The Energy Transition | Government aims for £30bn investment in clean energy industries by 2035

This week we look at the Clean Energy Industries Sector Plan, Ofgem's Long Duration Electricity Storage cap and floor regime consultation, flexibility markets and low-carbon industrial products.

Government aims for £30bn investment in clean energy industries by 2035

The government announced on 23 June the publication of its Clean Energy Industries Sector Plan that aims to at least double current investment levels across clean energy industries to over £30 billion per year by 2035. The 10-year plan to boost investment and create thousands of jobs in the sector has been developed in collaboration with industry, local and devolved governments, and trade unions.

The plan identifies sector industries with growth potential, including wind, nuclear fission, fusion energy, carbon capture use and storage, hydrogen, and heat pumps. The government has additionally highlighted the importance of fusion energy as a driver of innovation and energy security, announcing £2.5 billion of investment over the next five years. This area will be led by the STEP (Spherical Tokamak for Energy Production) fusion programme, which aims to deliver a prototype fusion power plant in the East Midlands by 2040, creating thousands of jobs.

As part of the plan, Great British Energy (GBE) will receive an additional £700 million to construct manufacturing facilities for clean-power technologies, building on the £300 million dedicated to offshore-wind supply chains. This joins the new £1 billion Clean Energy Supply Chain Fund for GBE to support companies with the potential to grow supply chains. The National Wealth Fund has also been enabled to take on higher-risk investments, with a total of £27.8 billion in capital confirmed.

The plan follows the Spending Review's historic investment in clean energy, joining over £40 billion of private investment announced since July. The plan's additional funding brings total public and private funding in clean energy supply chains to £1.7 billion.

The plan aims to create hundreds of thousands of jobs across the country, target specific barriers to investment in priority areas, such as industrial and coastal communities, and reduce Great Britain's vulnerability from fossil fuel reliance by using clean energy to create energy security.

The government has established the Industrial Strategy Advisory Council to develop the plan and review its progress, stating it will also continue to collaborate with key industry stakeholders throughout the delivery of the plan.

Ofgem consults on 'cap and floor' regime for long-duration electricity storage

Ofgem has released a consultation on its proposed financial parameters and policies for the first application window of its long-duration electricity storage (LDES) "cap and floor" regime. This framework is designed to facilitate the deployment of LDES technologies, which Ofgem hopes will play a vital part in meeting the government's Clean Power 2030 target. The consultation seeks views on the financial design aspects, including the setting of cap-and-floor levels, cost treatment and the allocation of risk between project developers and the consumer.

The consultation explores how cap-and-floor levels are determined, considering the role of competition and how the levels may influence a project's risk profile and attractiveness to investors. These decisions will influence risk management and the financial viability of projects. The floor mechanism is designed to provide protection for projects by ensuring a minimum revenue, which should increase the project's bankability and opportunities to secure financing. Conversely, the cap mechanism ensures that consumers share in projects' success when they are receiving high revenues, while still allowing projects the incentive to profit from successful operation.

The consultation sets out the proposed rationale for the treatment of capital and operating costs, which include development expenses, spares and the cost of decommissioning. Ofgem has proposed incentives to encourage efficient construction and operation in an attempt to protect the consumer by ensuring successful applicants take care to avoid the budget overrun that often befalls large projects. Additionally, financial resilience measures are included to help projects maintain financial stability throughout the regime. The consultation also addresses the transition of projects into the post-regime period.

Alongside the consultation, Ofgem has published a cap-and-floor financial model and accompanying handbook, which provide detailed explanations on the proposed calculation of revenue levels and assessment of project bids.

The consultation is open until 17 July. Ofgem has invited stakeholders to share views on the proposals and is "especially keen" to receive feedback on the financial parameters and the financial model used to determine cap-and-floor levels. Ofgem aims to publish the final framework in the third quarter.

Energy Networks Association reports threefold increase in flexibility markets

The Energy Networks Association (ENA) has reported that the UK's electricity networks secured 9GW of flexibility in the 2023/2024 reporting year. This represents a nearly threefold increase in flexibility market procurement since the previous year and the ENA estimates this has led to up to £300 million in savings for consumers.

Energy flexibility markets are designed to enhance the ability of the electricity grid to adjust quickly to balance supply and demand and include demand-side response services to incentivise consumers to increase or decrease their consumption in a given period. Flexibility has become a crucial issue for modern energy systems as the grid increasingly relies on intermittent renewable energy sources, and the government has set ambitious flexibility targets as part of the Clean Power 2030 Action Plan. The Department for Energy Security and Net Zero (DESNZ) estimates that there will be a five-fold increase in consumer-led flexibility by 2030.

The ENA is driving its flexibility targets through its Open Networks plan, which will be transitioned to Elexon, recently named by Ofgem as the market facilitator for flexibility. Elexon will deliver and operate the new Flexibility Market Asset Registration system which is due to launch in 2027.

Avinash Aithal, head of open networks at ENA, said: "Flexibility is becoming more mainstream thanks to industry efforts to remove barriers to participation and simplify the market processes overall."

Government launches policy framework for growing low-carbon industrial products

The government published on 23 June a consultation document on a policy framework to grow the market for low-carbon industrial products. The document outlines the government's strategy to accelerate the adoption of low-carbon industrial products, particularly steel, cement, and concrete used in construction. The initiative is central to both the UK’s net-zero 2050 goal and its target of decarbonising emissions-intensive industries, while boosting economic growth, innovation and quality jobs in the "foundational" economy.

The policy framework focuses on the following three pillars:

• Embodied emissions reporting framework: This framework standardises the measurement, reporting and comparison of embodied carbon in industrial products through consistent methodologies combining life-cycle assessments and installation-level data. It balances voluntary and mandatory elements to ensure high-quality, usable emissions information for all stakeholders.
• Product classifications: Previously called voluntary product standards, these classifications will categorise steel, cement and concrete products according to their embodied carbon levels. This system will assist buyers in recognising truly low-carbon products and promote green procurement choices.
• Green procurement policies: The government plans to create product-specific green procurement guidelines to encourage public and private buyers to prioritise low-carbon products. This demand-driven approach aims to boost market growth and motivate producers to invest in decarbonisation technologies.

The consultation also examines long-term policies such as ecolabelling and mandatory product standards to enhance market signals and provide regulatory certainty, while highlighting the importance of balanced implementation, data integrity, and stakeholder engagement.

Beyond environmental benefits, the framework is crucial for UK competitiveness, job creation and innovation. It aligns with international climate commitments such as the Industrial Deep Decarbonisation Initiative and both COP26 and COP28 pledges for accelerating industrial climate action.

The consultation is open to responses from stakeholders, which can be submitted via the online portal or by email to consultation.lowcarbonproducts@energysecurity.gov.uk until 15 September.

This article was written with the assistance of Ellie Smyk and Imogen Drummond, trainee solicitors, Tomisin Agbonifo, paralegal, and Sumaiya Hafiza, solicitor apprentice.