The Energy Transition | Government to amend Contracts for Difference regulations

This week's edition looks at refinements to the Contract for Difference (CfD) eighth allocation round (AR8), the National Energy System Operator's (NESO) annual consultation on connections methodologies, the UK fusion energy strategy, the future of multi-purpose interconnectors, and the Department for Energy Security and Net Zero (DESNZ) consultation on permitted development rights for onshore wind turbines.

Government to amend Contracts for Difference regulations

The government has published its response to the proposals in chapter five of its consultation on refinements to CfD AR8 and confirmed that it will introduce legislative changes to achieve three aims.

Correcting assessment stage errors

The first aim concerns the correction of delivery body errors at the assessment stage. This will apply to projects that were issued with a non-qualification determination without all grounds for disqualification having been provided or that were qualified in error.

NESO will be able to issue a new or amended non-qualification determination in these cases (subject to the contract allocation framework (CAF)), within timescales to be confirmed in the CAF for each allocation round. It remains the responsibility of applicants to request a non-qualification review – a  tier-1 appeal – on receipt of a non-qualification decision from NESO. 

Widening the scope of appeal evidence

The second aim concerns the consideration of additional evidence and information to correct errors in the tier-1 appeal stage. Applicants will be able to submit further documentary evidence and information to NESO alongside their tier-1 reviews, with greater detail on permissible types of such evidence to be set out in the CAF.

However, the government intends this change to allow correction of minor or non-material errors, rather than to cover a situation where essential documentary evidence or information has not been provided by the relevant deadline. These provisions are intended to be based on the equivalent under the Capacity Market framework.

Updating the pending applications framework

Third, the government has confirmed it will revise pending applications regulations to address delivery issues. These changes would expand the definition of "pending applicant" to include those awaiting a tier-2 decision from Ofgem, those within the window to appeal to the High Court or Court of Session following an upheld non-qualification, and those whose court appeal has not yet been determined.

They would also remove the requirement for the delivery body not to become aware of the content of a pending bid – reflecting the practical reality that NESO does already receive and process pending bids – and clarify that the delivery body must determine whether a pending application would have been successful had it participated in the auction, where an applicant becomes qualifying in the period between issue of the proceed notice and the CfD notifications having been sent, and the secretary of state did not issue a re-run or halt direction.

Next steps

The government plans to bring forward secondary legislation to amend the Contracts for Difference (Allocation) Regulations 2014 and, subject to parliamentary approvals, provide further clarity on the CAF before the AR8 application window opens in July.

NESO publishes annual consultation on GB connections methodologies 

NESO, in support of its licence obligation to keep under review the mechanisms underpinning connections reform, has opened its connections methodologies annual consultation.

The consultation seeks views on proposed changes to the connections methodologies introduced as part of the "Gate 2 to Whole Queue" (G2TWQ) process. These changes range from minor and clarificatory to more material – or category A – and are proposed for enduring application windows, the first of which is expected to open in the third quarter this year.

The proposed changes reflect concerns arising from the G2TWQ process: increased demand for connections; battery oversupply; attrition and reallocation, (projects leaving the queue before they connect); the treatment of projects requiring repowering; and the treatment of hybrid projects – those with more than one technology type at one point of connection.  These are reflected in the proposed category A changes:

Project designation methodology

On project designation methodology, NESO proposes updating the definition and application of technology readiness levels (TRLs) to provide better clarity, more optionality and ease of application to energy innovations.

Where projects have met milestones M2 or M7, this will be considered an alternative indicator of maturing, equivalent to TRL 8 or 9.

Gate 2 criteria methodology 

NESO proposes removing the need for applicants to have an existing agreement that was unsuccessful at G2TWQ to be eligible for protection clause 2b (PC2b). The proposal includes extending PC2b to cover offshore wind leasing rounds that have an associated strategic network design from NESO.

For projects that are neither protected nor designated, and within technology zones that are oversupplied both zonally and nationally, NESO proposes introducing a right for NESO or network companies to identify that a project has not met the strategic alignment criteria prior to any initial or detailed checks. NESO also proposes removing the requirement on distribution network operators to provide an initial view to NESO on alignment with the government's Clean Power 2030 (CP30) plan for small, medium and large embedded generators. 

