The Energy Transition | UK government confirms framework detail ahead of Contracts for Difference Allocation Round 8

This week's edition covers new documents published by the government on Allocation Round 8, NESO's proposal to manage repetitive re-trading, National Grid's new flexibility service, the national consultation on Britain's nuclear manufacturing future, and the government's response to the call for evidence on corporate power purchase agreements.

UK government confirms framework detail ahead of Contracts for Difference Allocation Round 8 

The Department for Energy Security and Net Zero (DESNZ) has published the Contracts for Difference (CfD) allocation framework for Allocation Round 8 (AR8), including standard terms and conditions and statutory notices. 

DESNZ's updated notices published on 6 July confirm and implement changes previously announced in the government's earlier response to the AR8 consultation. These include measures on surrendered CfD capacity, hybrid metering, floating offshore wind, or FLOW, longstop extension, other deep offshore wind (ODOW) technology category, the "Gate 1" connection exclusion, and the visibility of sealed bids.

Applications open on 20 July 2026 and close on 7 August. Pots 1 and 2 cover delivery years 2028/29, 2029/30 and 2030/31; pots 3 and 4 cover 2029/30, 2030/31 and 2031/32; and pot 5 covers 2029/30 and 2030/31.

Solar, onshore wind, run-of-river hydro, and floating and other deepwater offshore wind projects with AR8 contracts will be offered an additional year for delivery compared with AR7, to reflect the "growing scale and complexity of projects."

Strike prices

A price and pot notice sets out administrative strike prices for each technology type. It confirms that, in addition to having visibility of anonymised bids for solar photovoltaic (PV), onshore wind and offshore wind, the secretary of state will also have the ability to look inside anonymised bids for floating offshore and ODOW.

Following the approach for offshore wind in AR7, the government will also be able to increase budgets for pots 1-4, but only be where an unsuccessful bid "represents strong value for money". Pot 3 will carry separate clearing prices for offshore wind projects connected to different transmission- and distribution-system tariff zones.

The government says that it is minded not to apply a separate clearing price based on project size; further details will appear in the contract budget notice published following the assessment of qualifying applications.

Administrative strike prices, applicable to the following technologies are set out in 2024 prices, are: floating offshore wind £271 megawatt-hours (MWh); offshore wind £113/MWh, onshore wind (more than 5MW) £92/MWh; ODOW £271/MWh, and solar PV (more than 5MW) £75/MWh.

DESNZ published further details of clearing prices for all technologies in its notice for AR8 prices and pots on 6 July.

Connection thresholds

The government also clarified several aspects of the AR8 contract allocation framework. It confirmed that projects falling below the transmission impact assessment threshold, which were consequently outside the "Gate 2 to Whole Queue" process, will not be required to evidence a Gate 1 connection point or capacity reservation, nor "Gate 2" status. It has also confirmed this will apply to AR8, AR9 and beyond.

The finalised budget is expected to be published between 17 September and 19 November, with results anticipated between 27 November and 17 February 2027.

NESO proposes new approach to managing network constraints

The National Energy System Operator (NESO) has issued a quarterly update on the Constraints Collaboration Project.

NESO has proposed managing repetitive re-trading by focusing on curtailing generation, rather than managing the charging-up or turning-down energy storage, when there are network constraints.

The operator is still considering various solutions to reduce the large costs this imposes on consumers: in 2025, this was estimated to be between £58 million and £98 million, rising by around 50% between the 2024/25 and 2025/26 financial years. NESO has shortlisted short-term and longer-term options, primarily "prioritising redispatch actions on generation", and plans to consult on them in the coming months.

NESO is also reconsidering whether to introduce a short-term constraints management market. This would involve identifying likely constraints in day-ahead trading and arranging for redispatch to mitigate them and associated costs. NESO is modelling different solutions and their potential effect on the wholesale price.

National Grid DSO launches flexibility service for network resilience in storms

National Grid's Distribution System Operator (DSO) has introduced a new flexibility service, called Responder, aimed at ensuring network resilience during severe storms. The service asks customers to bring forward their energy use via flexible demand turn-up, ahead of predicted weather events.

Responder's introduction marks the first time the DSO has procured large-scale flexibility across its entire network, rather than within specific constraint management zones.

Severe storms can damage the electricity network, creating additional pressure on resources required to keep power supplies running. Responder aims to reduce this pressure by seeking to reallocate demand, inviting customers and flexibility providers to adjust their electricity use, for example by pre-heating homes and using appliances.

National Grid DSO expects to first deploy Responder from September through to March 2027.

UK consults on priorities for investment into manufacturing within the nuclear sector

The High Value Manufacturing Catapult (HVMC), which acts as a strategic delivery partner of the UK's civil nuclear programme under the Advanced Nuclear Framework, has published a consultation on the opportunities for the UK's nuclear manufacturing sector.

