The Energy Transition | Contracts for Difference scheme to support UK 'repowering' projects

This week we look at amendments to the Contracts for Difference regime looking to Allocation Round 7 and beyond, NESO's commitment to reducing battery skip rates, and more.

Amendments confirmed to Contracts for Difference regime for Allocation Round 7

The government has confirmed several amendments to the Contracts for Difference (CfD) scheme ahead of Allocation Round 7 (AR7). The key changes include: allowing onshore wind farms undergoing repowering to bid into the scheme, an extension of the existing "phasing" support process to floating offshore wind projects, as well as confirmation that the appeals process will be brought forward to occur before each allocation round begins. The amendments take effect as part of AR7, with successful projects announced by mid-2025.

Proposed changes to hybrid metering arrangements and indexation, which is currently linked to the consumer prices index, have not been incorporated in AR7, nor has repowering for other technologies – although the government has sought industry views to assess their potential inclusion in future amendments to the scheme. 

Repowering

Commencing from AR7, onshore wind farms will be able to apply for finance for repowering at the end of their operational life and may begin to replace their infrastructure while still operational. This is to minimise the period during which sites are not active and therefore not able to generate electricity.

The eligibility criteria to receive funding is as follows:

• The projects must already be eligible for funding under the CfD scheme.
• The projects must have reached the end of their operating life, which is 25 years for onshore wind sites, though the application may be made while still operational.
• The projects must align with the CfD's overriding objectives for intervention, in particular those with high upfront capital costs and significant price risk.

Floating offshore wind phasing support

Floating offshore wind projects will now be able to take advantage of the "phasing" policy under the CfD scheme. Phasing allows for projects to be built in multiple stages and was introduced to ensure financial support for these projects mirrors the commercial realities of their construction.

The introduction of phased support seeks to reduce construction risk, encourage the construction of projects with larger generation capacity, and improve floating offshore winds' commercial viability.

NESO commits to reducing battery skip rates

Following a round table discussion with leading representatives from the energy sector, the National Energy System Operator (NESO), has pledged to take four actions to improve its use of battery storage. These actions form part of NESO's response to an open letter from a coalition of battery storage companies which highlighted the missed opportunities caused by high battery skip rates (on which we have reported).

NESO hopes the following four short-term actions will meaningfully impact skip rates:

• Updating their dispatch algorithm in the control room.
• Hiring new resource staff in the control room.
• Implementing new transparency models.
• Publishing an in-depth report outlining an agreed independent skip rate calculation methodology.

The actions are all scheduled to be carried out throughout November, and NESO hopes that they will increase their ability to track, measure, report on and reduce skip rates. This is particularly important as NESO forecasts that by 2030 there will be a need for four to five times the UK's current battery capacity. NESO will reconvene the group in December in order to review progress.

NESO states that: "In response to industry feedback, we are also committed to doing further work on a number of code modifications, to review and clarify the ’30 minute rule’ and to review balancing reserve and wider reserve procurement strategies."

NESO commissioned to develop the first Strategic Spatial Plan for future energy infrastructure in Great Britain

In a joint letter, ministers from the UK, Scottish and Welsh governments have commissioned the National Energy System Operator (NESO) to create a Strategic Spatial Energy Plan (SSEP) for the energy system across Great Britain.

The SSEP is the first of its kind and will assess and present optimal locations for new types of energy infrastructure, planning up to 2050. The initial focus of the SSEP is on electricity generation and storage, including hydrogen assets, with future iterations potentially including other energy sources. The first plan is expected to be published in 2026.

To deliver the first SSEP, the full commission recommends that NESO establishes an SSEP Committee, drawing members from NESO, the UK, Scottish and Welsh governments, and Ofgem.

The commission also sets out expectations for NESO's methodology. These involve recommendations for detailed economic modelling, environmental assessments, and extensive public and stakeholder consultations. It is also expected to consider other demands on land and sea, such as food production, transport and nature recovery.

The SSEP will propose a number of future "pathways", each of which outline plans for what Great Britain's future energy infrastructure could look like. These pathways, once proposed, will be considered by NESO and ultimately the UK Energy Secretary. The SSEP pathway which strikes the best balance between energy security, decarbonisation, environmental sustainability and value will be put forward for publication. It is intended that the published SSEP will be endorsed by the UK, Scottish and Welsh governments, as well as Ofgem.

It is intended that the SSEP will be updated regularly to expand its scope to cover a wider range of energy sources and systems, eventually becoming the blueprint from which future plans for all of Great Britain's energy infrastructure will be based.

The SSEP will complement and feed into the government's wider strategy for achieving its clean energy targets. It is intended to provide useful guidance to the industry and to investors, also ultimately reducing costs and grid connection delays. According to the commission, this is needed to deliver a faster and better planned transition to clean power by 2030. The potential benefit to investors has been highlighted by the minister for energy, Michael Shanks, who said the approach will provide the certainty and stability investors have been "crying out for".

Commenting on the SSEP, NESO Chief Operating Officer, Kayte O’Neill, said: “We are delighted to receive this formal commission as NESO to develop this plan and bring together our expertise and that of our partners to develop this critical blueprint for Great Britain’s energy system of the future."

NESO proposes new cap and floor for transmission charges

Following an open letter from Ofgem (on which we reported earlier), NESO has proposed to implement a cap and floor on several elements of generators' Transmission Networks Use of System charges (TNUoS).

The aim of this scheme is to give generators increased certainty ahead of potential energy pricing changes which could occur as a result of the government's Review of Electricity Market Arrangements.

The cap and floor mechanism would be implemented by a modification to the Connection and Use of System Code (CUSC), referred to as CMP444. The change would set a cap and a floor in £/kw for the whole of Great Britain to each of the year-round shared, year-round not shared, and peak security tariff elements of the generators' wider TNUoS charge.

NESO is proposing to apply the mechanism to "all three tariff components to ensure a consistent treatment between different technologies, as not all technology types are exposed to the same components, or in the same way". The cap value would be calculated as two standard deviations below the five-year unweighted average of the respective tariff element across all generation zones taken from the latest NESO five-year view tariff publication.

Ofgem's original letter suggested that this change should come into force on 1 April 2026. However, NESO has requested the change be made by summer 2025 so developers can factor its impact into their bids for the CfD AR7 auctions. 

This article was written with the assistance of Joe Sandom, James Harnett and Alexander Eaton, trainee solicitors.