The Energy Transition | Government pushes through termination fee for UK Capacity Market

This week we report on new termination fees for the UK's Capacity Market, the House of Lords' report on Britain's electricity grid infrastructure, GB Energy's rooftop solar panel roll-out on schools, DESNZ's energy saving scheme for the hospitality sector and the government's confirmation that new build homes will benefit from solar panels by default.

DESNZ confirms new Capacity Market termination fee

The government has confirmed, following its consultation on the reform of the UK capacity market, that it will introduce new termination fees for unproven demand side response (DSR) Capacity Market units (CMUs).

Where any unproven DSR CMUs fail to obtain a DSR test certificate by the deadline, they will be subject to a termination fee of £5,000/MW. This fee will apply to both T-1 and T-4 Capacity Market auctions in the hope it will deter participants from dropping out of one agreement (under either of the auctions) to fulfil its obligations in the other agreement. The termination fee will be supplemental to the existing loss of credit cover which is also set at £5,000/MW, and will apply to all DSR tests for agreements secured from auctions in 2026.

The Department for Energy Security and Net Zero (DESNZ) has stated that the penalty introduction was proportionate and necessary. Where a participant fails to achieve the DSR test certificate in T-4 auctions, due only one month prior to the first delivery year, there is no opportunity for the lost capacity to be replaced – the intention is therefore, that threat of penalty for those operators failing to achieve the DSR test certificate will reduce this risk.

Opponents to the measure, in response to the consultation, suggested that its introduction could create a barrier to entry for DSR resulting in reduced numbers of market participants due to the increased liquidity required to cover any potential fees.

The consultation response also provides confirmation of approach on other Capacity Market issues – including opt-out status, a register and more.

House of Lords publishes a report on delivering Britain's grid infrastructure

The House of Lords Industry and Regulators Committee has released its report, Power Struggle: Delivering Great Britain’s Electricity Grid Infrastructure, addressing the challenges and reforms to build a secure, affordable, and low-carbon electricity grid by 2030. The committee has highlighted the UK’s historic difficulties with major infrastructure projects and calls for a fundamental overhaul of grid planning, regulation and delivery. The report published on 4 June warns that existing systems are inadequate to meet the urgent demands of the net-zero transition and suggests that delays put renewable energy projects at risk and weaken investor confidence.

Institutional framework

The committee highlighted the interconnected roles of the National Energy System Operator (NESO), Ofgem, network companies and electricity generators in developing the UK’s electricity grid. It noted the central role Ofgem plays in balancing affordability, energy security and investment in decarbonisation. The committee said that this can result in difficult trade-offs and urges the government to provide clear strategic guidance to Ofgem to ensure regulatory decisions align with national energy targets. The report also highlighted NESO’s expanded role which combines operational system balancing with long-term strategic planning. It noted that NESO’s success depends on adequate resources, clear mandates and strong collaboration with other stakeholders.

Zonal pricing

The committee supports the introduction of zonal pricing, highlighting that it better reflects local supply and demand, and will incentivise, for example, energy-intensive businesses to relocate to areas closer to generators. The report stressed, however, that careful management of the transition is needed in order to protect those unable to relocate.

Grid connections

The report also recognised the recent grid connection reforms but warned that a narrow focus on pre-2030 projects risks neglecting vital future investments. It urged improved strategic planning led by NESO and better resourcing of local planning authorities through ring-fenced fees to speed up connection approvals.

Planning strategy

The committee acknowledged that slow and under-resourced planning processes at national and local levels threaten infrastructure development. It recommended "ring-fencing" planning fees and creating a coordinated roadmap that integrates energy systems to reduce duplication and increase investor confidence. To promote accountability, the report urges the government to publish progress updates on key delivery metrics every six months, allowing for scrutiny and timely adjustments.

Baroness Taylor of Bolton, committee chair, emphasised the urgency: “given the scale of changes needed...our report questions the feasibility of meeting the clean power target. Time is already running out, and there is no room for complacency. The government and the sector must ramp up their efforts to have a chance of success.”

First schools install Great British Energy solar panels

An initial tranche of schools across England have installed solar panels backed by Great British Energy (GBE), following the government's announcement in March of the state-owned company's first major funding project of £180 million. The solar panels are estimated to save the 11 schools a total of £175,000 per year on their energy bills. The government intends to reinvest these savings back into the schools to support the education system in line with its "plan for change".

Of the total £180 million funding scheme, which focuses on support for schools and hospitals, around £80 million is intended to support 200 schools. The remaining schools set to benefit from the scheme will be announced this summer, and the government aims to have all solar panels installed by the end of 2025.

Juergen Maier, the chair of GBE, said: "Within two months we are seeing schools supported by our scheme having solar panels installed so they can start reaping the rewards of clean energy – opening up the opportunity for more money to be spent on our children rather than energy bills."

New DESNZ backed scheme to save £3m for the hospitality sector

The government has announced £350,000 of funding for a new trial run by Zero Carbon Services (ZCS), a net-zero adviser in the hospitality sector. The trial runs until March 2026, and will provide 615 small and medium-sized hospitality businesses free energy, together with carbon reduction assessments. The carbon reduction assessments are focused on identifying cost-effective solutions to carbon-related challenges, such as upgrading heating and lighting, implementing new setting, and switching to low-energy alternatives. ZCS has estimated that the average pub loses £2,000 per year due to energy waste.

The trial aims to lower energy bills for the businesses involved, leading to an anticipated total saving of up to £3 million for those businesses.

In order to participate, businesses need to apply directly via the ZCS website. The participants will then be selected at random. To be eligible to participate in the trial, applicants must have a smart meter installed on the premises. The output of the trial will be a carbon reduction plan and three months of support from a ZCS "carbon coach".

Mark Chapman, CEO of ZCS, said: "Most venues have opportunities to save energy, food and money without realising it. By combining smart data with one-to-one coaching, we help operators take simple, practical steps to reduce waste, lower emissions, and improve day-to-day efficiency. It’s about making small changes that add up — cutting waste, protecting profits and building a stronger, more resilient sector."

Government confirms new build homes will have solar panels by default

The government has announced that, as part of its proposed changes to the Future Homes Standard (to be published in autumn 2025), the majority of new homes will benefit from solar panels by default. The changes to the Future Homes Standard will also outline plans for homes to benefit from heat pumps, heat networks, and high energy efficiency.

The typical existing UK home could save around £530 per year as a result of installing rooftop solar.

Building regulations will be amended to promote renewable electricity generation – in the majority of cases, solar generation for the first time (with appropriate adjustments made for new homes in shadier locations).

The previous government proposed that developers must install either solar panel coverage equivalent to 40% of a newbuild home's floor coverage or no solar panel coverage at all. These new proposals outline that, if developers cannot meet the first requirement, they would still be required to install a "reasonable amount" of solar coverage.

The government is now working with industry to refine the technical detail for the plan, ahead of publication of the final Future Homes Standard in the autumn. It is expected that there will be a transitional period after publication for developers to adjust to the regulation changes.

Chris Hewett, the chief executive of Solar Energy UK, said: "The solar industry is very glad to hear that almost all new homes will be fitted with solar power from under the Future Homes Standard. Making solar panels a functional requirement of the Building Regulations will cut energy bills, lower carbon emissions, help drive polluting natural gas off the grid and improve our nation’s energy security, too."

This article was written with the assistance of Adam Budd, Tomi Agbonifo and Ellie Smyk.