Comment by Tom Luff, Senior Practice Manager for Business Model and Policy Innovation at Energy Systems Catapult

In energy policy circles, we’ve had an intense start to the year. Here’s what grabbed my attention, and what it means for energy system innovation.

AR7 delivers scale, certainty, and new questions for the grid

The seventh Contracts for Difference (CfD) Allocation Round (AR7) is positive news for the UK offshore wind sector after a difficult period of stalled investment. The competitive auction is designed to secure low-carbon electricity and restores a sense of direction after the challenges of AR5, when several developers withdrew. This latest round marks a turning point for both the mature fixed-bottom market and the emerging floating wind sector.

The round secured a record 8.4 GW of offshore wind capacity – the largest single procurement to date in the UK and Europe. This sends a strong signal to the market, helping to rebuild investor confidence and restore momentum. Despite higher inflation and ongoing supply-chain constraints, offshore wind remains cost-competitive, with developers still able to build at scale under a predictable revenue model.

AR7 also accelerates the early commercialisation of floating offshore wind, through the Erebus and Pentland projects. These will help validate floating wind at commercial scale and support the development of the wider supply chain, from floaters and ports to installation and long-term operations. This is an encouraging signal for future deployment in Scotland and the Celtic Sea.

However, caution remains warranted. While extending the CfD term from 15 to 20 years improves project economics, AR7 still locks in offshore wind at the highest real strike prices seen in around a decade. More fundamentally, generation capacity is being procured faster than the grid can be reinforced. Transmission constraints and connection delays risk leaving capacity underutilised, potentially pushing up electricity bills just as electrification needs to accelerate.

Warm Homes Plan makes big promises for low-carbon heating

The government has finally published its long-awaited Warm Homes Plan. Billed as the UK’s largest investment in home energy upgrades, it aims to triple solar deployment, install 450,000 heat pumps a year and upgrade five million homes by 2030.

Funding includes £5bn through the Warm Homes Fund, supporting the installation of insulation, heat-pumps, solar and batteries, through mechanisms including support packages, consumer loans and continuation of the Boiler Upgrade Scheme. The policy package focuses on EPC reform, electrification, smart meters and speedier heat pump installation. Delivery is set to be coordinated through a new Warm Homes Agency, working with local partners and using data-driven targeting. Alongside this, the Fuel Poverty Strategy retains its 2030 target, prioritising vulnerable households, energy affordability and health, while aligning with clean energy upgrades and improved consumer protection.

As my colleague Kat Young has written, while the plan sets out a comprehensive approach to low-carbon heating, its success will depend on implementation. Funding and low-interest loans should improve access, but uptake will rely on consumer confidence, clear guidance and consistently high-quality installations. Expanding the Boiler Upgrade Scheme and supporting innovation could help drive adoption, yet ensuring new technologies reach all households remains a challenge.

Measures aimed at renters and local delivery structures are positive, but their impact will depend on enforcement and coordination. Investments in supply chains, skills and manufacturing are important enablers of the transition, but turning these commitments into warmer, lower-carbon homes will require careful planning and ongoing monitoring.

While this certainly a step in the right direction for increasing the efficiency of our homes, the measures offer little for those improving non-domestic properties. My colleague Christine St John Cox has warned that without significant policy changes opportunities for innovation and job creation will be lost.

Smart regulation will decide the pace of electricity system innovation

Although highly technical, the government’s Smart Secure Electricity System (SSES) consultations are foundational to the future of the UK electricity system. The first phase of the programme proposes new rules for smart appliances (consultation open until 5 February) and load control licensing (consultation open until 18 February).

The government is proposing that electric heating products should require smart functionality that consumers can override, and bringing all EV smart charge points under a single regulatory framework. The requirements cover grid stability, cyber security (including ETSI EN 303 645) and the use of MIR-compliant Class B meters, with randomised response delays to avoid herding effects. Load controllers and flexibility service providers would need to hold licences, with conditions covering systems, financial resilience, cyber security, codes of practice and consumer protections.

This points to the need for proportionate regulation with obligations rising to match growing customer numbers, controllable load and system risk. It’s also the moment to push for regulatory diversity, as we explored in our Secondary Supplier work. Following consumer trails through our Living Lab, we called for lighter-touch approaches for low-risk actors, alongside strong core consumer protections on transparency, consent, control, safety and fair exit. Early flexibility markets should be treated as learning environments, with requirements reviewed over time to strike the right balance between innovation and protection.

This programme sets a strategic direction. Done well, it could unlock the full potential of flexibility markets. Done poorly, it risks stifling innovation. Smart appliances and load control are essential to a secure, flexible, Net Zero electricity system, but high, fixed compliance costs could disproportionately affect smaller or more innovative providers. So, well worth keeping an eye on and responding to the Department for Energy Security and Net Zero if you have views.