Energy Regulatory Update (UK) – April

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.

 

Reformed National Pricing (GB’s wholesale electricity market)

A Reformed National Pricing Delivery Plan (RNP Delivery Plan) was announced by the Department for Energy Security and Net Zero (DESNZ) on 21 April 2026, replacing the Review of Electricity Market Arrangements (REMA). By way of background, the government decided in July 2025 (when REMA concluded) to retain, but to reform, the single national wholesale electricity market, with the reforms to take place under a new programme called Reformed National Pricing (RNP).

The RNP Delivery Plan details: (i) the proposed policy levers that might (through reform) influence the siting and investment decisions made by generators and others; (ii) constraints management and balancing and settlement reforms; and (iii) how these policies / reforms will be further refined and delivered. Together, the reforms should reduce system costs and improve efficiency, reduce costly network constraints, and strengthen day-to-day system operation.

As set out in the RNP Delivery Plan, there are three key areas for RNP - these are outlined below.

 

Siting and investment policy levers (capable of affecting decision making)

Views are sought in the RNP Delivery Plan on reforming the available policy levers (identified further below) so as to influence decisions regarding the siting of new generation and storage assets (what gets built, where and when) in a way that helps to implement the Strategic Spatial Energy Plan (SSEP) efficiently and effectively. This will help to ensure new generation, storage and network assets are developed in locations that minimise long‑term system costs.

The SSEP is the geographical plan, commissioned by government and being developed by the National Energy System Operator (NESO), which will set out how much electricity and hydrogen generation and energy storage, and of which technologies, is needed, and where and when it is needed, in Great Britain’s (GB’s) power system from 2030 to 2050 to meet the government’s objectives, thus guiding investment in new assets. The SSEP (which is due to be published by NESO in autumn 2027, subject to government endorsement, and will be renewed by NESO every three years) will give the optimal position on spatial planning, and will feed into other spatial plans being prepared by NESO, including the Centralised Strategic Network Plan, which relates to the transmission network needed to achieve the SSEP.

The key policy levers which affect siting and investment decisions (as relevant to delivering the SSEP) comprise the following (set out in more detail in Chapter 2 of the RNP Delivery Plan):

• network build;
• seabed leasing;
• planning reform;
• the connections regime;
• locational charges (currently delivered through the Transmission Network Use of System and the connection charging regimes). Note that Ofgem launched a call for input on 26 March 2026 on the topic of proposed changes to transmission network charging – this is in ‘Locational Charges and Regulatory Siting Levers under Reformed National Pricing’; and
• investment support mechanisms for generation and storage (e.g. the Contracts for Difference (CfD) scheme, the Regulated Asset Base model, the Hydrogen to Power Business Model, the power CCUS Dispatchable Power Agreement (DPA) business model, the Capacity Market (CM), the interconnector cap and floor regime, and the Long Duration Energy Storage (LDES) cap and floor regime).

The RNP Delivery Plan seeks stakeholder views on different options for how the above siting and investment levers could be reformed as a coherent package of interventions, each delivering a different balance between the role of strategic planning and markets in driving new investment across the power system. DESNZ has an emerging preference for options 2a, 2b and 3 (as outlined in Chapter 2 of the plan), which place different weight on the roles of the grid connections regime and locational charging mechanisms as the two primary levers to drive decisions on what investment happens where and when. Depending on how the connections regime and locational charging mechanisms are reformed, there could also be implications for the design of the government’s investment support mechanisms for power generation, such as the CfD or CM schemes.

It is noted in the RNP Delivery Plan that DESNZ does not intend to make changes to pre-existing agreements made before reforms to the siting and investment levers are introduced. For instance, it is not its intention, as part of the RNP process, to make changes to existing connection offers or to retroactively make changes to CfD or CM agreements that have already been issued.

The objective of the RNP programme is a market in which developers have the long-term certainty needed to invest in and maintain projects with high fixed costs and low running costs, and in which the costs to consumers (of generation, network, and system balancing) are minimised as far as possible. Through the RNP policy reforms DESNZ expects to see a number of benefits, including: (i) a more efficient system which reduces the amount of additional investment required in new generation and network infrastructure; and (ii) better ‘join-up’ between generation and network planning, and clearer signals to developers about which projects to invest in where and when, which will help address the main underlying causes of network constraints and the attendant costs.

The RNP Delivery Plan includes in Chapter 2 a consultation on ‘Reformed National Pricing: reforms to siting and investment levers’. DESNZ aims to take decisions on the optimal combination of siting and investment levers, and respond to the consultation, later in 2026.

 

Constraints management

This area of RNP relates to measures to further reduce the volume and cost of network constraints (including in the short-term, pre-2030) and to develop better coordination between generation and network planning, and improve real time efficiency. Constraint costs arise because the electricity network cannot always transport power from zones where it is generated to where it is needed.

 

Measures to help decouple global gas and GB’s electricity prices

A number of policy announcements were made by DESNZ on 21 April 2026 in a news item titled ‘Decisive action to break influence of gas on electricity prices’ (DESNZ announcement) and in a speech by the Energy Secretary published under the title ‘The era of clean energy security’.

