The Energy Transition | UK government plans to approve more nuclear power plants

This week we look at the government's reforms to put England "back in the global race" for nuclear energy, the UK Net Zero Council's plans for the energy transition, NESO's Business Plan 3 and more.

Planning reforms allow the building of small modular reactors

On 6 February 2025, the prime minister and the Department for Energy Security and Net Zero (DESNZ) announced reforms to accelerate the development of nuclear power plants across England and Wales. As part of the government's Plan for Change, these reforms aim to reduce obstacles and expedite the construction of new nuclear facilities, including Small Modular Reactors (SMRs) for the first time.

The reforms include several key measures:

• Inclusion of SMRs in planning rules, allowing for the construction of mini-nuclear power stations in locations where they are needed, including co-locating with AI data centres which are energy intensive. SMRs are cheaper and quicker to build than traditional nuclear power plants, so these reforms are aimed at creating thousands of highly skilled jobs and delivering clean, secure and affordable energy.
• Removal of the eight-site restriction enabling nuclear sites to be built anywhere across England and Wales.
• Elimination of expiry dates on nuclear planning rules, to allow long-term planning for nuclear projects.
• Establishment of a Nuclear Regulatory Taskforce which will report directly to the prime minister. This taskforce will ensure regulations encourage investment to facilitate quicker and more cost-effective nuclear development. The government hopes the taskforce will help remedy the fact Britain is one of the most expensive countries to build nuclear power, by speeding up the approval of new reactor designs and improving the efficiency in engagement between developers and regulators. The taskforce will collaborate with international counterparts to enable designs from elsewhere to be used in Britain, reducing expensive changes. Finally, the taskforce will look at reducing duplication and streamlining processes where multiple regulators are dealing with the same issue.

The government has stated that only one nuclear power plant, Hinkley Point C, is currently under construction, with the last plant, Sizewell B, opening in 1995. In contrast, China is currently constructing 29 reactors while 12 are at the planning stage within the EU.  

Developers will also be able to suggest sites at the pre-application stage of the planning process, which aims to speed up overall timelines.

There will still be strict criteria for the location of nuclear reactors, restricting their construction near densely populated areas and military activity. Furthermore, the local community will be engaged, and high environmental standards enforced.

This approach to nuclear is integral to the government's plans to advance its Clean Power 2030 Plan.

NESO publishes RIIO-2 Business Plan 3

The National Energy System Operator (NESO) has launched its RIIO-2 Business Plan 3 (BP3) which focuses on the period from April 2025 to March 2026. This plan, which is the final one for the RIIO-2 regulatory period, outlines the organisation's strategic objectives and planned activities during a period of significant transformation in Great Britain's energy sector.

The plan addresses the growing complexity of the energy system by considering interactions between electricity, gas and other energy sources, and their interdependencies with sectors like water, transport and telecommunications. Fundamental to NESO's approach is the commitment to providing an independent and impartial perspective in energy system planning and operations to achieve optimal outcomes for consumers.

The plan outlines eight key performance objectives, with specific success measures to track progress and ensure accountability, reflecting the transformational changes in the energy system. These objectives include a secure and reliant energy system, CP30 implementation and establishing national and regional strategic whole energy plans.

Collaboration and stakeholder engagement are central to NESO's strategy. It sought input from a wide range of customers and stakeholders, including the Independent Stakeholder Group, to align its priorities with the energy sector's needs. NESO has set out various strategic priorities under BP3 which include taking a customer-centric approach, a focus on the importance of technology, data and digitalisation along with preparing for the challenges it expects to face in achieving a fully decarbonised electricity system.  

NESO expects the total costs of fulfilling its performance objectives under BP3 to be £690 million. This covers core operational costs, digital and data infrastructure, establishing the Future System Operator, and initiatives like the System-Wide Energy Plan, Regional Energy Strategic Planners and Digitalisation Strategy Implementation. A significant portion is dedicated to accelerating Clean Power 2030, enhancing cybersecurity and modernising NESO's business systems.

Ofgem expects that by March 2025 it will have conducted its review of BP3 and its supplementary materials, and will publish its draft determinations to provide an initial assessment of the plan. NESO and industry can then respond before Ofgem publishes its Final Determinations in spring 2025.

NESO is engaging with Ofgem on the performance framework for the BP3 period, with Ofgem expected to publish its consultation on the reporting requirements and assessment methodology in early February. Additionally, NESO is beginning discussions with Ofgem about the regulatory and performance framework for the period after the RIIO-2 price control ends in March 2026.

