Powering The UK's Energy Transition: Practical Insights From The NPM UK Development & Finance Forum 2025

The UK's energy sector is at a turning point. As the nation accelerates towards net zero, industry leaders, investors, and policymakers are grappling with new challenges and opportunities, ranging from scaling long-duration energy storage, unlocking green hydrogen, to meeting the surging demand from the inexorable rise of data centres, all amidst the backdrop of complex and wide-ranging grid reforms.

We recently partnered with NPM Europe to host the NPM UK Development & Finance Forum 2025, bringing together leading experts and stakeholders to explore critical industry trends. This article draws on those discussions to highlight the most pressing challenges and outline practical strategies for companies seeking to navigate the evolving energy landscape and transform uncertainties into opportunities.

1. Long-duration energy storage: regulatory shifts and market challenges

The UK is accelerating its push for long-duration energy storage (LDES), with over 70 projects shortlisted and a combined capacity of around 26 GW. The regulatory approach is technology-neutral, opening the door to both mature technologies such as battery energy storage systems (BESS) and emerging solutions like liquid-air energy storage (LAES) and compressed-air electricity storage (CAES). Ofgem is developing a cap-and-floor revenue model designed, much like the Contracts for Difference (CfD) scheme, to balance consumer protection with market innovation. Under this framework, projects receive support if revenues fall below a minimum "floor", while any earnings above the "cap" are returned to consumers.

However, despite strong momentum, LDES deployment faces significant hurdles:

• Grid connection delays and complex reforms continue to create investment risk (see section 2 below).
• High capital costs and long lead times will inevitably deter some investors.
• A diverse range of technologies (including BESS, LAES and CAES) - some more established than others - are competing for support.

Industry stakeholders are encouraged to engage with regulators as frameworks for capacity limits, eligibility, and project assessment are finalised before the final award announcement in 2026.

2. Grid reform and investment: navigating uncertainty and opportunity

Grid reform remains a double-edged sword. While efforts to move from "First-come, First-served" to "First Ready, First Connected" are underway to prioritise shovel-ready projects at the expense of more speculative, less advanced ones, delays and uncertainty persist. Developers continue to face unclear timelines and inflated costs, complicating financial modelling and investment decisions, a lack of clarity only likely to be exacerbated by the inevitable legal challenges that will ensue on completion of the grid reform process.

CfDs remain the dominant route to market for new-build projects, valued for their stability and simplicity. However, some developers are diversifying by splitting portfolios between CfDs and merchant exposure to manage their risk and exposure, while others are exploring post-gate discounting, acquiring projects after grid milestones are achieved.

Landowners' positions are also evolving with a prioritisation of longer option periods and increased demand for transparency on pricing and timelines. This shift is leading to more complex and lengthy negotiations which, again, only creates more investment uncertainty.

3. Power purchase agreements: innovation in offtake and corporate demand

Innovation is evident in structured PPAs and in the growing role of flexible assets. Rising demand from data centres is expected to reshape PPA structures, especially for high-consumption clients seeking 24/7 clean energy. While solar PV remains the preferred technology, large-scale technology companies are increasingly pursuing nuclear-backed PPAs to secure baseload supply. 2025 also saw a rise in waste-to-energy PPAs, reflecting an interest in diversified clean energy sources.

Short-term PPAs (typically 3-5 years) are gaining popularity, particularly for assets transitioning from older subsidy schemes. Corporates are seeking flexibility amid price volatility and are now increasingly favouring operational assets over new builds, prioritising risk mitigation, flexibility and ESG compliance. The market is also increasingly favouring hybrid projects that combine solar and wind generation with energy storage systems, a model that is fast becoming the new industry standard for reliability and grid optimisation (though it is important to note that this model can create complexities of its own, particularly around grid-sharing arrangements).

Key trends in the PPA market include:

• Growing interest in 24/7 clean energy matching, especially among large technology and pharmaceutical firms.
• Corporates exploring flexibility assets alongside renewables.
• Utilities offering balancing and shaping services and developing innovative origination products.

The market is currently a seller's market, driven by corporate demand and limited supply of de-risked assets, but regulatory changes and auction outcomes could shift the balance.

