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United Kingdom: 6 energy policy briefs

The energy policies moving United Kingdom’s power markets, one brief each: the problem, the mechanism, the market effect, who gains and who pays, where it stands on the path to binding law, and the official text.

Cap and floor regime for long-duration electricity storage

United Kingdom · Department for Energy Security and Net Zero and Ofgem · decision · 2025

Where it stands: Regime decided; window 1 minded-to decisions published 26 June 2026 (16 projects, 7,645 MW); final awards and licence conditions pending

Britain's first new support scheme for pumped hydro and other 8-hour-plus storage in decades: a revenue floor and cap modelled on the interconnector regime, opened by Ofgem in April 2025 with a first window that drew 171 applications (52.6 GW); Ofgem's June 2026 minded-to decisions selected 16 projects (7,645 MW), final awards are due in autumn 2026 and projects must be operational by 2030 to 2033.

The problem

Great Britain has built no large pumped-storage since 1984 because merchant revenues from wholesale arbitrage and balancing cannot underwrite a 30-year asset with a ten-year build. NESO's clean power analysis calls for an additional 2.7 to 7.7 GW of long-duration storage by 2035 on top of the 2.8 GW already built to manage wind variability and cut constraint costs. Government chose a cap and floor rather than a CfD to keep operational decisions market-driven.

What it does

After a January 2024 consultation, the government decided in October 2024 to introduce a cap and floor regime and appointed Ofgem as delivery body. Under the scheme, eligible projects (at least 8 hours of duration and 50 MW, or 100 MW for established technologies such as pumped hydro; the scheme is technology-neutral, so 8-hour lithium-ion qualifies) receive a minimum revenue floor funded through network charges if market revenues fall short, and return revenues above a cap to consumers, over a 25-year term. Two tracks apply: one for established technologies and one for novel ones (compressed air, liquid air, flow batteries, hydrogen storage) with different evidence requirements. Ofgem opened the first application window on 8 April 2025 and closed it on 9 June 2025, receiving 171 applications totalling 52.6 GW, of which 77 projects (28.7 GW) passed eligibility on 23 September 2025. On 26 June 2026 Ofgem published minded-to decisions selecting a portfolio of 16 projects (7,645 MW) across pumped hydro, compressed air, lithium-ion and flow batteries; the consultation closed on 14 August 2026 and final cap and floor awards are expected in autumn 2026. Projects must reach operation by 2030 (track 1) or 2033 (track 2).

Market effect

The floor makes long-duration storage financeable, which over time reduces wind curtailment, lowers balancing and constraint costs, and dampens the spread between windy and still periods in the GB price. Because the operator keeps revenue between floor and cap, projects still respond to price signals, so the scheme adds a flexible bidder to day-ahead, intraday and balancing markets rather than a fixed schedule. Pumped-hydro schemes in Scotland (Coire Glas, Cruachan expansion, Loch Earba, Sloy conversion) and novel projects are the main candidates, meaning the storage sits where the constraints are. Consumer exposure is through network charges if revenues undershoot the floor. Competing flexibility providers (interconnectors, gas peakers, four-hour batteries) face lower scarcity rents.

Key numbers

Eligibility
8 hours or more of duration; 50 MW (novel) or 100 MW (established)
Regime term
25 years
First application window
8 April to 9 June 2025; 171 applications (52.6 GW), 77 eligible (28.7 GW)
Minded-to portfolio (26 June 2026)
16 projects, 7,645 MW
System need
Additional 2.7 to 7.7 GW of LDES by 2035 on top of 2.8 GW existing (NESO advice)

Who gains and who pays

  • Pumped-hydro developers (SSE, Drax, Gilkes, ILI) (gains): Floor revenue unlocks final investment decisions.
  • Novel LDES technology developers (gains): Separate track with tailored requirements.
  • Lithium-ion battery developers (costs): Four-hour projects fall below the 8-hour threshold and face more long-duration competition; 8-hour lithium-ion projects were included in the minded-to portfolio.
  • Consumers (mixed): Pay floor top-ups through network charges; benefit from lower constraint costs and capped returns.
  • Ofgem (obligation): Assess applications and administer the regime.