UK Civil Aviation Authority expands the Hydrogen Challenge

The UK's aviation industry regulator has announced the expansion and extension of its Hydrogen Challenge, which supports projects developing hydrogen as a zero-carbon fuel.

The initiative aims to foster innovation by providing support to projects developing technology and infrastructure required for the widespread use of hydrogen as an aviation fuel. Projects involved in the next stage of the initiative include research into hydrogen combustion in gas turbines, trials to test the storage, distribution and refuelling of hydrogen fuel, and the development of zero-emission unmanned aircraft to be used for logistics and offshore operations.

The director of communications, strategy and policy at the UK Civil Aviation Authority has said: “These trials keep the UK on course to be a world leader in hydrogen propulsion. We are working with some of the most innovative companies and minds to better understand this technology and how it might be introduced safely in the aerospace sector."

The regulator has announced that trials will now last three years with the aim of boosting the development potential of the projects included in the initiative.

UK's Net Zero Council meets to discuss plans for the energy transition

The relaunched Net Zero Council met for the first time on 5 February to discuss cross-sector plans to accelerate the transition to net zero.

The government has expanded the council, which was set up by the previous government, to include representatives from civil society as well as business leaders and local authorities. New members, including representatives from the Trades Union Congress and Local Government Association, joined returning members including the CEOs of Barrat Redrow, Siemens and Nestle to agree upon the council's priorities for 2025/2026. These will include:

• a focus on providing expert input to inform net zero strategies;
• supporting the delivery of sector roadmaps setting out sector transition plans and opportunities for investors;
• supporting small and medium-sized enterprises to decarbonise; and
• informing the government's approach to public engagement and supporting public participation in net zero.

The council aims to support the government's goals, which were set out in its Plan for Change, to create new jobs and drive economic opportunities during the transition to net zero.

Ofgem publishes open letter on electricity transmission network charging modifications

In a recent open letter, Ofgem has outlined its approach to prioritising and sequencing decisions on modifications to the Connection and Use of System Code (CUSC) related to Transmission Network Use of System (TNUoS) charges. This aims to ensure stability, predictability and the retention of locational investment signals within the charging regime.

Ofgem notes that the electricity transmission network charging landscape is currently inundated with numerous CUSC Modification Proposals (CMPs), many of which are interdependent, and therefore necessitate a well-coordinated approach to decision-making.

Ofgem intends to adapt its timelines to ensure effective sequencing of decisions, working closely with the CUSC panel to prioritise proposals based on their interactions.

A significant development in this area was the proposal for a temporary cap and floor on Wider TNUoS charges. Ofgem called on the industry to explore this intervention to reduce uncertainty around projected future TNUoS charges. Consequently, CMP444 proposed setting an upper and lower limit on the £/kW TNUoS tariffs paid by generators from 01 April 2026. A decision on CMP444 is expected by 01 July 2025.

The implementation of CMP444 has significant interactions with other proposals, such as CMP423 and CMP432, which could substantially alter Wider TNUoS charges. Ofgem plans to make decisions on CMP444 and CMP432 ahead of the CfD Allocation Round 7 in order to provide certainty to generators on the maximum level of TNUoS charges they may face.

Ofgem has reserved judgment on CMP315 and CMP375 until the outcome of the Review of Electricity Markets Arrangements (REMA), on the basis this could be detrimental to market stability otherwise. Similarly, CMP419 and CMP426, which address generation zoning and the treatment of "bootstraps", are also dependent on REMA decisions in relation to whether a zonal wholesale market will be introduced.

Ofgem states it has received a significant number of urgency requests over recent years. Moving forward, these requests will be scrutinised more strictly. Ofgem also anticipates, following the outcome of REMA, that it will undertake a comprehensive review of locational charging arrangements, prioritising long-term reforms over incremental changes.

Ofgem is encouraging industry to engage in the CUSC modification process, and consider, ahead of raising any proposals, whether the predictability and stability of the charging regime would be furthered by their proposal.

Hybrid metering arrangements for balancing mechanism units

NESO is inviting feedback and seeking information to better understand co-located projects, and the related metering and balancing mechanism configurations of these projects, to improve its offering of support in the future. For further information or to submit feedback, please visit this link before submissions close at 5pm on 21 February 2025.