The Energy Transition | Ofgem issues call for input into GB demand-connection reforms

This week we look at Ofgem's latest call for input into demand reform, NESO's call for input for balancing reforms, the Local Power Plan and more. 

Ofgem publishes a call for input on demand connections reform 

Ofgem has published a call for input (CFI) into reforming the demand-connections queue. The call builds on the update on demand connections that Ofgem published in November 2025.

The CFI identifies three main challenges faced by the demand queue. There is the size and the growth of demand, with Ofgem citing the demand queue as having increased by 84GW in the period from November 2024 to June 2025. There is also the presence of "non-viable" projects and there is a lack of a mechanism to prioritise strategically important projects such as data centres in the government's AI Growth Zones.

Under the proposal, Ofgem intends to reform the connection demand queue around three pillars and across two phases that would sequence priorities on a "curate now, plan next" basis. 

Pillar 1: curate 

This pillar will aim to strengthen the entry and membership requirements of the demand queue in order to strengthen the viability of projects entering the queue. Ofgem has proposed introducing a Curate Advisory Group to achieve this.

In Phase 1, Ofgem proposes introduction of datacentre-specific financial mechanisms, updates to the securities regime (for transmission connection projects) and strengthened readiness requirements for data centres. Ofgem is calling for input on three types of financial mechanisms: refundable deposit; progression commitment fee; and up-front non-refundable fee with the aim of deterring non-viable projects, encouraging projects that are non-viable to self-terminate and ensuring timely progression of the demand queue.

Phase 2 will develop the financial mechanisms, and readiness requirements for other demand types. 

Pillar 2: plan 

This pillar will focus on ensuring strategically important connections, with those most likely to drive economic growth given precedence in the demand queue. Ofgem is also considering the implementation of auctions for both reservation and reallocation of capacity.

Further details are expected in due course, but initial proposals will be prioritisation mechanisms to reserve and reallocate capacity for strategic projects as well as developing strategic plans to support networks. 

Pillar 3: connect  

Implemented across Phase 1 and Phase 2, the final pillar will work towards accelerating and increasing the number of grid connections for demand projects which are available.

The reforms under this pillar will work in conjunction with similar aims for the connection of generation, storage and interconnector projects, and will be developed by Ofgem's new connect task and finish group.

Responses to the CFI can be submitted via email to connections@ofgem.gov.uk. The window for response closes on 13 March 2026. 

NESO launches call for input on balancing, settlement and dispatch reforms   

The National Energy System Operator (NESO) has launched a CFI seeking views to inform proposed "Balancing, Settlement and Dispatch" reforms (BSD reforms) as part of the wider Reformed National Pricing (RNP) initiative, following the Review of Electricity Market Arrangements (REMA) summer update 2025 in which it was confirmed RNP would be introduced rather than zonal pricing.

RNP aims to increase the operational efficiency of the electricity system, better manage constraints and reduce related costs, optimise resource deployment through stronger locational signals, enhance data quality and facilitate the delivery of innovative technologies. The proposed reforms have been developed in collaboration with Ofgem and the Department for Energy Security and Net Zero (DESNZ).

The CFI invites stakeholder views on the following:

• Reducing the threshold for mandatory balancing mechanism participation. NESO states that this would enhance access to balancing resources and system transparency.
• Synchronising gate closure with market trading deadlines. NESO states that this alignment, instead of market trading deadlines being at the start of the settlement period, would increase certainty for required post-gate closure balancing actions.
• Mandating participants to align market traded positions with final physical notifications (FPN). NESO states that this would eliminate the risk it bears when undertaking balancing actions to rectify intentionally imbalanced positions taken by market participants.
• Transitioning from portfolio-level to unit-level bidding in day-ahead and intraday markets. NESO acknowledges that this may involve additional complexity and cost, but states it would improve visibility of market participant behaviour.
• Shortening the settlement period to fifteen or five minutes. NESO states that this would deliver more precise imbalance signals, encouraging participants to better align with demand profiles.

Responses to the CFI must be submitted by 5pm on 14 April.

NESO has also launched an Expression of Interest for stakeholders wishing to serve on an industry expert panel which will advise on the development of the BSD reforms. The expression of interest is open until 27 February and can be accessed here.

The delivery plan for the RNP reforms is expected from DESNZ in due course.

