The Energy Transition | NESO issues first-ever summer electricity margin notice

This week we look at the first electricity margin notice issued during summer, proposals for an Oversubscribed Technologies Commitment Fee to reduce oversubscription of projects with "Gate 2" status, a proposed Wales-Scotland interconnector, Ofgem's long-duration electricity storage selection, and the government's international climate finance strategy for 2026. 

NESO issues first-ever summer electricity margin notice 

The National Energy System Operator (NESO) has confirmed that an electricity margin notice (EMN) was issued on 23 June. An EMN is an operational tool available to NESO that notifies the market of any additional generation required due to an anticipated shortfall within a specified period. Its purpose is to encourage generators to make further capacity available, where possible, during that period. Historically, these notices have been used mainly during winter demand peaks.

This is the first EMN issued by NESO since January 2025 and the first ever issued in the summer period. The notice was withdrawn on the afternoon of 24 June, once NESO had recovered the margin for the period. NESO said that it was the result of extremely high temperatures driving increased electricity demand at a time when wind and gas generation were anticipated to be at a much lower level than usual. 

The summer timing underscores the challenges of a changing system, as Britain's higher temperatures interact with the intermittency of a renewables-based grid. NESO stressed that the use of an EMN does not indicate an electricity shortfall but reflects how changing weather patterns are affecting typical system assumptions as the energy transition advances. 

NESO reiterated that it remained confident sufficient electricity was available to meet summer demand, adding that an EMN is just one of the tools available in managing changing demand profiles.

Neso proposes commitment fee to address grid oversubscription 

NESO has released an update on the progress of proposals to introduce an Oversubscribed Technologies Commitment Fee (OTCF) under code modification CMP470, which would set a minimum level of securities for any technology where connection requests exceed Clean Power 2030 (CP30) capacity targets.

Following initial proposals in March and a working group report published in June, the code administrator consultation marks the last stage before the proposals are formalised in a final modification report.

NESO's connection reform programme resulted in significantly more projects achieving Gate 2 status than was initially required, particularly for battery energy storage systems. Earlier projections suggested there would be a 14.8 GW of surplus capacity in viable battery projects above the government's CP30 target of 23-27 GW. 

The figures within CMP470 suggest the position has become even more pronounced. Across Great Britain, 83.2 GW of battery projects have secured Gate 2 status and, once operational capacity is included, the forecast total rises to 90.6 GW, more than three times the 2035 target under CP30. 

NESO estimates that a further 20.9 GW of batteries could qualify under protection clauses 2b or 3a in the next application window (under code modification, CMP434). If so, total capacity across operational projects and projected Gate 2 schemes would reach around 111.5 GW, on the assumption of no attrition, which is over four times the megawatt target for 2035.

Rather than disapplying protections introduced by CMP434 and CMP435 and disqualifying batteries from receiving Gate 2 offers, NESO is proposing to introduce an OTCF: a financial mechanism to promote more efficient use of grid connection capacity. 

Under this approach, the OTCF would operate as a liability, with security requirements, applied to projects falling within an oversubscribed technology category. A financial floor acts as a top-up, so that both the overall cancellation charge and the cancellation charge secured amount reach a specified minimum level. The OTCF would be recalculated twice a year for each project, reflecting both the degree of oversubscription for that technology and specific projects' existing securities position. NESO proposes that the floor would initially be set at £3,000 per MW, which would increase to £5,000 per MW if oversubscription did not reduce by more than 25%. If the oversubscription reduces below 25% against target capacity, the OCTF would cease to apply. Exemptions are also proposed for co-located projects where the total cost of works to facilitate the connection is less than £250,000.

CMP470 is currently at the code administrator consultation stage, with a final modification report expected on 6 July and implementation scheduled for 10 business days after an Ofgem decision, anticipated around July 2027. 

National Grid and SP Energy Networks propose Wales-Scotland interconnector 

National Grid Electricity Transmission (NGET), the transmission system operator for England and Wales, and SP Energy Networks (SPEN), the transmission system operator for the central and south of Scotland, are jointly proposing a new high-voltage direct current (HVDC) offshore connection between Scotland and Wales. 

The joint project, known as Western Link 2, is designed to carry up to 2 GW of power between Ayrshire on the west coast of Scotland, and Gwynedd in north Wales. The current proposal includes approximately 260km of subsea HVDC cables and 25km of underground cables, connecting to converter stations and sub-stations.

The first stage of public consultation on the Welsh elements of the project has now opened; SPEN carried out its first consultation in November 2025. Feedback is sought from stakeholders and communities on several offshore, nearshore and onshore elements of the project. 

Consultation on Western Link 2 follows the recent approval of Eastern Green Link 2; a £4.3 billion project connecting the transmission networks in Aberdeenshire and North Yorkshire. Both projects highlight the importance of large-scale grid upgrades for meeting the government's Clean Power 2030 aims. 

Ofgem releases provisional results of long duration electricity storage programme 

Ofgem has released its 'Minded-to-Decision' list of projects it has provisionally selected to received support under the long-duration energy storage (LDES) cap and floor programme. 

For the purposes of this "Window 1" of the cap and floor scheme, LDES covers energy storage technologies capable of storing and discharging electricity over periods of at least eight hours. 

The portfolio formed by the 16 provisionally selected projects covers four technologies: pumped storage hydro; compressed air energy storage; lithium-ion batteries; and vanadium redox flow batteries (VRFB). The locations of the projects are distributed across Scotland and England, with one proposed VRFB project in north Wales. The portfolio is expected to ease pressure on transmission and distribution networks (lowering system costs) and reduce the need for costly new infrastructure or constraint management measures.

Ofgem has launched a consultation to gather stakeholder views on the provisional selections, which will inform the final decision as to which projects receive LDES cap and floor support. The consultation closes on 7 August, with final determinations expected later this year.

UK government sets out its climate finance strategy for 2026 

The government marked London's Climate Action Week in June with the release of its fourth international climate finance strategy. The policy paper outlines its ambition to work "further and faster" with others to build resilient food, water and energy systems, with a view to strengthening global stability. The 2026 strategy marks a shift from the historic approach of treating climate finance as "aid programming alone" to a whole-of-government model.

The government is committing £6.7 billion of additional public finance to tackle climate change and nature loss, including finance backed by UK Export Finance and British International Investment. The  strategy seeks to drive progress through several mechanisms. It looks to bolster UK energy security by reducing reliance on fossil fuels through increased diversity of energy generation technologies) and accelerate the low-carbon transition by deploying professional services across key sectors such as artificial intelligence, energy and technology.

This article was written with the assistance of Osborne Clarke trainee solicitors Alice Smith and Elise Hill, and solicitor apprentice Jackson Clay.