Welcome to our top picks of the latest energy regulatory and market developments in the UK's transition to net zero

This week we look at the CfD Round 5 results, the lifting of the ban on onshore wind projects, the acceleration of urgent hydrogen pipeline construction, NG ESO unveiling further details of the next Demand Flexibility Service, and more.

CfD Allocation Round 5 results show no new contracts for offshore wind projects

The Department for Energy Security and Net Zero (DESNZ) published the results of its Contracts for Difference (CfD) Allocation Round 5 on 8 September, which confirm that no offshore wind projects secured contracts in the auction. The results come after the government had previously committed to a target of generating 50GW of offshore wind by 2030.

The CfD scheme, which auctions contracts to developers to generate renewable energy for fifteen years at a capped set price, has been recently criticised by industry stakeholders for failing to account for rising costs due to inflation. Keith Anderson, chief executive of ScottishPower, a large offshore wind developer confirmed that current pricing was not economically viable, and stated it was "a multibillion-pound lost opportunity to deliver low-cost energy for consumers and a wake-up call for government".

The 3.7GW capacity offered by the auction was secured by 95 projects including solar farms, onshore windfarms and tidal power projects. 

UK government relaxes ban on onshore wind development     

Following the UK government cabinet reshuffle last week, the new Secretary of State for DESNZ, Claire Coutinho, has stressed that onshore wind now has a key role to play in the UK's transition to net zero.

Newly published changes to national planning policy will mean that the views of the whole local community will be factored into planning decisions made by local councils. This replaces the previous rule which meant that an application could be blocked by individual objectors.

Coutinho expects the relaxation in planning rules to "help speed up the delivery of projects where local communities want them." Local communities will also now be able to bring forward proposals for onshore wind in the local area. To facilitate this, planning policies will ensure that onshore wind developments can be tabled in multiple ways, rather than solely through local plans. Options now include utilising Local Development Orders and Community Right to Build Orders.

In response to this announcement, Energy UK’s deputy chief executive, Dhara Vyas, said that the government statement had not “put onshore wind in the position where it is treated the same in the same way as other infrastructure planning applications. Without that, this will represent a missed opportunity as developers will remain reluctant about committing the time and expense of putting forward new onshore projects knowing they still face a higher risk of being blocked."

Footnote 54 in the National Planning Policy Framework requires proposed onshore wind farm projects to be located in specific areas, typically where local councils are adept to onshore development. This restriction only occurs within onshore wind development, meaning that the true impact of this planning framework remains to be seen and sits at odds with planning conditions for other renewable energy projects.

Government backs ‘urgent’ hydrogen pipeline construction

On 6 September, the UK government published its responses to the Offshore Hydrogen Regulation consultation, which sought stakeholders' views on proposed secondary legislation for first of a kind  offshore hydrogen pipelines and storage projects.

Industry stakeholders endorsed the government's proposal to extend Part 3 and Part 4 of the Petroleum Act 1998, which would allow the North Sea Transition Authority (NSTA) to authorise the construction and decommissioning of hydrogen pipelines in the United Kingdom Continental Shelf. The responses noted the benefits of using a familiar and established system, and how this could provide certainty to incentivise the development of other first of a kind projects. All of the responses agreed with the government's proposal to enact secondary legislation to make hydrogen a gas for the purposes of the Energy Act 2008. This legislative change would extend NSTA's remit to issue offshore hydrogen storage licenses, as well as its current role in issuing licenses for oil and gas pipelines.

 The government has confirmed that it will be proceeding with the regulatory changes and lay secondary legislation in Parliament in autumn 2023, stating that, "[w]e believe that the existing regulatory system has sufficient flexibilities to enable it to provide workable and effective solutions for [first of a kind] offshore hydrogen projects to progress."

Ofgem launches crackdown on excess balancing profits

Following a consultation in June (which we reported on here), Ofgem has announced that it will be introducing a licence condition to prevent generators from obtaining what Ofgem considers excessive profits through the Balancing Mechanism (BM). The Inflexible Offers Licence Condition (IOLC) will prohibit generators from taking advantage of their dynamic parameters to obtain an excessive benefit from inflexible offers in the BM.

The IOLC will apply to any electricity generators with plant shutdown times of over 60 minutes. Any generators found to be in breach of the new licence condition could face penalties including provisional and final orders, and fines of up to 10% of their regulated turnover.

Eleanor Warburton, acting director for Energy Systems Management and Security at Ofgem, said: “[t]his new licence condition shows Ofgem will not tolerate electricity generators attempting to take advantage of the Balancing Mechanism system to make excessive profits through inflexible generation."

The IOLC will come into effect on 26 October 2023.

ESO unveils details of next Demand Flexibility Service

 National Grid Electricity System Operator (NG ESO) has confirmed that the Demand Flexibility Service (DFS) will, subject to Ofgem approval, return again this year. This is following the success of the previous DFS round which ran from November 2022 to March 2023 and which reduced energy use by an estimated 3.3GWH (which we reported on here).

 NG ESO confirmed that the service will run between November 2023 and March 2024 and consist of 12 test events alongside the potential use of “live” sessions. The first six tests, running from November to December, will incorporate a guaranteed acceptance price. This will be set at the same level as the last round, meaning that if providers bid to participate at £3/KWh or less they will be guaranteed acceptance.

If the level of participation in the service exceeds a set volume, in the subsequent six tests (which will be run after the new year) NG ESO will competitively tender, without the use of a guaranteed acceptance price. More details on the volume threshold will be confirmed in the NG ESO’s Winter Outlook report in the autumn.

NG ESO has also confirmed that, unlike last the last round, there will be no onboarding tests.

 Jake Rigg, NG ESO Corporate Affairs Director, said “[the NG ESO] will be reintroducing the Demand Flexibility Service for this winter and is keen for more consumers, both large and small, to get involved. We want to work with industry to build on the past success of this new and innovative service."

 Consumers and businesses will have the opportunity to sign up to participate in the coming months, following regulatory approval from Ofgem.

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