Implementation

Ofgem assessed the first-window applications in stages: an eligibility outcome on 23 September 2025 (77 projects, 28.7 GW), then cost-benefit and project assessment leading to the minded-to decisions of 26 June 2026 (16 projects, 7,645 MW; consultation closed 14 August 2026). Final cap and floor awards are expected in autumn 2026, followed by revised special licence conditions (call for input July 2026). Ofgem expects to consult on a second application window later in 2026, with a decision on that window by 2027.

Concerns

  • Consumer cost if many projects rely on the floor in low-price years
  • Selecting projects with credible delivery by the target date
  • Treatment of novel technologies and technology risk
  • Interaction with the capacity market and other flexibility support
  • Planning and environmental consent for large pumped-hydro sites

Dates to watch

  • 2026-H2: Final window 1 cap and floor awards (autumn 2026) and revised special licence conditions
  • 2026-H2: Ofgem consultation on the design of a second application window
  • 2027: Decision on a second application window

Sources

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Great British Energy Act 2025 · publicly owned energy company

United Kingdom · UK Parliament · statute · 2025

Where it stands: Act in force; company operating; first investments made under a statement of strategic priorities

Enacted 15 May 2025, the act creates Great British Energy, an Aberdeen-based state company with £8.3 billion over the Parliament to invest in, develop and own clean-energy projects alongside the Crown Estate and private capital, with a statutory bar on projects tainted by forced labour in their supply chains.

The problem

The 2024 Labour manifesto promised a publicly owned energy company to accelerate clean power, capture returns for the public and crowd in private investment, on the model of state-owned utilities in Denmark, Sweden and France. It needed a statute to define the company's functions, funding and independence from ministers.

What it does

The Great British Energy Act 2025 establishes GB Energy as a company owned by the Secretary of State, with objects to facilitate, encourage and participate in the production, distribution, storage and supply of clean energy, the reduction of greenhouse gas emissions, improvements in energy efficiency and security of supply. The Secretary of State must prepare a statement of strategic priorities, may provide financial assistance (the government committed £8.3 billion over the Parliament), and may direct the company. A Lords amendment accepted in April 2025 added a duty for the Secretary of State to ensure that slavery and human trafficking are not taking place in GB Energy's business or supply chains, aimed at solar polysilicon from Xinjiang. The company is headquartered in Aberdeen and works with the Crown Estate (given new borrowing powers by the Crown Estate Act 2025) on offshore wind leasing, with local authorities on community energy, and with developers as co-investor in projects such as floating wind, hydrogen and grid-scale storage. It is distinct from the National Wealth Fund and from NESO.

Market effect

GB Energy adds a state co-investor that accepts lower returns and longer horizons, which lowers the cost of capital for early-stage technologies (floating offshore wind, tidal, hydrogen) and for projects that private developers consider marginal, and it can take equity in Contracts-for-Difference winners. Its first deployments are rooftop solar on schools and hospitals, community energy funds and stakes in offshore wind leases, so the near-term supply effect is small; the larger effect is signalling and de-risking for the 2030 pipeline. The forced-labour duty creates a compliance standard that may exclude some module suppliers from GB Energy-backed projects and push UK procurement toward traceable supply chains, raising capex modestly. Private developers see both a competitor for assets and a partner for balance-sheet-heavy projects.

Key numbers

Royal Assent
15 May 2025
Capitalisation
£8.3 billion over the Parliament
Headquarters
Aberdeen
Supply-chain duty
Forced-labour amendment accepted April 2025

Who gains and who pays

  • Great British Energy (obligation): Statutory objects, strategic priorities and supply-chain duties.
  • Offshore wind, floating wind and hydrogen developers (gains): State co-investment and Crown Estate partnership lower financing costs.
  • Solar module suppliers with untraceable polysilicon (costs): Forced-labour duty restricts eligibility.
  • Local authorities and community energy groups (gains): Funding for local generation.
  • UK taxpayers (mixed): £8.3 billion at risk for returns and lower bills over time.

Implementation

The company was incorporated and its chair and chief executive appointed in 2024 and 2025; the statement of strategic priorities and first investments (solar for public buildings, community funds, offshore wind partnerships) were announced during 2025. Annual reports and the statement of strategic priorities are the instruments to watch; spending is subject to Treasury approval through the spending review.