UK government publishes Local Power Plan to include £1bn for community energy projects  

DESNZ and Great British Energy (GBE) have together published the Local Power Plan to drive investment into local community energy projects. The plan is supported by £1 billion of investment from GBE, with DESNZ providing policy and regulatory backing to tackle barriers to community projects. This aims for every community to have the opportunity to own a local energy project, with a target of supporting an initial 1000 projects by 2030.

The plan sets out four strands of support that will be offered to community projects:

Support type 1: direct funding and finance 

Funding will be made available for all stages of a project's lifecycle. GBE will develop a range of "fair and accessible" funding models, which may include grants. Full details of GBE's funding support will be set out in its Capital Toolkit, which is set to launch in summer 2026. 

The toolkit is expected to offer mergence and development grants to support early-stage project development and investment in community energy groups, helping to achieve project viability and local community confidence.

Construction and operation loans will be offered to invest into local community project construction and to support communities buying a stake in larger renewable projects within the local area.

Local investment funding: to seek viable investment opportunities on a project-specific basis.  

Support type 2: capacity and capability 

In addition to direct funding, GBE will provide a team of experts to help communities plan and build projects. GBE intends to act as a coordinator to connect local community energy groups, local government and other stakeholders and strategic partners (for example, network operators and NESO) to ensure extensive support networks. 

Support type 3: long-term investment plan 

The plan acknowledges that some projects find it difficult to secure investment "because the energy system isn’t structured to recognise, encourage or financially reward locally produced energy". To change this, GBE will develop a business model that aims to allow local communities to directly benefit from local renewable energy projects, even where they have not been community developed.

The models cited in the plan to support community revenue seek to directly connect projects to local consumers on a physical or contractual basis, and include: private wire connections; direct supply via a licensed or exempt supplier; and long-term power purchase agreements (PPAs). 

Support type 4: policy and regulatory changes 

The plan as a "step change" in the way DESNZ works with communities to afford them the benefits of local clean energy generation. It will focus on facilitating community ownership of a stake in projects: developing a proposed model of mandatory shared ownership offers for local energy generation projects.

It will also look to improve access to energy markets: supporting and implementing code modifications (such as modification P442), encouraging PPAs between community energy groups and public sector buildings (building on the 2025 Autumn Budget pledge "to enable public-private partnerships for decarbonisation"), and improving market conditions for local community energy.

There will also be a focus on simplifying the sale of power through updating guidance around Class A supply licence exemptions for local community energy groups and incentivising suppliers to provide services and tariffs to local energy schemes.

And grid connection is to be made easier by exploring tailored support for community energy projects and engaging with the Regional Energy Strategic Plans to ensure local energy inclusion.

Throughout 2026, GBE and DESNZ will continue to support this first phase of the strategic plan to 2030, including through developing shared ownership templates and pilot projects. Full support for projects across the development cycle is expected to begin in 2027.

DESNZ publishes parameters for 2026-27 and 2029-30 Capacity Market auctions  

DESNZ has confirmed in a letter to NESO the adjustments to the Capacity Market auction parameters for the T-1 auction for delivery year 2026-27 and the T-4 auction for delivery year 2029-30.

The T-1 auction target for delivery in 2026-27 has been set at 6.3 GW, 0.5 GW higher than the T-1 target set in 2025.

The T-4 auction target for delivery in 2029-30 has been set at 39.4 GW, with a further 1.0 GW set aside for a future auction. This change incorporates a 0.7 GW increase recommended by NESO. However, it also factors in a downward adjustment (0.4 GW relative to NESO's recommendation) in light of Lynemouth Power Station's Contract for Difference heads of terms, which is expected to reduce the capacity to be secured through the Capacity Market.

The letter states that these adjustments are made on the basis of NESO's recommendations, accounting for technical considerations and expected non-delivery.

DESNZ has published a table outlining the T-1 and T-4 final auction parameters.

Separately, DESNZ has confirmed that it will not be proceeding with the policy proposal for the introduction of a Multiple Price Capacity Market, included in the consultation published in December 2025 on which we previously reported. Responses on the remainder of the proposals contained in that consultation are still expected in spring 2026.

This article was written with the assistance of Yasmine Jauffur, Oliver Derham and Adam Budd, trainee solicitors.