The Energy Transition | UK government sets out Clean Power 2030 plan and updates on electricity market reforms

This week we look at the government's Clean Power 2030 Action Plan, the government's latest update on REMA, NESO guidance on grid connection reform, and more.

Government publishes Clean Power 2030 Action Plan

The government has launched the Clean Power 2030 Action Plan, which sets out how it intends to achieve its "clean power goal" of generating at least 95% of Great Britain's electricity consumption from clean sources by 2030.

The highly ambitious and wide-reaching action plan describes how the government will work with the clean power sector to achieve target, including on planning and consenting, project delivery, the workforce, supply chains and reform of grid connections and the electricity market.

The plan builds on the National Energy System Operator's (NESO's) Clean Power 2023 report, which identified two primary overriding 'pathways' to achieving the clean power goal.

The first hypothesised high deployment of renewables (giving the example of 50 GW of offshore wind), while limited dispatchable assets such as hydrogen plants or gas generation with carbon capture would come online over the same period.

The second considered slightly less renewable capacity deployed, supplemented by greater development of dispatchable plants. Using these scenarios, the action plan identifies ranges of new capacity required from each generation technology that will need to be added to the system by 2030, including 27-29 GW of onshore wind, and 45-47 GW of solar power.

For most technologies, in the former scenario of high renewable development the capacity required would be at the upper end of the identified spectrum. In all scenarios, baseload generation provided by nuclear power will play a key role.

Crucially for those with an interest in grid connection reforms, the action plan's connection reform annex provides a detailed breakdown of the capacity ranges for most generation technologies, and regional breakdowns for onshore wind, solar, and batteries for the purposes of aligning the NESO-led process of connection reform with the 2030 plan (subject to NESO’s final proposals being approved by Ofgem).

In addition to grid connections reforms, the action plan states that the government also intends to:

• Accelerate proposals for a planning and infrastructure bill aimed at streamlining the delivery of critical infrastructure and reducing delays.
• Confirm that onshore wind will be reintroduced into the National Significant Infrastructure Project regime at a threshold of 100MW, and the existing solar threshold will be aligned to the same capacity. This allows qualifying projects to benefit from a streamlined consenting process.
• Introduce changes to the Contract for Difference (CfD) scheme to support the significant deployment of offshore wind, including adjustments to auction timings and eligibility parameters. The plan sets out the government's aim to consult on reforms prior to the next CfD allocation round (AR7, due in summer 2025) so that AR7 projects may benefit from the changes.
• Convene a new supply chains and workforce industry forum to develop an understanding of system-level supply chain and workforce planning needs for the delivery of the Clean Power 2030 agenda and devise targeted collective actions to ensure these are met.
• Publish a low-carbon flexibility roadmap in 2025, outlining actions to enhance both short and long-duration flexibility clean power.

Government updates on review of electricity market arrangements

The UK government has released its autumn update on the review of electricity market arrangements (REMA) programme. This is the government's latest step in its exploration of wholesale electricity market reform, which commenced with the first REMA consultation in July 2022 through to the outcome of the second REMA consultation in March of this year.

In this latest update, the government sets out how electricity market reform sits alongside its Clean Power 2030 plan – with which it was published simultaneously. It also provides updates on wholesales market reform as well as legacy arrangements and the CfD scheme.

Wholesale market reform

The most controversial proposal of REMA – the potential implementation of zonal pricing - remains under consideration. This has come as a surprise to those in the sector who considered that the current grid connection reforms implied that proposals to introduce zonal pricing would be abandoned.

Proponents of the zonal pricing approach argue that it could provide better locational signals, allowing market participants to benefit from the locational value of their generation and demand. It could also incentivise the use of efficiently located flexible technologies and help to reduce system costs.

