By Cassie Etter-Wenzel

Britain’s energy transition is not constrained just by the availability of capital, but by the credibility needed to deploy it efficiently. Public trust, investor confidence, and regulatory competence now determine the pace - and the price - of Clean Power 2030.

The National Audit Office’s recent investigation into the Great British Insulation Scheme (GBIS) found that 98 percent of inspected homes had sub-standard work and almost a third needed major repairs, some posing health risks. While it was designed to help improve energy efficiency, a key component of CP2030, 220,0000 low-income households instead saw higher bills and colder homes and higher bills. The scandal is more than administrative failure – it is a warning signal that Britain’s regulatory architecture is struggling to guarantee delivery and value. When oversight falters, like it did for DESNZ and Ofgem in the GBIS, even well-funded and necessary programmes can lose legitimacy overnight.

The Crisis of Confidence

That loss of trust now extends across the energy system. In October, Energy UK called for Ofgem to be “fundamentally reorganized,” while the Department for Energy Security & Net Zero began its formal audit of the regulator’s purpose, performance, and governance. This follows Sir Jon Cunliffe’s rebuke of Ofwat for poor accountability and lack of forward-looking oversight.

The pattern is clear: regulators built for liberalisation are being asked to deliver political ambitions like decarbonisation —but with yesterday’s playbook. Inflation has eroded the benefits of price caps, electricity grid-connection delays are endemic, and infrastructure investors are pressing for higher returns to offset political and regulatory risk. The invisible currency that finances long-term infrastructure, also known as regulatory confidence, is eroding faster than the policy cycle can restore it.

The quiet introduction of regional pricing

When the Review of Electricity Market Arrangements (REMA) was launched in 2022, it was billed as the most ambitious reform of Britain’s power markets in a generation. The vision was a sweeping attempt to redesign the market around renewables, flexibility, and efficient locational signals via locational pricing to encourage renewable generation in high-demand centres and several other market-based reform options.

Over time, the ambition was pared back. First, REMA moved from nodal pricing, where each grid node has its own granular price, to zonal pricing, where pricing varies by regional zones as a second-best alternative to introduce locational pricing in the UK electricity market. Both nodal and zonal pricing were rejected after backlash from industry groups and investors on the increased uncertainty, bill inequality and disruption to future generation location plans.

Now, more than three years on, REMA moves forward with less disruptive Reformed National Pricing (RNP) plan. RNP is an alternative to zonal pricing that maintains national wholesale pricing but allows for even greater variation in locational signals via network and connection charges, meaning that geographic variation may cause bills to increase in specific areas long before the next five-year framework (RIIO) by Ofgem takes effect and changes allowed revenues. The level of that difference, how it interacts with the price cap, and what it means for retail bill changes will become clear later this year when government release their next steps for when and how it will implement the RNP changes.

For policymakers, RNP is coordination without fragmentation. For investors, it provides continuity with the existing regulatory model. For consumers, it risks becoming stealth Zonal Pricing—geography determining bills before it determines investment. With affordability already fragile, even rational reforms can turn politically toxic if the regulator lacks legitimacy.

Fiscal squeeze, political stretch

November’s Autumn Budget will deepen the challenge. The Office for Budget Responsibility is expected to flag a £20–40 billion shortfall, forcing new revenue measures and tighter spending controls. Every department—including DESNZ and Ofgem—will be told to do more with less.

When fiscal pressure builds, the Treasury’s instinct is to lean on regulators: deliver faster, protect households, and keep private capital flowing all without raising bills. But regulation cannot offset a missing fiscal strategy. Each new mandate stretches capacity further, while the tools to manage risk remain static.

Ofgem, for example is still being asked to enable around £200 billion in new infrastructure delivery in the next 10 years. Yet, the more regulators are treated as fiscal buffers, the less independent they appear. Every adjustment to an allowance or price cap becomes a proxy spending decision. Every delayed investment turns into a hidden budget cut.

Investors notice. The risk premium now baked into regulated returns is as much political as financial. At Vallorii, we’ve estimated a 200 to 300 bps difference between allowed and market-implied returns across UK energy assets, showing that investors now price regulatory and political uncertainty as part of the cost of capital. It’s not just about inflation or rates, it’s about confidence in the rulebook. Until Whitehall treats credible regulation as an investment in growth rather than a cost to be contained, Britain will keep paying a premium for uncertainty. 

Affordability and growth: the twin test of credible reform

Affordability and growth are not competing goals; they are the two sides of credible regulation. If the regime delivers cheaper capital but not cheaper bills, public consent will vanish. If it shields households while stalling investment, the upgrade cycle collapses under its own weight, CP2030 isn’t realized, and infrastructure assets start to breakdown from insufficient maintenance.

The next generation of price controls and network planning must optimize for both—affordability yesterday, investability today. Clearer rules on who pays for overruns, connection delays, or stranded assets can lower total system cost without suppressing returns. Smarter regulation is not just fairer; it is cheaper.

The Vallorii view: what investors really price

For investors, credibility gaps are quantifiable. In Vallorii’s Asset Pricing Risk Model, we look at what risks are priced in investment decisions but not in regulatory finance and find that the market-implied cost of equity for UK regulated energy assets sits above the “allowed” returns still used in price controls. For electricity networks that appear “low-risk” on paper, they now demand 6-8% real returns in the market; generation projects, meanwhile, are closer to 10-12%. The difference is structural, not sentimental with important implications in the real world, such as the government scheme to supercharge its offshore wind generation via stable contracts for difference schemes.

The message for policymakers: regulators still price theory; markets price reality.

If Britain wants to crowd in private capital at scale, regulatory design must evolve as fast as technology deployment.

Visual 1 — What Investors Really Price

Rebuilding the social contract of regulation

Britain’s energy investors are pragmatic: they can price risk, but not confusion. The system is now suffering from too much direction and too little coordination. Ofgem’s audit, RNP’s rollout, the Central Strategic Energy Plan, Missions, CP2030, and others all pull for regulatory attention but are not always aligned, creating more noise than clarity. Capital reads this noise as risk and prices it in which in turn forces households to absorb the additional costs.

It is important that fault does not lie solely with regulators. For more than a decade, successive governments have used them as delivery agents for policy ambition – and as insulation from the political costs of failure. But regulators were designed to be rule-takers, not rule-makers. When government sets uncertain or shifting goals, regulation becomes reactive by design. The result is neither credible independence nor accountable policymaking.

Government’s task is to set the course: stable objectives, clear mandates, and predictable frameworks for how affordability, decarbonisation, and investment are balanced. Regulators’ task is to run the system inside those parameters using evidence, transparency, and consistent application of rules to make the market work.

That divide is blurred. To rebuild trust, government should reclaim strategic responsibility, and regulators must double down on demonstrable competence. Radical transparency with live cost of capital indicators, queue data, risk-adjusted planning scenarios, and other tools can bridge the divide and lower uncertainty. They allow citizens, investors, and government itself to verify whether the system is delivering value - not merely promising it.

The next phase of the UK energy transition needs clearer rules, steadier institutions, and a partnership between government, regulator, and investors built on trust rather than delegation. Government must decide, regulators must steward, and markets will follow only where credibility leads. Investors will finance what they can forecast; households will support what they can trust. If that alignment holds, the UK can still meet its clean-power goals on time and on budget. The task ahead is not to regulate more, but to regulate well.