The Energy Transition | Spending Review allocations back transformation across the UK energy sector

This week we look at the Spending Review's areas of focus in the energy sector, NESO's timeline for connections reform, new National Grid technology to boost capacity, and more. 

Spending Review allocations back transformation across the UK energy sector

Chancellor Rachel Reeves unveiled the UK Spending Review 2025 (SR25) on 11 June, outlining the government’s plans for public expenditure across energy infrastructure, security, health and other sectors. In line with the broader Plan for Change, the review focuses on transforming the energy sector to enhance energy security, sustainability, and economic growth.

The Department for Energy Security and Net Zero (DESNZ) was awarded a 16% increase in its expenditure limit, which represents the largest proportional funding increase across departments and highlights the government's efforts to prioritise the clean energy transition. This funding will be deployed in a range of areas across the sector including nuclear power, energy efficiency in homes and Carbon Capture Usage and Storage (CCUS).

Nuclear power

SR25 has allocated £14.2 billion to the Sizewell C nuclear power station. The sister plant of Hinkley Point C, which is currently being developed in Somerset, is expected to generate power for six million homes and create more than 10,000 jobs including 1,500 apprenticeships.

The government is also advancing the development of Small Modular Reactors (SMRs) and nuclear fusion by way of £2.5 billion funding to enable Europe's first SMR programme. DESNZ has confirmed that Rolls-Royce is the sole preferred bidder to build the UK's first SMRs. To complete the procurement process, Rolls-Royce will enter into a "strategic energy partnership" with Great British Energy - Nuclear (previously Great British Nuclear) later this year. A first site of development will also be selected imminently. 

Once Hinkley Point C, Sizewell C and the SMR fleet are connected to the grid, (which is anticipated in the 2030s), it is expected that they will deliver more nuclear power to the grid than has been achieved over the previous half-century. 

The government has also announced £2.5 billion of funding to develop the world's first prototype fusion energy plant, known as Spherical Tokamak for Energy Production (STEP). The plant is set to be based at the site of the former West Burton A coal power station, otherwise known as "Megawatt Valley", and was selected in 2022 as the location for the project by the government. Unlike traditional nuclear power, fusion produces minimal radioactive waste. The prototype STEP plant will serve as a critical milestone towards achieving commercial fusion energy. Additionally, the delivery of this project is set to create over 10,000 jobs ranging from construction to operations, which will help promote a sustainable energy source that could revolutionise the global energy landscape.

Energy efficiency in homes

The government is also prioritising energy efficiency by allocating £13.2 billion dedicated to the Warm Homes Plan. This funding supports the rollout of heat pumps, energy efficiency upgrades, and low-carbon technologies such as solar panels and battery storage. The initiative aims to reduce energy bills for millions of households while promoting cleaner and warmer homes.

CCUS projects

The government has committed £9.4 billion to funding CCUS projects, including the Acorn and Viking clusters in Scotland and Humberside, and the East Coast and HyNet Clusters to decarbonise energy production and help the UK meet its net-zero targets.

Stimulating growth

Collectively, these energy and infrastructure investments form part of a wider £120 billion capital investment package aimed at stimulating economic growth and regional development. The government is also encouraging private investment in energy and housing sectors through financial mechanisms, including £300 million of Great British Energy support, specifically for offshore wind supply chains.

Further details will be outlined in the upcoming 10-year infrastructure strategy and a new industrial strategy, expected by the end of this month.

NESO reveals timeline for connections reform

The National Energy System Operator (NESO) has published a comprehensive new timeline for the delivery of connections reform in 2025 and 2026.

Crucially, the timeline sets out that Readiness Declarations to demonstrate the  maturity and deliverability of projects must be submitted before 29 July. For transmission-connected projects, these should be submitted directly to NESO, and for distribution-connected projects to the relevant Distribution Network Operators (DNOs) who will then submit the evidence to NESO.