On the other hand, opponents of zonal pricing consider that it may increase risks for generators and make certain projects harder to finance, and the reform would require costly and lengthy changes to market arrangements. Reformed national pricing is an alternative route to the implementation of zonal pricing, and the autumn update states that market options for this proposal have been narrowed to focus on reforms such as strengthening network charging and balancing incentives. However, the government indicates that, while it may provide stronger locational investment signals, zonal pricing would be more effective in provision of stronger location signals in respect of asset operation.

The update states that both options remain under equal consideration, with no final decision yet taken. However the government has acknowledged that one of these measures is doubtless required, and that "no change" is not an option. The update reiterates the government's commitment to further consultations and cost benefit analysis before making a decision.

Legacy arrangements and the CfD scheme

The government acknowledges the need to minimise uncertainty for investors and ensure a smooth transition to new market arrangements. To achieve this aim, the government has reaffirmed a number of its commitments to the CfD scheme. CfD agreements awarded under the next CfD allocation round (AR7) will be treated in the same way as existing CfD agreements regardless of any changes brought about by REMA. Additionally, existing and AR7 CfD agreements would be amended to use a local zonal reference price if zonal pricing is introduced, insulating existing agreements from zonal price risk. The government is also considering potential interventions to manage risks for existing and new investments, such as offering a reformed CfD to existing holders. These changes are separate from the CfD consultation referenced in CP30 above.

The update clarifies that the CfD scheme will continue to be the primary mechanism for supporting renewable energy investment. Regardless, reforms may be needed to address increased challenges, such as periods of generation surplus, encourage system-efficient design and location, and incentivise optimal asset operation. Any significant changes to the scheme will not be implemented until AR9 at the earliest, and must recognise the interface with wider reforms being undertaken by NESO.

The government now plans to announce REMA’s final outcomes and implementation timetable by mid-2025, aligning with CfD AR7. Ongoing stakeholder engagement will be sought to refine the design and implementation of market reforms.

NESO publishes guidance on the 'strategic alignment' criteria for grid connections 

NESO has published additional guidance on the proposed reforms to the grid connection process. Since acknowledging that grid connection reform was key to achieve the goals of Clean Power 2030 (CP30), NESO has been gathering feedback on the reforms from industry stakeholders.

NESO proposes that projects would need to meet "Gate 2" criteria for both "readiness" and "strategic alignment" to receive a firm connection offer and a place in the queue. Following consultation, NESO has published an open letter detailing the reforms further. NESO had previously confirmed that a project will be strategically aligned if it aligns with CP30, in relation to its technology, capacity and location at both transmission and distribution level.

In order to reassure project developers, achieve timely grid connections and support the delivery of projects which will contribute to CP30, NESO has now confirmed that a project can be deemed to have met strategic alignment criteria if the following can be shown:

• An application for planning permission submitted before the date NESO submits the final connections methodologies proposals to Ofgem (which has been estimated to be on 20 December this week), and the project secures planning permission by the close of the "Gate 2 to Whole Queue" evidence submission window.
• Award of a government CfD.
• A Capacity Market contract has been obtained.
• For interconnector or offshore hybrid assets, receipt of an Ofgem cap and floor or merchant route regulatory approval .

Further details of these proposals will be submitted to Ofgem over the coming weeks before the end of the year for final approval. The measures are intended to support projects that are already well-progressed without material deviation from CP30.

NESO launches consultation on methodologies for future network designs

NESO has announced a new consultation on the delivery of three strategic energy plans required to ensure the UK can achieve net zero by 2050. The aim of the consultation is to ensure stakeholder involvement at an early stage to clarify the principles and methodologies which will underpin the development of the UK's energy design.

The three publications covered by the consultation are as follows:

• The Strategic Spatial Energy Plan (SSEP), which will assess on a long-term basis the energy sources needed to reach net zero, as well as where they should be located;
• The transitional Centralised Strategic Network Plan, which provides recommendations for reinforcement projects for the UK's onshore electricity network; and
• The Centralised Strategic Network Plan, which will use the findings of the SSEP to identify the best connection options for consumers to accelerate delivery, and is a refresh of the existing interim network planning approach.