Concerns

  • Crowding out or duplicating private investment
  • Political direction of investments and return expectations
  • Scale relative to the capital needed for clean power by 2030
  • Supply-chain duty enforceability and cost
  • Overlap with the National Wealth Fund and Crown Estate

Dates to watch

  • 2026: First large co-investment decisions and annual report

Sources

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Grid connections reform · first ready and needed, first connected (Gate 2)

United Kingdom · Ofgem and National Energy System Operator · decision · 2025

Where it stands: Approved; Gate 2 assessments done; revised offers being issued in tranches

Ofgem approved NESO's reform in April 2025 to tear up the 750 GW-plus first-come-first-served connection queue and re-order it by readiness and by alignment with the Clean Power 2030 plan, with revised connection offers issued from late 2025 that move viable projects forward and push speculative ones out or to the 2030s.

The problem

Britain's connection queue grew to more than 750 GW of applications against a system need of about 120 to 150 GW by 2030 and 2035, because applying was cheap and offers were granted in date order regardless of readiness. Ready projects received connection dates in the late 2030s behind speculative ones, threatening the 2030 clean power target and data-centre and industrial growth.

What it does

Under the reformed process, approved by Ofgem on 15 April 2025 through Connection and Use of System Code modifications CMP434 and CMP435 and related methodologies, every existing and new application is assessed against two gates. Gate 1 confirms a valid application; Gate 2 requires evidence of readiness (land rights or planning consent) and a strategic need test: the project must fit within the technology and locational capacity ranges in the Clean Power 2030 Action Plan and, later, the Strategic Spatial Energy Plan, or be a demand or non-generation project meeting its own criteria. Projects passing Gate 2 are placed in a reordered queue and receive firm connection dates; projects failing Gate 2 lose their place and receive indicative dates or are removed. Transmission and distribution networks apply the process jointly. A first application window ran from May to July 2025, and NESO issued revised offers in tranches from late 2025 into 2026, with a targeted reduction of the queue by roughly half.

Market effect

The reform re-prices the option value of a grid connection: a Gate 2 pass with a pre-2030 date is now a scarce asset that adds materially to project value, while projects without land rights or outside the capacity ranges have lost most of their value, which has triggered write-downs, transaction repricing and consolidation among developers. Batteries were the largest queue category and the capacity ranges for storage in the plan constrain how many connect, so co-location and demand-side flexibility become more valuable. Data centres and large industrial loads get a defined path if they demonstrate readiness. Removing gigawatts of paper projects also gives NESO and the transmission owners a credible plan against which to build the grid, and it improves the accuracy of forward supply estimates used in capacity-market and CfD planning. Litigation and appeals by projects removed from the queue are the main execution risk.

Key numbers

Ofgem approval
15 April 2025 (CMP434, CMP435)
Queue at reform
More than 750 GW of applications
First application window
May to July 2025
Targeted queue reduction
Roughly half

Who gains and who pays

  • Ready projects with land and consent (gains): Earlier connection dates and higher asset value.
  • Speculative or early-stage projects (costs): Removed or pushed back; write-downs and cancellations.
  • Battery storage developers (mixed): Capacity ranges cap the volume that connects before 2030.
  • Data centres and large loads (gains): Defined readiness route to connection.
  • Transmission and distribution network operators (obligation): Reassess every application and reissue offers.

Implementation

NESO completed Gate 2 assessments and began issuing revised offers in tranches from late 2025, with the process expected to run through 2026; disputes are handled through the code dispute process and Ofgem determinations. Distribution network operators are aligning their queues. Later application windows and the Strategic Spatial Energy Plan will update the capacity ranges. Watch NESO's connections reform updates for tranche progress and the volume removed.

Concerns

  • Legal challenges from projects that lose queue positions
  • Capacity ranges freezing out technologies or regions that later prove needed
  • Administrative burden and delays in issuing revised offers
  • Whether grid build keeps pace with the reordered dates
  • Treatment of demand and storage projects relative to generation

Dates to watch

  • 2026: Remaining revised offer tranches and confirmed queue reduction
  • 2026-H2: Next application window under updated capacity ranges

Sources

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Review of Electricity Market Arrangements (REMA) · decision against zonal pricing, reformed national pricing

United Kingdom · Department for Energy Security and Net Zero · decision · 2025

Where it stands: Decision made; implementation through TNUoS reform, strategic plans and code changes

On 10 July 2025 the government ended a three-year debate by rejecting locational (zonal) wholesale pricing for Great Britain and choosing reformed national pricing: strategic spatial planning, reformed transmission charges, constraint-management reforms and CfD changes to send locational signals without splitting the wholesale price.

