The Energy Transition | UK government announces £300 million boost for offshore wind

This week, we look at the prime minister's £300 million boost to domestic offshore wind, the ambitious £6.5 billion hydrogen investment by Project HySpeed, the establishment of the Nuclear Regulatory Taskforce, UK Power Network's day-ahead "flex" market one year on and potential safeguards for zonal pricing risks.

GB Energy given a £300 million boost to win global offshore wind investment

The UK prime minister, Sir Keir Starmer, has confirmed that £300 million will be invested by GB Energy in the UK's domestic offshore wind sector. This announcement comes ahead of the summer spending review. The investment forms part of the £8.3 billion pledged to GB Energy over the course of this Parliament and follows initiatives such as the Clean Industry Bonus and the National Wealth Fund.  

The funding will aim to mobilise billions of pounds in additional private investment (accompanying the £43 billion already earmarked for clean energy projects since July) and will specifically target growth of the UK's domestic offshore-wind supply chains. Funding will be available for manufacturers developing offshore turbine components, floating platforms, cables and other crucial technologies. Applications are expected to open at the end of this year and, to be eligible, companies will need to show how the funding will help mobilise long-term investments into UK domestic supply chains.  

The prime minister has said: "Delivering the Plan for Change means winning the race for the clean energy jobs of the future, which will drive growth and help us reach clean power by 2030. That is why I am bringing forward much-needed investment in our domestic offshore wind supply chains, strengthening our security and creating good jobs for our welders, electricians, and engineers."  

Project HySpeed consortium aims for £6.5 billion of hydrogen investment

A new hydrogen-focused initiative, Project HySpeed, has been unveiled. An industrial consortium will be led by HydraB Power Group and include JCB and others.

The consortium will look to inject £6.5 billion of private sector funding into the UK hydrogen market – heeding the call of the UK government to scale low-carbon energy solutions.

The investment will be channelled into five main areas. These include production facilities that will aim to achieve 1GW of aggregated green hydrogen capacity, investment into hydrogen-powered heavy vehicles, the development of supply chain infrastructure to allow the produced hydrogen to be pumped to industrial gas users via the gas grid, and general hydrogen construction and training.

Around 15 hydrogen production hubs will be built as part of the project. The largest of these will have electrolysis capacity of over 300MW and will be located in Scotland. The others will be smaller hubs, and will be located throughout England and Scotland.

The HySpeed project will distance itself from the co-location approach. Instead, production hubs will be expected to inject the electrolytic hydrogen directly into the natural gas grid, while enabling industrial users in hard-to-abate industries the ability to purchase certificates for green hydrogen. This approach is more aligned with other decarbonising energy supply strategies. Over time, the hydrogen can also be available to supply nascent end uses such as in heavy transport – initially, buses – and in the construction sector.

The consortium will allow hydrogen producers to secure demand from bankable "offtakers" to enable debt financing without needing to rely on co-location. The HySpeed consortium has highlighted the benefit of offtakers from the space savings of moving away from co-location, the reduced dependency on electrification limits around grid connections and the more limited capital investment required to upgrade infrastructure (as compared to electrification).

UK government establishes Nuclear Regulatory Taskforce

 The UK government has announced the formation of the Nuclear Regulatory Taskforce to assess all areas of civil and defence nuclear regulation. Its aims are designed to identify opportunities to improve safety, environmental and planning regulatory systems applicable to the nuclear industry, so that the sector is best placed to support the UK's energy and national security.

The Taskforce will build on experiences of existing regulatory reviews to suggest appropriate measures to streamline the UK's nuclear regulatory system. The government press release states the Taskforce will compare the UK's performance with global benchmarks and deliver "clear, actionable recommendations". The Taskforce will also consider options for better international coordination so that reactor designs approved in other countries can be adopted quickly in the UK, reducing the need for expensive modifications.

The Taskforce's stated areas of focus are:

• Assessing the current regulatory structures.
• Reviewing applicable legislation and associated guidance.
• Evaluating the scope and capacity of regulatory bodies.
• Assessing the expectations on regulatory outcomes.
• Examining the processes within the nuclear sector.
• Supporting innovation and new nuclear deployment.
• Encouraging international alignment of regulatory approaches.