The consultation cites estimates for investment of £100 billion across the civil and defence UK nuclear industry over the next decade. HVMC seeks stakeholder input on the main priorities to benefit from that investment, and how to best increase the UK's nuclear manufacturing capacity, supply chains and workforce. The information gathered from this process will be used to shape a 10-year nuclear manufacturing strategy.

HVMC proposes a strategy framework built around four "pillars", designed to close the gap between innovative developments and deployment at scale. They are: market development, matching national demand and supply opportunities; improving industrial-scale capability; scaling the domestic supply chain; and accelerating digital transformation.

The consultation also seeks views on strategy priorities, current weaknesses in Britain's supply chains, specific regulatory commitments that can boost growth and investment, and how quality control and certification regimes can better support participation in the sector.

UK government sets out position on corporate power purchase agreements

The government has published its response to its call for evidence on corporate power purchase agreements (CPPAs). 

The call for evidence emphasised the government's view that CPPAs are essential for generators to access a long-term route to market, while simultaneously providing businesses with competitively priced clean energy over the long term. The call for evidence sought industry opinions on how to make CPPAs more competitive and efficient, with a view to accelerating market growth and covered four areas.

Attractiveness over alternatives

Responses identify that CPPAs are generally well regarded by industrial and commercial electricity consumers, particularly for providing long-term price certainty (typically 10-15 years) which effectively hedges against a volatile energy supply market for a longer period than many alternative arrangements offer.

CPPAs can also provide a more tangible link between electricity consumption and low-carbon energy generation than, for example, purchasing unbundled renewable energy guarantees of origin (REGOs) or signing up to "green" tariffs. Concerns included often onerous credit requirements to enter into a CPPA and barriers within the domestic market to virtual and financial power purchase agreements, including accounting and collateral barriers) which are much more prevalent in other jurisdictions.

Additional capacity

A majority of respondents agreed that CPPAs can incentivise new low-carbon generation, noting that revenue certainty over the term of a CPPA can "underpin" project finance and significantly reduce a project's exposure to merchant risk. Respondents also noted that the CPPA market allows for a broader pool of buyers, linking generators directly with corporates seeking an identifiable link to low-carbon generation projects.

However, respondents were also clear how much additional capacity is incentivised depends heavily on the prevailing market framework. In particular, the interface with the CfD scheme is identified as a "major issue" for CPPA uptake, alongside other issues such as grid constraints and permitting processes that undermine the viability of new projects.

CPPAs are also generally acknowledged by suppliers to provide long term revenue certainty, creating a new route to market. However, CfDs are still viewed as the prevailing route to market for large-scale generators and CPPA pricing is often linked to the CfD regime.

Boosting growth

Many respondents supported the introduction of government-backed CPPA credit support or a guarantee scheme, under which the government absorb a portion of the counterparty credit risk experienced by generators when seeking a long-term offtaker. Advocates argue that would increase the bankability of a CPPA for generators while opening up the arrangements to a broader range of offtakers.

Respondents also recommended CPPAs be excluded from certain generation-related levies, including the CfD Supplier Levy Obligation, Renewables Obligation, Feed-in Tariff and Climate Change Levy. Advocates suggest that this would avoid a perceived "double charge" for additionality, and increase the competitiveness of CPPAs through reduced prices. To address the barrier of minimum volume requirements, respondents recommend greater support for demand aggregation, such as through multi-buyer or pooled CPPA structures, as a way to spread the counterparty risk for generators and boost liquidity within the CPPA market.

Regulatory adjustments

From a regulatory perspective, respondents identified several potential to adjustments which could make CPPAs more attractive.

Reform of the REGO scheme was highlighted as an adjustment that would better accommodate CPPAs through the introduction of time-matched generation certificates to increase the value of a CPPA. Respondents considered that clearer guidance on the exemption to the requirement to hold a supply licence would help increase the viability of private wire arrangements. They also called for prioritising CPPA projects within the reformed grid connection queue and enduring connections reform programme.

International learnings

The call for evidence sought opinions on international best practice within equivalent markets, which stakeholders believe could benefit the domestic CPPA sector. Respondents were clear that "no single intervention" will be effective alone, and called on the government to provide a suite of complementary reforms focused on the identified constraints.

Options included state-backed credit mitigation practices of the kind prevalent in markets such as Norway and Spain, and CPPA contract standardisation applied in certain European markets. On aggregation, Italian, Spanish and Nordic platforms were cited as having improved market access and lowered barriers to entry.

Next steps

The government says it will continue to engage with stakeholders on these point, but has not included a specific timeline or framework for doing so.