The problem

Great Britain has one wholesale price but its wind is in Scotland and its demand in England, so constraints cost consumers more than £1 billion a year in curtailment and re-dispatch, and generators had no locational incentive. REMA, launched in 2022, weighed zonal pricing (which Ofgem and NESO analysis suggested could save consumers billions but would cut Scottish wind revenues and raise investor risk) against reforms within a single price.

What it does

The July 2025 decision rules out zonal and nodal pricing for the foreseeable future. Instead the package comprises: a Strategic Spatial Energy Plan (2026) and Centralised Strategic Network Plan to steer where generation and grid are built; reform of transmission network use of system (TNUoS) charges to make locational cost signals more predictable and, where needed, stronger, with a cap-and-floor on charge volatility for generators; a review of constraint management including reforms to how NESO procures turn-down and turn-up services and new non-firm connection products; Contracts for Difference reforms so that auctions consider system value and can be split by location; and continued work on a reformed balancing and settlement framework. The decision also confirmed the continuation of the capacity market with reforms and the cap and floor scheme for long-duration storage. Ofgem and NESO implement through code and licence changes.

Market effect

Removing the zonal option lifted a major risk premium on Scottish and northern wind projects and on the CfD pipeline for Allocation Round 7, which had priced in possible revenue loss of 20 to 30 percent under zonal scenarios; it also kept a single GB forward curve, which matters for hedging liquidity. The cost of constraints remains socialised through balancing charges, expected to rise toward £3 billion to £4 billion a year by 2030 without grid build, so the reforms' success depends on TNUoS and the strategic plan actually steering location. TNUoS reform will shift charges between regions and technologies; storage and flexible demand in constrained areas gain from constraint-management products. For traders the decision means continuing north-south basis appears in balancing costs rather than in the wholesale price.

Key numbers

Decision date
10 July 2025
Constraint costs
More than £1 billion a year in 2024, projected to rise sharply without grid build
REMA launched
July 2022
Strategic Spatial Energy Plan
Due 2026

Who gains and who pays

  • Scottish and northern wind developers (SSE, ScottishPower, Ørsted, Equinor) (gains): Zonal revenue risk removed; TNUoS reform still to come.
  • Consumers (costs): Constraint costs continue to be socialised in balancing charges.
  • Flexible assets in constrained regions (storage, demand response) (gains): New constraint-management and non-firm connection products.
  • NESO and Ofgem (obligation): Deliver strategic plans, TNUoS reform and constraint-management redesign.
  • Large electricity users in Scotland (costs): Lose the prospect of low zonal prices that zonal pricing would have offered.

Implementation

DESNZ published an implementation plan alongside the decision; Ofgem is running TNUoS reform through code modifications and a review of the charging methodology, NESO is delivering the Strategic Spatial Energy Plan and constraint-management reforms, and CfD reforms were applied to Allocation Round 7. Legislation may be needed for some settlement changes. Watch Ofgem's TNUoS decisions and the 2026 spatial plan.

Concerns

  • Whether reformed national pricing reduces constraint costs meaningfully
  • TNUoS reform creating winners and losers among regions and technologies
  • Delivery risk across many parallel reforms
  • Lost efficiency gains that zonal pricing might have delivered
  • Investor uncertainty until the detailed measures are settled

Dates to watch

  • 2026: Strategic Spatial Energy Plan; Ofgem TNUoS reform decisions
  • 2026-H2: Constraint-management reform implementation by NESO

Sources

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Clean Power 2030 Action Plan and Contracts for Difference reforms (Allocation Round 7)

United Kingdom · Department for Energy Security and Net Zero · plan · 2024

Where it stands: Plan adopted; reformed CfD rules applied in AR7 (awards January and February 2026) and AR8 (application window closed 7 August 2026)

The December 2024 plan sets a 2030 target of at least 95 percent clean generation with capacity ranges (43 to 50 GW offshore wind, 27 to 29 GW onshore, 45 to 47 GW solar, 23 to 27 GW batteries, 4 to 6 GW long-duration storage) and reforms the CfD scheme for AR7 with longer 20-year contracts, relaxed planning-consent entry rules and a Clean Industry Bonus, making the government's procurement the dominant driver of GB new build.

