Notice

DESNZ and EP Lynemouth Ltd: Heads of Terms – summary

Published 6 February 2026

Key terms

The key terms of the agreed Heads of Terms between DESNZ and EP Lynemouth Ltd are as follows:

Duration

1 April 2027 to 31 March 2031.

This arrangement will commence on 1 April, the day after existing support arrangements conclude, and be limited to four years in duration. 

Strike price

£153/MWh in 2024 prices (£110/MWh in 2012 prices).

Generation collar

Generation collar that caps the annual load factor eligible for subsidy at 27%.

Together the strike price and the capped load factor are projected to halve the subsidy that Lynemouth will receive during this contract period, compared against the company’s current CfD arrangements. There is a minimum winter generation floor, ensuring the system and consumers can rely on Lynemouth’s presence. 

Excess Returns Mechanism on profits 

Should Lynemouth make higher than anticipated profits in an extreme power price scenario, a profit clawback mechanism is in place to protect the consumer, with rates of 30% and 60% that would claw back excess profits made by the generator in periods of high power prices. This will guarantee a much fairer deal for consumers than in the past. 

Enhanced sustainability criteria 

The CfD substantially tightens sustainability criteria.

1. It, 
   1. i) increases the proportion of biomass that must be sustainably sourced from 70% to 100%
   2. ii) reduces the supply chain emission threshold from 55.6 gCO2e/MJ to 36.6 gCO2e/MJ (aligned with international best practice, as set out in the EU’s RED III standard); and
   3. iii) will include provisions to exclude material harvested in primary forest and old growth areas from receiving support payments

Robust contract compliance arrangements 

Should Lynemouth not comply with the sustainability criteria, then subsidy payments for electricity generated from whole consignments of biomass generation can be withheld, and there is a termination right for repeated breaches of those requirements. We will also expand the Low Carbon Contracts Company’s powers to conduct audits and review Lynemouth’s supply chain to identify issues early and ensure action is taken.

Overview 

Following our response to the consultation on supporting large-scale biomass generators when existing support ends in 2027, we have been progressing negotiations with Lynemouth Power Station in Northumberland.  

We have now signed Heads of Terms for a new low-carbon dispatchable Contract for Difference with Lynemouth and will progress to concluding a full contract in the coming months. In coming to this decision, we have carefully considered the value of large-scale biomass generation to the system in the short term, analysed the costs of support compared to alternatives, and devised the robust sustainability standards necessary.  

We do not consider subsidised unabated biomass generation to be the long-term solution to the UK’s energy needs. Announcing these Heads of Terms with a clear end point gives notice that we won’t be extending subsidy to Lynemouth to run unabated post 2031. This gives workers and the company time to plan for an alternative use of the site, ensuring that valuable expertise remains available to support the green transition and future economic growth.

Retaining power generation at Lynemouth in the short term will also support skilled jobs in the North East, benefit the local economy, and allow time for the development of future site usage options when support ends in 2031.

Under the proposed deal: 

• Lynemouth will be capped to run less than half as often as it does now, ensuring the plant only generates when it is needed to support the system. This means that consumers will instead benefit from cheaper renewable power when available
• Total subsidies will be reduced by half compared to current arrangements
• This deal removes the need to procure alternative capacity through the Capacity Market (CM) and is projected to result in slightly lower system costs overall

Supporting dispatchable generation at Lynemouth for another 4 years will retain up to 300 skilled jobs at the plant and at the Port of Tyne. This will help ensure that the skills base for the clean energy transition in the North East remains strong, underlining the commitment made in the Clean Energy Jobs Plan in October 2025.