Readiness Declarations are required from all projects in the connections queue that are not yet energised as part of the "Gate 2 to Whole Queue" realignment process. This will involve submitting evidence to satisfy the Gate 2 Readiness Criteria and Strategic Alignment Criteria (which includes the availability of protection clauses set out in NESO's final gate 2 methodologies).

Once the window for submission closes, NESO will make an assessment of each project's evidence against the Gate 2 criteria, and begin the process of reorganising the connections queue which NESO estimates currently contains over 770 GW of generating capacity.

While the deadline for submission evidence is 29 July, NESO has encouraged developers to make their submissions as early as possible, providing a two-day grace period for applications to be corrected in the case of errors if the submission is made in the first two weeks of the window. In the final week, this period is reduced to one day. NESO states in the timeline that "early submission benefits everyone". Customers are expected to be available until 6 August to respond to NESO's questions on the applications, after which there will be no further opportunity to clarify the submissions made.

Once all the evidence has been considered, the timeline sets out NESO's intention to provide its determination this September as to whether projects are Gate 1 or Gate 2, and whether they will sit in Phase 1 of the reordered queue (connections up to 2030) or Phase 2 (connections 2031-2035). The timings for issue of offers will vary, with all transmission customers prioritised by the end of 2025.

Matt Vickers, director of connections reform at NESO, stated that "developers of all sizes will need to work with us, and network operators, to help make sure connections reform is a success by engaging in the process at the earliest opportunity."

National Grid installs dynamic line rating technology to boost grid capacity 

National Grid is deploying new technology along 275 kilometres of overhead power lines to boost grid capacity and allow more renewable power to flow through existing transmission lines. 

In partnership with LineVision, National Grid is installing dynamic line rating (DLR) sensors on several major circuits across the North-South power system boundaries. The DLR sensors provide live, continuous data about the electricity transmission lines, which is then used to calculate a "dynamic line rating" using factors such as size, resistance, maximum operating temperature and weather conditions. The DLR indicates the maximum amount of power that can be transmitted through the overhead line and highlights pockets of spare capacity in transmission networks. 

This technology differs from previous means of calculating a safe operating estimate, which used a "static" line rating on the basis of static or assumed values. The new technology will provide grid operations that are more informed and highlight spare capacity to integrate more renewable power into the grid. It is estimated that by addressing these grid constraints, the change could save consumers approximately £20 million per year as well as unlocking enough additional capacity to power 75,000 homes per year. 

The move forms part of a wider push to address capacity constraints. National Grid is deploying a number of other technologies such as advanced power flow controllers, which can instantly redistribute power to circuits with capacity, to enable the connection of more renewable energy into the grid. 

Corin Ireland, system operator: transmission owner optimisation engineer at National Grid, said: "Innovative projects such as this will boost the capacity of our existing infrastructure and help increase the network's capacity for renewable power, delivering lower costs for consumers whilst continuing to maintain world-class reliability." 

Government backs new British AI innovations to help the UK become a clean energy superpower

DESNZ has confirmed the ten shortlisted projects which are being supported to develop AI solutions as part of the government's AI Opportunities Action Plan.

The projects include AI-enabled drones that map heat loss across neighbourhoods, identifying which homes need insulation upgrades, smart panels that turn bricks into radiators to warm homes from the outside, and software that cuts emissions in cement production.

The winner will secure the £1 million Manchester Prize and be announced in early 2026. The prize is funded by the Department of Science, Innovation and Technology and aims to unlock UK AI innovation and growth. The winning solution will need to demonstrate technical innovation and an evidenced road map to 2030 adoption, scale, and impact. To help develop their technologies, £100,000 of seed funding has been provided to each of the teams as well as £60,000 of compute credits to train and scale their models.

Julia King, chair of the Manchester Prize judging panel, said: "The rapid advancement of AI means we have tools like never before to achieve the goal of decarbonising the economy while supporting individuals, communities and businesses to thrive."

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