The problem

Britain needed to roughly double renewable capacity in six years while AR5 in 2023 had attracted no offshore wind bids because administrative strike prices were set too low for inflated costs. The government required a plan that set explicit capacity ranges (to steer connections and planning) and a CfD design that would bring offshore wind back at affordable prices.

What it does

The Clean Power 2030 Action Plan, published 13 December 2024 on NESO's advice, defines clean power as at least 95 percent of GB generation from low-carbon sources in a typical weather year with unabated gas at no more than 5 percent, and sets 2030 capacity ranges by technology and region that now govern the connections reform. For CfDs it announced reforms applied to Allocation Round 7: CfD contract length extended from 15 to 20 years for fixed-bottom and floating offshore wind, onshore wind and solar; eligibility for offshore wind projects that have not yet obtained full planning consent, with budget set after bids are known; the Clean Industry Bonus (a supply-chain investment adder); and the ability to set larger, technology-specific budgets. AR7 opened in 2025 with a budget of more than £1 billion a year; the offshore wind results were published on 14 January 2026 (12 projects, 8,437.5 MW, fixed-bottom strike price £65.45/MWh in 2012 prices for England and Wales, floating £155.37/MWh) and the onshore pots on 10 February 2026 (AR7a: 6,232 MW, solar £46.82/MWh and onshore wind £51.85/MWh in 2012 prices). The plan also commits to grid build, planning reform (the Planning and Infrastructure Bill), a hydrogen and CCUS programme and continued nuclear support.

Market effect

Twenty-year contracts and consent-stage entry lower the cost of capital and the strike prices developers need, so AR7 restored offshore wind procurement at scale; that adds a large tranche of zero-marginal-cost supply for 2029 to 2031, which lowers expected baseload prices later in the decade and increases the frequency of negative prices unless storage and interconnector capacity keep up. Because CfD generators receive a fixed strike price, their offering behaviour depresses day-ahead prices in windy periods and pushes gas plants into fewer, higher-priced hours; capacity-market prices rise to keep firm capacity available. Capacity ranges in the plan cap what connects before 2030, which favours projects already inside the ranges and shapes the storage and solar pipeline. The plan's dependence on grid delivery means the constraint cost trajectory is the main risk to consumer bills.

Key numbers

Clean power definition
At least 95 percent low-carbon generation, unabated gas no more than 5 percent, in 2030
Offshore wind range
43 to 50 GW by 2030
Battery and long-duration storage ranges
23 to 27 GW batteries and 4 to 6 GW LDES by 2030
CfD contract length from AR7
20 years (from 15) for offshore wind, onshore wind and solar
AR7 offshore wind result (14 January 2026)
12 projects, 8,437.5 MW; fixed-bottom strike price £65.45/MWh (2012 prices)
AR8 application window
20 July to 7 August 2026; results pending

Who gains and who pays

  • Offshore wind developers (gains): 20-year CfDs and earlier eligibility; large AR7 budget.
  • Gas generators (mixed): Fewer running hours but higher capacity-market revenue.
  • Storage and interconnector developers (gains): Plan sets 23 to 27 GW battery and 4 to 6 GW long-duration storage ranges and supports flexibility.
  • Consumers (costs): CfD top-up payments are recovered on bills; lower wholesale prices in windy years only partly offset them.
  • Supply-chain manufacturers (gains): Clean Industry Bonus rewards UK investment.

Implementation

AR7 ran during 2025 under the reformed rules and its results were published on 14 January 2026 (offshore wind) and 10 February 2026 (onshore pots). AR8 opened its application window on 20 July 2026 and closed it on 7 August 2026; results are pending. The Planning and Infrastructure Act 2025 (Royal Assent 18 December 2025) is commencing through regulations, and the connections reform is the other delivery lever. NESO reports annually on progress against the ranges.