Connections network design methodology 

NESO proposes clarifying, by way of a capacity reallocation process, that any successful appeal projects will be placed at the front of their Gate 2 tranche and using either the land on which the project will be sited or the location of the requested point of connection to determine the CP30 zone relevant to queue formation – on the basis that, in enduring windows, new applications will not have a contracted or confirmed point of connection.

NESO also proposes clarifying the meaning of capacity allocation, which is the process by which a project without a gate 2 offer is allocated and issued one, and reallocation, the process by which projects with a gate 2 offer are reallocated capacity surrendered by a project exiting the queue. It also proposes making the reallocation process simpler and more effective.

The consultation remains open until 21 April. 

Government sets out UK fusion energy strategy

The government has published its fusion energy strategy that sets out plans to accelerate research and development, attract investment through the UK Fusion Investment Prospectus to encourage and support skills growth through improved training and research programmes.

The strategy provides a breakdown of how £2.5 billion in public funding for fusion research and development will be spent over the next five years. Some £1.3 billion is allocated to UK Fusion Energy – formerly UK Industrial Fusion Solutions – and its prototype fusion power plant in West Burton, Nottinghamshire.

A further £45 million will go to Sunrise, a 1.4 megawatt (MW) computer that will be the largest fusion-dedicated artificial intelligence (AI) supercomputer in the world. Developed in collaboration between the UK Atomic Energy Authority and Cambridge University, Sunrise will use AI to accelerate fusion design, modelling and operations.

The strategy aims to support thousands of jobs in the UK by 2030, including significant investment in apprenticeships.

Lord Vallance, minister for science, innovation, research and nuclear, said that the fusion strategy would enable the UK to "lead the way on research, innovation and skills for a future of limitless fusion energy."

Ofgem confirms market arrangements regime for multi-purpose interconnectors 

Following the 2023 consultation on market arrangements for multi-purpose interconnectors (MPIs), the government and Ofgem have concluded that future MPIs should operate within separate offshore bidding zones (OBZs) under implicit trading arrangements. They consider this market model to improve market efficiency, reduce adverse flows and improve the integration of offshore renewables compared with home market alternatives.

Under the new model, offshore wind farms connected to MPIs will be placed into a separate market zone. The government has noted stakeholder concern around the need for clarity on future trading arrangements and compensation for offshore wind farm owners to address concerns over the expected lower revenues under the OBZ model. It recognises these issues and continues to consider the steps required to implement this change and confirms that updates will be provided in due course.

Ofgem has indicated that a further consultation on development of the MPI framework would take place in early 2026 – although this has not yet been issued.

Government consults on permitted development rights for onshore wind in England

The government has launched a consultation on expanding permitted development rights (PDRs) for onshore wind turbines. This consultation also considers whether the current legislation, which was introduced in 2011 and is unchanged, remains fit for purpose. The DESNZ consultation seeks input on three proposals respectively for non-domestic and small-scale, large-scale and domestic developments.

Non-domestic and small scale

The government proposes introducing new PDRs for small-scale - those under 50 MW - non-domestic onshore wind turbines in England. The aim is to encourage the installation – such as by businesses, farms, and public sector organisations – of single wind turbines. 

Large scale

The second proposal is not to introduce a new PDR for larger installations, such as repowering or community energy projects, on the basis that the higher environmental impact of larger, modern turbines is better addressed through the planning system.

Domestic 

The third proposal is not to amend existing domestic PDRs for onshore wind, given the limited uptake of domestic turbines to date and concerns that amending the restrictions could lead to inappropriate developments.

The consultation seeks views on the scope and design of the new PDR, including on eligibility criteria, siting and size restrictions, limitations and conditions, and the role of planning authorities. 

Related issues

It also covers the interaction with environmental impact assessment requirements and whether other contexts exist that would benefit from a permitted development right for onshore wind.

The PDRs consultation closes on 10 June.

This article was written with the assistance of Osborne Clarke trainee solicitors Alice Smith and Elise Hill.