Contracts for Difference (Allocation) (Amendment) Regulations 2026

Considered in Grand Committee

Moved by

That the Grand Committee do consider the Contracts for Difference (Allocation) (Amendment) Regulations 2026.

It is unfortunate that your Lordships have me again for this SI, but I hope I can be brief and to the point on this one. I believe that this particular SI produces a number of fairly technical but pretty minor changes to the way contracts for difference are bid for and allocated, and I hope we will gain the approval of noble Lords this afternoon.

These regulations were laid before the House on 20 April 2026. As I alluded to, the statutory instrument makes several minor and technical amendments to improve the operational efficiency of the contracts for difference scheme during the assessment of applications. Subject to Parliament, the Government intend to introduce these targeted and practical measures in time for allocation round 8, which opens to applications on 20 July—so there is some haste in this procedure this afternoon.

The contracts for difference scheme is the Government’s flagship policy for supporting new low-carbon electricity generation in Great Britain. CfDs are awarded through annual, competitive auctions, with the lowest-priced bids being successful. In March, the Energy Secretary outlined a package of measures to go further and faster on clean power in response to events in the Middle East. That included bringing forward the opening of AR8 to July to provide certainty for clean energy investors.

The most recent allocation round, allocation round 7, alone secured 14.7 gigawatts of clean, homegrown generating capacity, across 201 new projects. AR7 built on the success of AR6 in September 2024, which secured over 7 gigawatts of renewable capacity across Great Britain. It is worth just looking at the upward curve of the amount of capacity procured in those two rounds. We will not go back to allocation round 5, but certainly in those two rounds there was a very successful allocation outcome.

Indeed, AR7 was the most successful renewables auction in European history. The AR7 reforms we introduced to boost competition and investor confidence secured renewable capacity at strike prices 40% lower than the cost of building and operating a new gas power plant. These achievements show how central the CfD scheme is to our mission to deliver clean power by 2030 and strengthen Britain’s energy security.

The Government keep the CfD scheme under review to ensure that it remains fit for purpose. The regulations will make the following three amendments to improve the future operation of the scheme.

First, they will enable the National Energy System Operator, NESO, which is responsible for the allocation round process, to correct certain types of errors it makes during the assessment of applications by issuing new or amended qualification decisions where evidence supports this. NESO, in its role as the CfD delivery body, assesses applications against the eligibility criteria and determines whether applicants qualify to participate in the competitive allocation process.

Secondly, the regulations will enable NESO to consider additional information or documentary evidence submitted by applicants when examining appeals from non-qualification decisions—that is, where an applicant has been thrown out of the process because it is considered they did not qualify. This change will help avoid projects being disqualified for minor or trivial omissions in their applications. It should streamline the process and ultimately increase the number of participants in the auction, driving greater competition and better value-for-money outcomes for bill payers.

Thirdly, the regulations clarify how NESO is to treat applications when eligibility has not yet been decided by the point at which the regulations require NESO to proceed with the auction. This will be a very rare occurrence but is nevertheless something we need to consider. In the light of operational experience from AR7, this amendment will remove some ambiguity in the current regulations.

Finally, the regulations provide for procedures or information relating to the implementation of several of the measures that I have just described to be set out in the contract allocation framework. This is a statutory document which contains the eligibility criteria and rules governing how NESO must allocate CfDs in an allocation round. The Government published a draft of the contract allocation framework, setting out the proposed requirements of AR8 on 1 June, inviting stakeholder views, and the final version will be published in early July, before the round opens to applications.

As for the process of those who are perhaps coming into the allocation round, or having their eligibility queried and then coming into the round at the end of the process, if noble Lords would like a complete explanation of how that works, that can be given but it will take us several hours of further discussion. I therefore hope they will take it from me that this does actually work in terms of making sure that we do not have unforeseen outcomes when the allocation round process takes place.

As for the process of those who are perhaps coming into the allocation round, or having their eligibility queried and then coming into the round at the end of the process, if noble Lords would like a complete explanation of how that works, that can be given but it will take us several hours of further discussion. I therefore hope they will take it from me that this does actually work in terms of making sure that we do not have unforeseen outcomes when the allocation round process takes place.

These amendments received strong stakeholder support in a recent public consultation. There was broad stakeholder recognition that the changes will improve the experience of applicants during the assessment process, support more effective competition and help to secure better value for money for consumers. This approach reflects the department’s continued close engagement with industry in the development of the CfD scheme. By building on the foundations laid in AR7, these regulations will, I believe, help strengthen procedures, simplify the operation of the scheme and introduce provisions that drive progress towards the 2030 clean power target, while securing better value for money for bill payers. I therefore commend these regulations to the Committee and beg to move.

My Lords, it is a great pleasure to listen to the Minister. He is the one Minister who, I know, if we asked for a one-and-a-half-hour explanation, he would be able to do it without notes because of his deep knowledge. When I looked at the Explanatory Note, I saw that it said that these regulations concern arrangements for determining whether renewables projects qualify for contracts for difference. I want to address that theme about a specific area.