The consultation opened on 9 December and will close on 20 January 2025. The announcement forms part of NESO's efforts to provide an outline for the UK's energy infrastructure to 2050, as commissioned by the energy ministers of the governments of the UK, Wales and Scotland in October 2024.

Commenting on the announcement, Julian Leslie, the strategic energy planning director and chief engineer at NESO, set out the organisation's commitment to "working closely with industry and wider stakeholders to develop these plans and look forward to engaging with them through this consultation and over the coming years.”

Contracts agreed for first East Coast Cluster carbon capture and storage projects

The Department of Energy Security and Net Zero has announced the first two projects in the East Coast Cluster scheme have reached financial close.

The two projects – the North Eastern Endurance Partnership (NEP) and the Net Zero Teesside Power (NZTP) projects – represent a significant step forward in the UK's efforts to reduce carbon emissions. Both projects are set to begin construction in mid-2025 and are expected to be operational by 2028.

The East Coast Cluster, a pioneering carbon capture and storage (CCUS) initiative in the UK, is aimed at significantly reducing carbon emissions from industrial sites in the Teesside and Humber regions.

The NEP is a CO2 storage and transportation project which will aim to permanently store up to 4 million tonnes of CO2 per year. The infrastructure will initially serve three carbon capture projects in the Teesside region. The project includes an onshore CO2 gathering network, compression facilities, and a 145km offshore pipeline connected to subsea injection facilities in the Endurance saline aquifer, located around 1,000m below the seabed.

NZTP, a joint venture between BP and Equinor, will build the world’s first gas-fired power station with carbon capture, expected to have the capacity to deliver power to about 1 million homes when it starts operating in 2028.

The UK government has shown strong support for the initiative, committing a total of £21.7 billion to realise its vision for CCUS. This funding aims to drive investment in industrial communities such as Teesside, unlocking £4billion worth of supply chain contracts and creating approximately 2,000 jobs.

Regulatory bodies like the North Sea Transition Authority and Ofgem will play a vital role in overseeing the project. The Low Carbon Contracts Company will also be instrumental as a counterparty to the CCS business models.

The UK energy secretary, Ed Miliband, highlighted the significance of this development, calling it “a new era for clean energy in Britain.” He emphasised the government’s mission to transform the UK into a clean energy superpower, increase energy security and revitalise industrial heartlands with homegrown clean power.

UK government commits to hydrogen to power business model

The UK government has announced its commitment to introducing a market intervention to de-risk investment in hydrogen to power (H2P) through the development of an H2P business model (H2PBM).

This initiative marks a significant step towards integrating hydrogen into the national energy system. By de-risking investment and enabling participation in the Capacity Market, the H2PBM aims to support the development of H2P projects, contributing to the UK's net-zero goals

The H2PBM will incorporate elements of the dispatchable power agreement (DPA), which is designed for power with CCUS. The government’s response to a recent consultation on the need for an H2P market intervention highlighted broad support for this approach, with 44 stakeholders expressing their views. Most respondents endorsed the role of H2P in a clean power system and viewed a DPA-style mechanism as the most appropriate design option.

In addition to the H2PBM, the government plans to enable H2P to participate in the current Capacity Market as soon as practical. This move is expected to further integrate hydrogen into the UK's energy mix, providing a reliable and low-carbon power source.

To advance the initiative, the government will publish an H2PBM market engagement document in the spring of 2025. This document will detail the proposed design of the H2PBM and establish an H2P expert working group.

Representatives of the hydrogen sector have welcomed the announcement. Industry association Hydrogen UK expressed its support, stating: “H2P will be a key tool in achieving clean power and our net zero targets, and that " members look forward to working with government next year to develop a suitable and detailed H2P business model that supports the development of world-leading hydrogen to power projects.”

This article was prepared with the assistance of Joe Sandom, Alex Eaton, James Harnett and Harry Warren, trainee solicitors.