This week’s Budget contained a range of measures affecting the UK energy sector. While individually the announcements may appear relatively modest, collectively they signal a clear direction: cheaper energy is the priority, with clean power cast as the way to deliver it.
For developers, investors and others operating across the energy sector, this means an increasing focus on demonstrating not only that projects are investable, but that they can deliver tangible benefits for consumers and the wider energy system.
Jonathan Cohen, co-head of Fladgate’s Green Energy Group, comments:
"This week’s energy measures may have been modest, but the direction is clear: cheaper energy is the priority, with clean power cast as the way to deliver it.
Projects must now prove their value to consumers, not just investors. That raises the bar, but it also creates openings, with continued support for low-carbon generation, grid infrastructure and hydrogen where they can demonstrate a clear benefit to consumers and the wider system.
The bigger challenge is likely to be grid access. As capacity is increasingly steered towards strategically important projects, data centres among them, competition for connections will intensify. The winners will be those who engage early and put their projects firmly on the right side of the bills debate.”
What are the key energy measures?
Cost Control Framework
The Government has announced that it will introduce a new Cost Control Framework in 2027, setting budgets for different elements of energy costs with the intention of “driving down all aspects of energy bills”.
Until this framework is in place, no new policy costs will be put on bills.
Wholesale Contracts for Difference (WCfD)
A consultation has been opened on the design of a WCfD scheme under which existing low-carbon generators, which supply roughly a third of the UK’s power today, will be able to voluntarily exchange their wholesale revenues for a fixed price.
The Government hopes this will deliver value for money for consumers and make prices less exposed to international volatility.
Data centres
The Government has introduced a Data Centre Covenant, setting out tests that all data centres are encouraged to meet and which strategic data centres must meet in order to qualify for additional government support. These include considerations around investment in local communities, jobs and environmental impacts.
The Government will also use powers under the Planning and Infrastructure Act 2025 to prioritise grid connections for strategically important projects. It intends to reserve future capacity for these projects, while capacity which becomes available when projects leave the connections queue may also be reallocated to strategic data centres.
Ministerial Control Centre
The Government will create a new central decision-making body to accelerate time to power for strategic data centres.
By centralising decision-making, the Government hopes it can allocate grid capacity more efficiently and help speed up the development of strategic data centres.
Great British Grid
Great British Grid will work alongside private network operators to increase competition and support the delivery of grid upgrades and reforms.
The Government hopes that the success of introducing a blend of public and private competition in offshore electricity transmission networks can be reflected in onshore electricity transmission networks.
New generation
The Chancellor has said that the Government will only buy and build new projects where they lower bills and can connect to the grid, again signalling that reducing energy bills is a key priority.
The detail of how this will work in practice remains limited.
Scrapping the Gas Shipper Obligation
The Government has committed to funding the cost of new hydrogen projects through general taxation rather than introducing the proposed levy on gas bills.
The upcoming Hydrogen Allocation Round 1 funding will be met with a £27 million uplift to the Department for Energy Security and Net Zero’s budget.
Domestic support
Around 20 million households in council tax bands A to D in England will receive a £100 Household Energy Payment, paid through the council tax system.
Gas standing charges are also due to be abolished, with the Government asking Ofgem to implement the change in 2027. This is expected to save an estimated 60% of households an average of £45 a year.
The VAT cut on electricity will run until July, with an estimated £50 reduction in annual costs, while the 5p cut in fuel duty has also been extended until July.
These measures will be funded in part by an additional 3% bank surcharge, on top of the existing 3% surcharge and 25% corporation tax rate, commencing in January 2027 and lasting for 15 months.
What does this mean for the energy market?
The detail of several of these measures is still to come, but the overall policy direction is becoming clearer.
Projects will increasingly need to demonstrate a compelling case not just for investment, but for their contribution to lowering bills, improving the wider energy system and making effective use of constrained grid capacity.
For renewable energy developers in particular, grid availability remains a critical issue. Increasing prioritisation of strategically important projects, including data centres, has the potential to intensify competition for capacity.
Understanding where projects sit within this evolving policy landscape, and engaging early with the relevant stakeholders, will therefore become increasingly important as the Government develops the detail behind these announcements.
