The Energy Transition | Government consults on major reforms to Contracts for Difference scheme

This week we look at the government's launch of a call for evidence to reform the Contracts for Difference scheme, the announcement of the Great Grid Upgrade, and more.

Government launches call for evidence to reform Contracts for Difference

The Department for Energy Security and Net-Zero (DESNZ) has launched a call for evidence on what it describes as a “major” reform to the Contracts for Difference (CfD) auction process.

The CfD scheme was introduced in 2015 and, according to the government, is "fundamental" to achieving the goal of delivering a fully decarbonised electricity system by 2035. To date, contracts for low-carbon projects totalling 26.1GW have been awarded through the CfD scheme. CfDs are currently awarded based on bid price. The proposed reform would expand the award criteria to include “non-price factors”.

The aim of the consultation is to determine what should be classed as a “non-price factor” and to what degree these factors could determine an application’s outcome. The potential factors proposed by DESNZ as part of the consultation include:

• the sustainability of renewable energy industries;
• innovation in renewable energy deployment, specifically the ability to address sustainability and capacity issues;
• investment in the skills needed to strengthen the supply chain; and
• grid flexibility and operability.

Graham Stuart, Minister of State for Energy Security and Net Zero, said that while CfDs had been successful, there is a need to “maximise the scheme’s potential to improve energy security and ensure renewable energy developers can make the necessary investment in supply chains and innovation”. He added that the reform could “ultimately make for a stronger sector and help our economy to grow”.

The call for evidence closes on 22 May.

National Grid launches major upgrade after UK government faces criticism for grid connection delays

National Grid has unveiled plans for the Great Grid Upgrade, which it claims will be the most extensive grid overhaul in decades. The £16 billion upgrade is expected to establish new infrastructure to connect households to green energy and reduce dependence on fossil fuels, contributing to long-term energy bill savings and increased energy independence. National Grid's President of Strategic Infrastructure, Carl Trowell, stated that, "[National Grid's] vision is a clean, fair and affordable energy future for the UK. The Great Grid Upgrade will play a major part in delivering this."

Concurrently, the Energy Networks Association (ENA) has released its action plan to accelerate the connection of new renewable energy sources to the grid. The ENA's focus is on simplifying the application process for new connections, improving coordination between network operators and developers, and investing in new technologies to increase the flexibility of the grid. Actions include prioritising projects that are ready to connect and offering uniform non-firm connections for battery storage operators.

These announcements follow criticism of the UK government's progress in providing suitable infrastructure to support the transition to renewable energy sources in line with net zero targets. In a recent session held by DESNZ, it was revealed that wind and solar developers are facing 15-year waits to secure grid connections. Responding on behalf of the government, junior energy minister Andrew Bowie admitted that current levels of delays for grid connections are "completely unacceptable".

OVO Energy to end its use of REGOs

OVO Energy, Britain's third largest retail energy supplier, has announced plans to stop its use of  Renewable Energy Guarantees of Origin (REGOs) from mid-May.

The announcement was made as part of OVO Energy's Plan Zero, published this week, which sets out a series of measures that OVO Energy believes the UK needs to implement to meet its net zero goal.

In his speech at the launch event, Raman Bhatia, OVO Energy's chief executive said: “REGOs, in their current guise, do not provide any incentive to bring on additional renewable capacity." He added that "the REGO system has outlived its original purpose around accountancy and it’s time for change and that time is now."

In its shift away from REGOs, OVO Energy instead plans to focus on alternative measures for boosting renewables capacity, such as entering into power purchase agreements with developers of new clean energy projects. It also plans to help customers increase the energy efficiency of their homes, including installing energy efficient and smart home technologies.

OVO Energy, as the first of the "Big Six" energy suppliers to make a commitment to end its use of REGOs, has called on other energy suppliers to follow its lead.

Ofgem introduces new code of practice to regulate prepayment meter installations

On 18 April, Ofgem released a new voluntary code of practice, which requires suppliers to visit customers in their homes to assess their welfare before carrying out a forced prepayment meter (PPM) installation. This comes after a moratorium was imposed on the practice in February 2023 due to concerns raised by an undercover investigation.

Ofgem has set a series of conditions on suppliers and contractors before a forced PPM installation is conducted, including ensuring there were at least 10 attempts to contact a customer prior to the installation. Before restarting the practice, suppliers must conduct an independent audit to identify any wrongly-installed prepayment meters and compensate those affected. The regulator affirmed its intention to make the code of practice legally enforceable by consulting on whether they can incorporate it into suppliers' licences.

The adoption of the code of practice is expected to result in fewer PPM installations, which could impact debt-related costs. Jonathan Brearley, CEO of Ofgem stated:  “[t]his new Code of Practice means, for some people, PPMs should never be installed, and, for high-risk groups, their energy needs must be protected with a higher level of consideration…We expect the overall number of involuntary PPM installations will fall over time, and we recognise that a careful balance is required to help manage debt, while protecting customers in vulnerable situations."

This article was written with the assistance of Sophie Myatt and David Herron, trainee solicitors.