The "influence" referred to in the title to the DESNZ announcement relates to the "pay-as-clear" auction (marginal pricing) model used in GB, in which the type of electricity generation with the most expensive marginal cost (as needed to meet electricity demand) sets the wholesale electricity price. In practice, this is often gas-fired electricity generation. Indeed, as of 21 April gas sets the price of electricity in GB around 60% of the time. This is down from 90% in the early 2020s, but, notwithstanding that improvement, the pay-as-clear pricing system still leaves GB’s electricity market exposed to prices in international fossil fuel markets, which is particularly problematic when there is an energy price shock due to wars and geopolitical events.

This cost problem, arising from pay-as-clear, is easing (as noted above) with the passage of time, because many clean energy projects that are built are on fixed price contracts with the government-owned Low Carbon Contracts Company (ie. contracts for difference (CfDs)). This feature, given the way CfDs work, serves to protect consumers from the consequence of gas price volatility driving up electricity prices; but a significant share of renewable generation remains exposed to the issue of wholesale electricity prices regularly being set by the volatile gas price.

To address this issue, the DESNZ announcement reports how the government is, that day, setting out new measures designed to break the link between gas prices and the price of electricity, by seeking to transfer legacy low carbon generators onto CfDs.

This is to be done by two related policy measures:

• Voluntary CfDs: This involves offering CfDs to existing low-carbon generators that are not currently on those contracts (such generators supply around one third of Britain’s power). Given the way CfDs fix the price, this will help to protect against higher electricity bills when gas prices spike, as it will reduce the share of the electricity generation market exposed to movements in gas prices. The low-carbon generators to be offered wholesale CfDs (WCfDs) will not be obliged to accept the WCfD, but the tax measure outlined below will act as an economic incentive to do so. This voluntary process will be the subject of a consultation in due course, and is proposed to be introduced later in 2026, with an intention of running an allocation process in 2027. A WCfD would see an eligible generator give up their current forward wholesale revenues in exchange for a fixed power price achieved via the CfD (in other words, the prospect of high merchant generation revenues arising from periods of high gas prices would be given up in favour of stable revenues). Under this proposal, it is envisaged that generators accredited under the Renewables Obligation (RO) would continue to receive support via the RO in the way they do currently, with only their wholesale revenues being exchanged for a fixed price CfD.
• Updated Electricity Generator Levy: Immediate action is to be taken, through the existing Electricity Generator Levy, to tax excess profits from electricity generation by raising the levy rate from 45% to 55%, ensuring an increased proportion of the extraordinary electricity revenues generated when the gas price spikes is available to government to support businesses and households with the cost impacts of the conflict in the Middle East. On 21 April, HM Treasury published the ‘Chancellor’s statement to Parliament’which reports (amongst more) that the Chancellor is extending the Electricity Generator Levy beyond its scheduled conclusion in 2028, and, ahead of that, increasing the rate as referred to above. The Electricity Generator Levy was first announced in the Autumn Statement of November 2022 and was enacted by Part 5 of the Finance (No. 2) Act 2023. It does not apply to electricity generated under a CfD with the Low Carbon Contracts Company.

 

Contracts for Difference Scheme – CIB, AR8 and more

Clean Industry Bonus scheme reforms

The Contracts for Difference (Sustainable Industry Rewards and Contract Budget Notice Amendments) Regulations 2026 (No. 411) (Regulations) were made on 14 April 2026 under powers conferred by the Energy Act 2013, coming into force on 15 April 2026 - they were published with an explanatory memorandum. As noted in the memorandum, the Regulations relate to the Clean Industry Bonus (CIB), formerly known as the Sustainable Industry Rewards, which was introduced into the Contracts for Difference (CfD) scheme (the UK’s main renewable energy support scheme) in 2024. The CIB currently provides extra CfD revenue support to offshore wind developers who invest in supply chains in the UK’s poorest communities, or in cleaner supply chains. Developers submit bids identifying which supplier they may invest in, and the scheme assesses the value for money of doing so through a competitive allocation of funding.

The CIB scheme is being amended following public consultation, including extending the scheme to onshore wind by 2027 (though not for the 2026 round), placing additional conditions on an offshore wind developer’s approach to fair work before making subsidy available, and improving the processes of the existing policy (not least simplifying the application process and clarifying budgetary powers, force majeure provisions, and the scheme’s sunset clause). These reforms require amendments to be made to various regulations. The Regulations do this by amending the Contracts for Difference (Allocation) Regulations 2014, the Electricity Market Reform (General) Regulations 2014, and the Contracts for Difference (Standard Terms) Regulations 2014.

Please refer to the above explanatory memorandum for the detail.

CIB window / CIB SAU report

On 22 April 2026, DESNZ updated its ‘Contracts for Difference (CfD) Allocation Round 8: Clean Industry Bonus framework and guidance’ page, reporting that the CIB window is confirmed and that it will open on 13 May 2026 and close on 21 May 2026.