4. Green Hydrogen: progress, challenges, and the path to scale

Green hydrogen is positioned as a cornerstone of the UK's net-zero ambitions, but the market is still very much in the maturing phase. Momentum is slowly building, with recent Hydrogen Allocation Rounds (HARs) shortlisting more projects, yet progress remains slow. Delays in contract awards, high costs, and investor fatigue persists. Electricity accounts for around 70% of green hydrogen production costs, making long-term fixed price power agreements critical yet difficult to secure. Demand uncertainty adds to the challenge: producers need guaranteed buyers in order to commit the capital required to develop their projects, but buyers will hesitate to commit such funds until supply is proven.

Infrastructure gaps also loom large. Modular rollout of a hydrogen backbone and repurposing gas pipelines are essential, while blending trials have shown promise as a near-term solution, but large-scale adoption is still years away. Policy clarity and streamlined processes are essential to attract investment and scale production. Alternative pathways, such as bio-hydrogen and blue hydrogen, are being explored to bridge the gap until green hydrogen matures.

5. Data centres: new power players and grid implications

Data centres are rapidly becoming a major driver of UK power demand, with capacity expected to double by 2035. AI workloads, cloud adoption, and edge computing are fuelling this growth, but identification of suitable sites and grid connection delays, especially in London, pose significant challenges. Behind the meter energy generation (on- or near-site sources) and corporate PPAs are emerging as key strategies to secure renewable energy, stabilise costs and provide supply resilience.

Key developments include:

• Regional hubs like Scotland and Manchester are gaining traction due to renewable generation and repurposed grid connections.
• Investment is shifting towards infrastructure and pension funds, with new financing models emerging.
• Technological innovation is focused on liquid cooling, AI-driven energy management, and renewable integration.

Policy support and grid reform remain crucial for future growth, but the UK faces challenges in matching the incentives and rapid progress seen in the US.

6. Capital markets: financing the future of energy transition

The capital markets landscape is marked by valuation gaps, liquidity challenges, and a shift towards platform-based investments. Investors are diversifying across technologies and geographies, while banks report rising demand for flexible and innovative debt structures. Grid delays and policy uncertainty remain major obstacles, but there is growing interest in co-location projects and platform consolidation. Co-location models such as solar or wind paired with battery storage are gaining popularity as developers seek to boost system flexibility, reduce costs, speed up grid access and support project resilience. As valuations gaps and liquidity challenges begin to stabilise, these trends could create compelling entry points for investors seeking long-term growth in the energy transaction.

Next steps: implementing practical strategies

The UK's energy transition is at a pivotal moment. Regulatory clarity, grid reform, and innovative financing are essential to unlock the next phase of growth. Collaboration and consistent long-term messaging across industry, government, and investors will be key to overcome challenges and capitalise on emerging opportunities in storage, hydrogen, data centres, and capital markets.

Explore our practical strategies and to them into action for a cleaner energy future:

1. Regulatory clarity and engagement: the sector is moving towards a technology-neutral approach for LDES, with Ofgem developing cap-and-floor revenue model. Companies should engage early in consultations to shape policy and ensure projects align with evolving requirements.
   
   
2. Grid reform and connection management: grid connection delays remain a major barrier. Companies should plan for uncertainty in connection timelines and costs, and consider mixed strategies (such as combining CfDs, merchant exposure, and corporate PPAs) to manage risk and maintain project momentum.
   
   
3. Innovative financing and investment models: capital markets are shifting towards platform-based investments, co-located projects (solar and wind plus storage), and flexible financing structures. Investors are increasingly entering development and construction phases to capture higher returns. Companies should explore new financing tools and partnerships to optimise capital and manage risk.
   
   
4. Corporate offtake and PPA Innovation: demand for short-term PPAs and 24/7 clean energy matching is growing, especially from corporates with strong ESG goals. Companies should consider innovative PPA structures and flexibility assets to meet evolving client needs and differentiate their offerings.
   
   
5. Green hydrogen and hard-to-abate sectors: green hydrogen is emerging as a key solution for decarbonising industry and transport, but faces challenges around cost, infrastructure, and offtake certainty. Companies should monitor policy developments, explore transitional solutions, and collaborate across the value chain to unlock new opportunities.
   
   
6. Data centres and new demand drivers: data centres are rapidly increasing power demand and driving innovation in renewable integration, grid solutions, and financing. Companies should look for opportunities in emerging hubs, hybrid models, and sustainability-linked financing to capture this growth.

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