The Minister mentioned AR5. Of course, AR5 was pretty disastrous, generally, but there was a bright spot in it. It is an area where I have to congratulate the previous Government on a very wise decision in including geothermal energy for the first time. I was privileged, three months ago, to officially open the United Downs geothermal electricity station down in Cornwall, near where I am resident. I have been a proponent of geothermal for some time.

I have a question for the Minister in that area, about determining which renewables qualify for CfD rounds. Obviously, the great by-product of some of this technology is the critical mineral of lithium, which is really important to our future industrial success in this country. Do the Government envisage geothermal continuing to be one of the areas that is ring-fenced as a technology in future rounds?

My second question for the Minister goes back to his past when he was a Member of Parliament in Southampton, where geothermal energy was important for heating. Given the Government’s strong will to broaden the application of CfDs, geothermal in many ways is even more suited for district heating, beyond combined heat and power schemes, which can be CfD related. What is the Minister’s view as to whether the Government see geothermal heating being part of a future CfD round?

My Lords, I thank the Minister for his introduction—clearly, this stuff is more complicated than eBay. I also thank my noble friend for raising important questions about geothermal that I hope the Minister will come to answer, but we support the inclusion and further development of that technology within our renewables energy mix.

These regulations are modest but worthwhile technical reforms to the contracts for difference scheme, and they have our support. As we know, auction rounds are the central part of our drive to clean energy, the energy transition 2030 and net zero by 2050. As the Explanatory Note sets out, competition has grown, so it is essential and welcome that, between rounds, the Government are undertaking these fundamental reviews of the way in which these complicated auction rounds work in practice. We welcome the fact that that has happened with stakeholders and that the Government are looking to improve and streamline these systems.

I turn to the reforms themselves, the first of which involves NESO reviewing the process for non-qualification decisions, as the Minister set out. Applicants will now be able to submit new evidence when requesting a review. We welcome this; it is overdue and is clearly a sensible reform. When an applicant has got so far in the process, it would be silly not to do that for the sake of one mistake on the form. As the Minister said, we know that many AR7 applications failed due to very minor omissions, so this is welcome. Allowing corrections at review stage will reduce unnecessary exclusion and improve fairness.

The second reform allows the delivery body to amend non-qualification decisions where the framework permits. This introduces much-needed flexibility into what was previously a perhaps overly rigid process and enables errors to be corrected without needing to process further to costly appeals.

Thirdly, Regulations 7 and 8 strengthen the treatment of pending applications. The definition is extended so that those still within appeal windows can submit sealed bids, while Regulation 8 ensures that those bids cannot be disclosed. This is an important safeguard for the integrity of the auction process. I will not ask the Minister to give us a two-hour explanation.

My Lords, I thank the Minister for his very kind opening remarks, which I greatly appreciate. It is good to be back for what is, as he says, always a constructive and convivial exchange of views with him. I am sure that that will continue to be the case, even in the very late nights that I anticipate we will spend debating the energy Bill when it comes before the House. In the four or five months that I did this job before leaving the House to come back in a new incarnation, I was deeply grateful to his private office as well for always being highly professional and responding quickly to any requests from this side of the House. I would be grateful if he could pass that on.

I am also grateful to the noble Lord, Lord Teverson, except that I want to correct him on one point, which is very difficult, because his knowledge is as extensive on the subject of energy as the Minister’s. When I was Minister for Energy, back in 1990, we launched the first support for geothermal energy. It was part of the non-fossil fuel obligation, which was a precursor of the current regimes. We had a series of technology bands, and one of them was geothermal. We felt it was very important that it should be recognised as an important part of the renewable energy programme moving forward. It was a long time ago, and it may not have made huge progress in the intervening decades, but nevertheless it was certainly identified as an important part of that work at that time. I echo what he says about its continued importance in the context of renewable energy.

I appreciate that this statutory instrument has not been written by the Minister. For once, the Minister will not be in a position to say to me that I have gone beyond the brief, in terms of what is in front of us, because I have no intention of doing so. This is purely a NESO error primer. If you look at the Explanatory Note at the end of the SI, you see that Regulations 3 to 7 all refer to the fact that, where NESO makes errors in the highly complicated system that the Government have asked it to study, there are measures and procedures by which it can correct those errors.

These regulations allow NESO, the National Energy System Operator, to issue amended non-qualification determinations to correct its own errors. The primary impact is that NESO can now disqualify projects previously approved by it in error, injecting project risk—significant risk, I might add—for investors and those putting the proposals forward. How will this impact on developers? It is clear in the statutory instrument: there is a retroactive disqualification risk. NESO is now empowered to issue corrected notices to projects that were wrongly deemed qualified at the assessment stage, stripping away previously approved allocation status. There are reinstated appeal rights: if a developer receives an amended non-qualification determination, they maintain their legal right to challenge the decision via the standard two-tier appeal system. There are also contractual safeguards. On those, I ask the Minister: what about projects that are ultimately caught in reshuffling delays or queues due to NESO’s wider connection reform programme?

This error primer is recognised as such very early on in the bold headline under Regulation 4:

“Delivery body error in notices of determinations”.