An interim report will follow ministerial discussions, with the final report due to be published in the autumn. Alongside the announcement, the Taskforce has launched a call for evidence seeking stakeholders' experiences and evidence relating to the nuclear regulatory framework which closes on 19 May. Stakeholders are invited to submit responses using this form.

UKPN day-ahead flex market delivers 4.4GWh in first year

UK Power Network (UKPN) has announced significant progress in coordinating energy flexibility on a local and national level since the launch of the Day-Ahead Flexibility Market in April 2024. Within a year, UKPN's Distribution Network Operator (DSO) has delivered 4.4GWh of energy, enough to power 15,500 homes monthly, and added over 40 designated flexibility zones by running more than 150 flexibility competitions.

The introduction of this day-ahead market as opposed to the previous bi-annual flexibility tenders has led to a wider range of participants including operators of electric vehicles, batteries and heat pumps being able to actively engage in flexibility services.

UKPN has collaborated with NESO to align transmission balancing markets. This ensures that participants have the results of the UKPN auction ahead of needing to decide on their availability for the NESO day-ahead auctions. Market access is delivered through the Localflex platform, operated by the European Power Exchange, or EPEX SPOT, which streamlines bidding, trading and settlement processes while avoiding conflicts with NESO’s market structure. EPOX SPOT employs a technology-agnostic approach that allows a variety of flexibility providers, thereby increasing profits for participants.

Alex Howard, head of flexibility markets at UKPN DSO said: “Our goal was to open the flexibility marketplace up to as many potential providers as possible. By offering providers more opportunities to engage and aligning services with NESO schedules, we’re helping to build a smarter, more adaptable energy network that supports our Net Zero future.”

DESNZ sets out potential safeguards for zonal pricing risks

The Department for Energy Security and Net Zero (DESNZ) presented an update on 23 April on the implications of a zonal pricing system on the Contracts for Difference (CfD) scheme. It addressed the risks presented by zonal pricing to CfD assets, particularly to Allocation Round 7 (AR7) bidders and potential mitigants if a zonal pricing regime is introduced.

DESNZ emphasised that it has not yet made a decision on whether to adopt zonal pricing or a reformed national pricing system. DESNZ acknowledged that investors preparing bids for AR7 require certainty that their asset's income streams would be protected under a zonal system.

During the presentation, DESNZ identified five main risks of a zonal system for AR7 bidders:

• Information risk, as there is uncertainty over how a zonal market might operate.
• Financial risk caused by locational pricing, investors do not know what price an asset will achieve for generation under a zonal system.
• Locational volume risk, how often generation might be curtailed without compensation.
• Potential increases to negative price periods.
• How transmission network use of system charges might be affected under a zonal system.

DESNZ proposed mitigations to address each of these risks. It said it will give further details on zonal pricing policy design to the market and Ofgem will provide more clarity on the principles for generators under zonal pricing prior to AR7.

It also confirmed that it does not expect negative pricing to occur more frequently under zonal pricing than it would under a national pricing system. Regarding locational price risk, DESNZ stated this would be mitigated entirely in the contract period through a zonal CfD reference price and this would be extended to match any extension to the CfD's term length, which is currently being considered by DESNZ after a consultation of industry.

To address the risk of generators selling lower volumes of power under a zonal pricing regime than it would under national pricing, DESNZ proposed that compensation would be paid through a financial protection scheme.

DESNZ set out three potential methodologies for calculating volumes eligible for protection under the financial protection scheme:

• An ex-ante approach, making payments based on an upfront view of the risk by using an asset's historic volume levels in the calculation.
• An ex-poste approach, making payments based on real-time data on the basis of how much volume an asset could produce in an unconstrained market compared to a constrained zonal market.
• A hybrid of these two approaches, where forecasts could be adjusted to reflect new data and network constraints.

DENZ confirmed that the selected option will be co-designed in partnership with industry.

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