assurance ahead of Prequalification 2026'.

The consultation document includes sections on the following CM topics / areas, being those where changes to the CM Rules and Regulations are considered to be required before the upcoming Auction Prequalification round commencing in July 2026, ahead of auctions in 2027:

• Managing the transition of Existing Generating CMUs into alternative schemes;
• Long-Duration Electricity Storage Cap and Floor (LDES C&F) – the consultation introduces proposals on the additional eligibility criteria LDES C&F recipients would need to meet to participate in the CM;
• Standardisation of Termination Fees and Credit Cover;
• Clarifying rules around Secondary Trading Entrants and CMU Transferors; and
• Introducing additional measures for Multiple Price Capacity Market (MPCM) eligibility.

CM consultation

On 4 December, Ofgem launched a consultation seeking views on a proposal to change the Capacity Market Rules to facilitate the use of Market-Wide Half-Hourly Settlement Systems.

Update to Parliament

On 17 December, DESNZ published its annual update to Parliament pursuant to section 5(4) of the Energy Act 2013 on progress made on the policy mechanisms implemented under the Electricity Market Reform programme, including the CM scheme.

UK Emissions Trading Scheme

On 4 December 2025, DESNZ made a number of announcements in relation to the UK's emissions trading scheme (UK ETS) including:

• the publication of the UK ETS Authority's response to the consultation on future markets policy setting out changes to markets policy for the UK ETS; and

• the publication of the UK ETS Authority's response to the consultation on extending the UK ETS cap beyond 2030.

Carbon Storage

On 9 December 2025, the North Sea Transition Authority (NSTA) launched the second carbon storage licensing round, offering 14 locations in Scottish and English waters for exploration and appraisal, with potential to provide future capacity to support industrial decarbonisation. The areas offered fall into two broad categories – depleted hydrocarbon fields and saline aquifer sites. These areas were chosen following extensive consultation with The Crown Estate and Crown Estate Scotland, amongst others. Five areas will be in Scottish waters, with nine off the coast of England. Successful applicants for a carbon storage licence from NSTA will also require a seabed agreement from either Crown Estate Scotland or The Crown Estate, before a project can progress.