The Energy Transition | Government announces record breaking CfD budget

This week we look at the UK government's announcement of a record breaking CfD budget of £1.5 billion, regional strategic plans to be delivered by the National Energy System Operator, wind and solar energy outperforming fossils fuels across the EU and the UK, and more.

Government announces record breaking CfD budget of £1.5 billion

The government has announced record breaking funding for Allocation Round 6 (AR6) - the next renewable energy auction in the Contracts for Difference (CfD) scheme - which will receive £1.5 billion.

Ed Miliband, the Energy Secretary, has confirmed that the AR6 budget is being increased by £500 million to underline the government's commitment to delivering a decarbonised power system by 2030. This is a marked increase on previous rounds, and will be allocated across 3 "Pots". Pot 3 for offshore wind will receive the majority of the funding at £1.1 billion, which is an uplift of £300 million.

According to the government, offshore wind is an integral part of the UK's clean energy mission and the increased funding will send a clear message to industry to invest in UK projects. This is especially important, as last year's auction (Allocation Round 5) did not attract a single bid by offshore wind developers, which Ed Miliband referred to as a "catastrophe" which "delay[ed] our move away from expensive fossil fuels and energy independence".

This recent announcement has been received well by the energy industry. Dan McGrail, Chief Executive of Renewables UK, said, "It’s great to see government choosing to unlock more investment in renewable energy projects by increasing the budget for the next Contracts for Difference auction." McGrail also commented that the enhanced funding "builds on a series of positive announcements from government which are increasing investor confidence in the UK".

The CfD scheme allows developers to bid for contracts to help deliver renewable energy projects. The scheme then provides a guaranteed price for the clean electricity they generate. We have previously reported on the CfD AR6 funding allocated in the Spring Budget by the previous government earlier this year here.

National Energy System Operator to produce regional strategic plans using "hub and spoke" model

Ofgem has published a consultation on the policy design for the Regional Energy Strategic Plan (RESP) which will be delivered by the National Energy System Operator (NESO). The consultation notes how a transformation of the governance of the energy system is needed to ensure accurate investment to support the 2030 grid decarbonisation target. The RESP aims to coordinate energy system development across multiple vectors including electricity, gas, heat and hydrogen, ensuring system specific requirements are met, and enable proactive network infrastructure investment.

Ofgem's consultation states that there will be a three-part planning process to allow coordination at local and national levels, ensuring investment is coherent and strategy at regional level can remain varied. There will be a Strategic Spatial Energy Plan and a Centralised Strategic Network Plan at a national level, and RESPs at a local level, representing 11 regions across Great Britian, including one for each of Scotland and Wales and the remaining nine in England. At a local level, the NESO will prepare RESPs to improve energy planning to ensure local energy systems can develop towards net zero, including modelling supply and demand, pinpointing where the energy system needs input and capacity and technical coordination ensuring all plans are coherent and consistent.

Ofgem has confirmed that the NESO will split the RESP into a hub and spoke delivery model, to allow the coordination of local RESPs across Great Britian. Each hub will have responsibilities which include cross-regional oversight of system optimisation. As part of the introduction of a RESP, there will be a Strategic Board in each region to govern the development of the RESP, consisting of local and devolved government and representatives from network companies. The RESP spokes will be responsible for developing the plans, maintaining stakeholder investment and gathering data.

The consultation closes on 8 October 2024.

Wind and solar outperforming fossils fuels across the EU and the UK

 New analysis and official data in this year's Digest of UK Energy Statistics has revealed that reliance on fossil fuel generation reached an all-time low in the first half of this year, with wind and solar generating more electricity than fossil fuels across the EU. Statistics published by Ember, an independent energy think tank, revealed that wind and solar growth was the single largest driver of the fossil fuel fall during this period, surpassing fossil fuel generation in 13 member states. Wind and solar were also responsible for generating 30% of the EU's electricity in the first half of the year, compared to 27% from fossil fuels.

The first half of 2024 also saw an increase in demand for electricity by 0.7% across the EU, marking a shift from the last two years where demand had fallen amid the gas price crisis. These statistics come alongside publication by the National Grid of its last annual report as the Electricity Systems Operator, which revealed that April 2024 was the "greenest month" in recorded history, with a carbon intensity of 88gCO2/kWh.

Despite these promising statistics, both the EMBER and ESO publications noted that sustaining the transition will require dedicated policy focus to ease barriers to wind and solar integration and provide adequate support on grid connections. One way in which this is being tackled in the UK is by means of the "First Ready, First Connected" grid connection reforms which we reported on here and here.

Ofgem proposes a "one-stop-shop" for the registration of flexible consumer assets

Ofgem has published a consultation on a new Flexibility Market Asset Registration (FMAR) process, which will be a "one-stop-shop" providing a single point of registration for consumer assets such as EV chargers, heat pumps, and home battery storage systems.

This streamlined process seeks to eliminate the complexity of current platforms and processes, and is designed to maximise participation, leading to lower bills for consumers by contributing to a smarter and more flexible energy system. The current director generals for infrastructure and markets at Ofgem, Akshay Kaul and Tim Jarvis, noted the challenges arising from a lack of visibility and control over new flexible assets, stating that the current process is "inefficient for network companies and most of all prohibitive for consumers who want to participate in flexibility markets and reap the rewards".

The FMAR is part of Ofgem's plan to equip itself with the modern tools required to operate in the future energy system. It will first focus on smaller scale household assets that are less likely to be registered, with an initial threshold of capacities up to 1MW.

Ofgem expects this new asset registration process to be deployed between 2025 and 2028, and is currently conducting an eight week consultation which closes on 23 September 2024.

This article was written with the assistance of Khushal Thobhani, Jessica Sawford, Hannah Bradley, Charlotte D'Arcy and Luke Hopper, Trainee Solicitors.