Draft documents have been replaced with the final versions, including the Clean Industry Bonus Allocation Framework 2026 and the Guidance for Fixed Bottom and Floating Offshore Wind projects on Monitoring the Implementation of Clean Industry Bonus.

A few days later, on 30 April, the Competition and Markets Authority published a report by the Subsidy Advice Unit (SAU) providing advice to DESNZ concerning the CfD CIB for Allocation Round 8 scheme. The report sets out the SAU’s evaluation of DESNZ’s assessment of compliance of its proposed subsidy scheme with the requirements in the Subsidy Control Act 2022.

CfD Allocation Round 8

On 23 April 2026, DESNZ published the final statutory notices required to launch CfD Allocation Round 8 (AR8), comprising:

• the Allocation Round Notice – by this notice the Secretary of State establishes an allocation round to be known as ‘Allocation Round 8’ or ‘AR8’ - the dates of the application window will be published in due course; and
• the Clean Industry Bonus (CIB) Framework Notice – this relates to the CIB Allocation Framework of April 2026 and allocation process dates (see above).

DESNZ has updated its ‘Contracts for Difference (CfD): Allocation Round 8’ collection page regarding the above.

Amendments to CfD Allocation Regulations

The draft Contracts for Difference (Allocation) (Amendment) Regulations 2026 (Regulations) were laid in Parliament on 20 April 2026 under the draft affirmative procedure, together with an explanatory memorandum. These Regulations make several minor and technical amendments to the Contracts for Difference (Allocation) Regulations 2014 (Allocation Regulations) following a public consultation. The changes will improve the operational efficiency of the CfD scheme during the assessment of applications for the construction and operation of renewable electricity power stations. The purpose of these amendments is to:

• allow NESO (the delivery body for the CfD scheme) to correct certain types of errors made during the assessment of CfD applications;
• allow NESO to consider additional documentary evidence or information when considering appeals from applicants whose applications have been determined by NESO to be non-qualifying; and
• clarify how NESO should treat pending applications where decisions on the eligibility of those applications remain undetermined at the point at which the regulations require NESO to proceed with the contract allocation process, i.e. to commence the process leading to the decision on the award of contracts to successful applicants.

CfD update

Chapter 5 of the Reformed National Pricing Delivery Plan, as announced by DESNZ on 21 April 2026 (reported on above), contains a CfD update.

Connections reform and battery energy storage

On 16 April 2026, DESNZ and Ofgem (the energy regulator for GB) published a joint open letter concerning connections reform delivery and the level of battery storage capacity in the reformed gated connections queue (ie. the queue resulting from the implementation of the reform programme being delivered by NESO, as approved by Ofgem just over a year ago on 15 April 2025). Some key points from the letter are outlined below (please see the letter for the full picture).

A feature of the queue formation outcome (pursuant to the above connections reform programme) is a high volume of battery storage projects advancing to Gate 2 relative to the capacity ranges set out in DESNZ’s Clean Power 2030 Action Plan (2030 Action Plan). DESNZ and Ofgem remain committed, as set out in the 2025 Clean Flexibility Roadmap, to maintaining a market environment that supports the deployment of 23-27 GW of grid-scale batteries by 2030, and welcome the sector’s work to bring forward so many mature projects. However, whilst the reform process removed many non‑viable battery projects and significantly reduced the pre-reform queue, there is still 14.8 GW above the top of the 2030 Action Plan battery capacity range for 2030 and 61.7 GW above the projected battery system requirement in 2035.

The above outcome has been driven by the number of ‘protection’ measures in the connections methodologies (part of connections reform) for well‑advanced projects, such as those with planning consent, capacity market agreements, or near‑term connection expectations. The protection measures included in the reforms were introduced to provide fairness for developers and to seek to maintain investibility of near-term projects, but DESNZ and Ofgem recognise that the effect of these protections, coupled with the speed with which battery technologies can typically secure planning consents relative to other technologies, has resulted in a materially higher level of battery progression to Gate 2 than anticipated.

In consequence, DESNZ and Ofgem are working closely with NESO and the network companies, as well as engaging with project developers, to understand the effects of the battery surplus, as part of a broader commitment to ensuring the reforms minimise costs for consumers and support the timely issuance of high‑quality, robust connection offers for all technologies in delivering the government’s clean power and growth mission.

DESNZ and Ofgem note that NESO’s annual consultation on its connections methodologies (published in March 2026) sets out the possibility for the disapplication of protections under clauses 3a and 3b, such that only battery projects that have secured a revenue support scheme would be eligible in the next window. This would address further oversupply in future windows, as it is expected that an additional 8 to 20 GW of battery projects currently in Gate 1 could qualify for a Gate 2 offer. DESNZ and Ofgem also recognise that some Gate 1 battery projects may secure LDES cap and floor agreements, which would make them priorities for connection by 2030 to support delivery of Clean Power 2030 ambitions.

Both DESNZ and Ofgem remain committed to ensuring that the connections process is delivered efficiently and in a way that supports strategic priorities and maintains investor confidence. They will continue to work closely with all parties to monitor the impacts of the current battery connection surplus and to consider potential actions needed to support this process.