Concerns

  • Grid and constraint costs if network build lags generation
  • CfD strike prices and supply-chain inflation raising bill impacts
  • Whether 95 percent clean power is achievable by 2030 on current build rates
  • Negative-price frequency and its effect on merchant projects
  • Planning and consenting bottlenecks despite reform

Dates to watch

  • 2026-H2: Allocation Round 8 results and strike prices
  • 2026: Strategic Spatial Energy Plan and any updated 2030 capacity ranges
  • 2030: Clean power target year

Sources

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Energy Act 2023 · NESO, hydrogen and CCUS business models, Ofgem net-zero duty

United Kingdom · UK Parliament · statute · 2023

Where it stands: Act in force; provisions commenced in stages; secondary legislation and NESO plans being delivered

The largest UK energy statute in a decade: it created the publicly owned National Energy System Operator (live October 2024), gave Ofgem a net-zero duty, set up licensing and revenue models for hydrogen and carbon capture, brought heat networks under regulation and enabled competition in onshore transmission.

The problem

Britain's system operator sat inside National Grid plc, a for-profit transmission owner, which created conflicts over planning and connections; hydrogen and carbon capture had no licensing or revenue frameworks; heat networks were unregulated; and Ofgem's statutory duties did not mention net zero. The 2021 Energy White Paper and the 2022 Energy Security Strategy required a single enabling act.

What it does

The Energy Act 2023 (c. 52) received Royal Assent on 26 October 2023 after a 15-month passage. It establishes the Independent System Operator and Planner, which became the National Energy System Operator on 1 October 2024 after the government bought the electricity system operator from National Grid; NESO plans the electricity and gas systems, runs the balancing mechanism and produces the Strategic Spatial Energy Plan. It creates hydrogen transport and storage business models and a levy mechanism to fund hydrogen production support, establishes an economic licensing regime for carbon dioxide transport and storage, brings heat networks under Ofgem regulation with consumer protections, amends Ofgem's principal objective to include net zero, provides for competitive tendering of onshore transmission projects, regulates energy smart appliances and fusion, and gives ministers powers to direct the system operator during emergencies. Most substantive provisions commence through regulations made since 2024.

Market effect

NESO's independence changed who decides connections, network planning and, through the Strategic Spatial Energy Plan due in 2026, where generation should be built; that plan feeds the connections queue reform and the Centralised Strategic Network Plan that determine which projects get grid access before 2030. The hydrogen and CCUS frameworks created the revenue base for the Track-1 clusters (HyNet and East Coast) that reached financial close in 2024 and 2025, with a dispatchable power agreement for gas-with-CCS plants that will compete in the wholesale market with a strike price. Ofgem's net-zero duty tilts price-control and code decisions toward decarbonisation spend. Competition in onshore transmission adds a new class of bidders for large lines. For traders the act is infrastructure: it changes the pace of grid and low-carbon firm capacity build rather than short-run prices.

Key numbers

Royal Assent
26 October 2023 (2023 c. 52)
NESO launch
1 October 2024
Strategic Spatial Energy Plan
First plan due 2026
Passage time
About 15 months through both Houses

Who gains and who pays

  • National Energy System Operator (obligation): New statutory planner and operator for electricity and gas.
  • National Grid plc (mixed): Sold the system operator; faces competition in onshore transmission.
  • Hydrogen and CCUS developers (gains): Licensing and revenue support frameworks enable financing.
  • Heat network operators (obligation): Ofgem regulation and consumer protection rules from 2025.
  • Ofgem (obligation): Net-zero duty and new regulated sectors.

Implementation

Commencement regulations have brought the NESO, hydrogen, CCUS and heat network provisions into force in stages from 2024. The hydrogen levy design and the heat network regulatory regime (authorisation from 2026) are in secondary legislation. The Strategic Spatial Energy Plan and the Centralised Strategic Network Plan are being produced by NESO on ministerial commission. Check legislation.gov.uk for the commencement orders and DESNZ for the hydrogen levy consultation outcome.

Concerns

  • Cost of the hydrogen levy on gas consumers
  • NESO capacity to deliver planning, connections reform and market operation simultaneously
  • Pace of CCUS cluster delivery and its cost to consumers
  • Heat network price regulation squeezing operators
  • Ministerial direction powers over the system operator

Dates to watch

  • 2026: First Strategic Spatial Energy Plan and heat network authorisation regime

Sources

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