The Energy Transition | Ofgem allocates £4.1 million through its Strategic Innovation Fund

This week we look at Ofgem awarding £4.1 million under its Strategic Innovation Fund, new DSO obligations to record flexibility deferrals, the launch of the Energy Skills Passport scheme, and more.

Ofgem allocates £4.1 million to innovation projects in the drive to Net Zero

In its efforts to support the UK towards Net Zero, Ofgem's Innovation Hub, in partnership with Innovate UK, has awarded £4.1 million to certain projects through their co-managed Strategic Innovation Fund (SIF). This funding supports forward-thinking projects in periodic funding rounds, aiming to accelerate the energy transition.

The fourth cycle of the SIF kicked-off in September 2024, focusing on four innovation challenges:

• faster network growth and development;
• greater heat flexibility;
• embedding resilience; and
• accelerating progress towards net zero energy networks.

Each cycle is made up of phases namely Discovery, Alpha and Beta and each applicant has various opportunities in each year to apply to each phase. In December 2024, Ofgem approved nine Cycle 1 Discovery Phase projects which aim to tackle these challenges. Following this, on 14 January 2025, funding was announced for two Cycle 1 Alpha projects. The projects supported by SIF span a range of cutting-edge solutions, including geothermal long-duration energy storage innovation, using artificial intelligence to optimise energy systems and enhancing the efficiency of adoption of low-carbon technologies.

Decisions to fund Cycle 1 Beta projects were made on the basis of slightly different criteria and the one project selected for SIF funding, which is a forecasting tool seeking to optimise flexibility of grid assets,  was chosen for its potential to meet innovation challenges such as "whole system network planning and utilisation to facilitate faster and cheaper network transformation and asset rollout".

These projects were identified as having the potential to be commercially successful in addition to transforming the UK's energy networks, benefiting both businesses and consumers in the long term.

Marzia Zafar, deputy director of digitalisation and innovation at Ofgem, commented: "in order to reach clean power by 2030, we have to think outside the box. As a regulator, Ofgem is committed to doing that, funding innovative projects and removing barriers to market entry wherever possible."

Ofgem consults on new DSO obligations to record flexibility deferrals

Under reforms proposed by Ofgem, distribution system operators (DSOs) will be required to report three additional things in accordance with their regularly reported evidence requirements under the RIIO-ED2 DSO Incentive Governance Document. This includes disclosing the extent of network reinforcements they have deferred through the use of flexibility services, along with increased reporting on curtailment and secondary network visibility.

Flexibility deferral

DSOs are able to use flexibility services to manage constraints and congestion in the distribution network, avoid or defer network reinforcements. Ofgem's proposed metric (at Appendix 4 of the updated DSO Incentive Governance Document) requires DSOs to report the following information for each substation/substation group "where flexibility has been sought as an alternative or complementary solution to conventional reinforcement":

• peak flexibility contracted (MW);
• flexibility dispatched within year (MWh);
• counterfactual MVA released (MVA); and
• cost deferral.

Ofgem states that this metric will demonstrate "how flexibility services can free up capacity to reduce pressure on grid assets, allowing for more efficient use of the grid and accommodating additional connections or energy flows."

Benjamin Godfrey, director of DSO at National Grid, has said that the metric "will be an important indicator of the benefits and outcomes being delivered on behalf of customers".

Curtailment

DSOs are also able to restrict the import or export capacity of a connection in response to a constraint on the distribution system (known as curtailment). In addition to the new flexibility deferral reporting requirement, DSOs must also report the total volume and breakdown of curtailment of users on curtailable or flexible connections.

Secondary network visibility

The final proposed change to DSOs reporting requirements requires them to provide a count of high voltage and low voltage transformers, to provide visibility of the utilisation of assets on the secondary network.

Ofgem's consultation on the changes to the DSO Incentive Governance Document is open until 14 February. The regulatory body intends to publish a decision in March 2025, with any changes taking effect from April 2025.

Energy skills passport scheme goes live

On 22 January 2025, DESNZ announced the launch of the skills passport, an initiative aimed at supporting oil and gas workers to transition into the growing clean energy industry. This announcement is part of the government's wider Plan for Change and their objective of achieving Clean Power by 2030.

Developed alongside RenewableUK, Offshore Energies UK and the Scottish government, the skills passport is an online tool designed to assist oil and gas workers into industries such as offshore wind. There will be four pathways available initially, which will be expanded, and the tool will help workers to transition by recognising existing qualifications and identifying necessary training. 90% of oil and gas workers already possess relevant skills for the energy transition, with this tool anticipated to facilitate the transition for many. 

Alongside this announcement, funding for regional skills development will also be made available in Aberdeen, Cheshire, Lincolnshire and Pembrokeshire. The government has identified these regions as key growth regions for clean energy. Initial funding will be for Cheshire, Lincolnshire and Pembrokeshire, since significant work in the area has already taken place in Aberdeen. Each region will receive approximately £1 million and all four regions will be considered in future for things such as new training centres and courses to upskill workers.

Employers will also be able to make use of a handbook which outlines where businesses can access support to upskill their employees.

The measure aims to create thousands of jobs, reduce the impact of job losses and industries closing,  while advancing the UK's transition to clean power by 2030. The government expects these initiatives to bring in £40 billion of investment annually, as well as reindustrialising Britain.

Energy secretary, Ed Miliband, emphasised the importance of retaining skilled workers, stating, “Our Plan for Change is about reindustrialising Britain and ensuring good jobs remain on our shores.” The government plans to work closely with trade unions, local authorities, and employers to ensure the workforce is equipped to meet the challenges of the net-zero transition.

DESNZ extends deadline for offshore wind subsidy

DESNZ has, by way of a revision notice dated 22 January 2025, extended the deadline by which offshore wind projects must apply to the Clean Industry Bonus (CIB) framework under the Contract for Difference (CfD) scheme. The application deadline is now 14 April 2025, which means that the application window has been extended from 22 days to 43 days.

The CIB as we previously reported here, has been introduced as part of CfD Allocation Round 7 to incentivise offshore wind development. As part of this framework, developers are required to submit detailed proposals outlining their sustainability commitments and obtain a CIB statement from the Department for Energy Security and Net Zero (DESNZ) before participating in CfD auctions.

This article was written with the assistance of Tomi Agbonifo (Paralegal), Sumaiya Hafiza (Solicitor Apprentice), Rosie Shaw and Harry Warren (Trainee Solicitors).