When Parliament legislates, the SCA may not bite - lessons from the Zenobē judgment

On 23 June 2026, the Competition Appeal Tribunal (CAT) dismissed two applications brought by battery storage company Zenobē Energy Limited, challenging the lawfulness of Ofgem's long-duration energy storage (LDES) cap and floor scheme under the Subsidy Control Act 2022 (SCA). The SCA is the UK's post-Brexit framework for controlling subsidies granted by public authorities - broadly equivalent to the EU State aid regime. The judgment carries implications for businesses in regulated sectors where government support schemes are developed alongside primary legislation, showing that once schemes are underpinned by a statutory duty, challenges under the SCA may be difficult to achieve.

What is the LDES cap and floor scheme?

The LDES cap and floor scheme was designed to incentivise investment in LDES projects in Great Britain - a sector in which no new projects have been built for over forty years. It forms part of the Government's strategy to decarbonise the electricity supply system and deliver the Clean Power 2030 target, which requires 4-6GW of LDES capacity.

Under a cap and floor scheme, LDES operators receive payments from the National Energy System Operator (NESO) when revenues fall below a set floor and make payments to NESO when revenues exceed a cap. Floor payments are funded through Balancing Services Use of System (BSUoS) charges levied on electricity suppliers. The scheme is modelled on an existing cap and floor mechanism operated by Ofgem for electricity interconnectors.

Zenobē owns and operates lithium-ion battery energy storage system (BESS) assets in the UK. It opposed the proposed LDES scheme throughout the consultation process, arguing it would adversely affect investment in short-duration storage and place other forms of energy storage at a competitive disadvantage.

The applications

Zenobē brought two separate applications for review under section 70 of the SCA. Section 70 allows an interested party aggrieved by a "subsidy decision", meaning a decision to give a subsidy or make a subsidy scheme, to apply to the CAT for judicial review of that decision. The two applications were subsequently consolidated and heard together by the Tribunal.

The first application - the September documents

On 23 September 2025, Ofgem published four documents setting out its intended approach to the award of cap and floor support under the scheme (together, the September documents). These covered the multi-criteria assessment framework for Stage 2 project assessment, the financial framework (including the BSUoS-funded payment mechanics), and cost assessment guidance. However, the September documents did not finally determine the assessment methodology, the level of storage capacity to be supported, the licence terms, or the financial model;significant decisions therefore remained outstanding.

Zenobē filed its first application with the Tribunal on 22 October 2025, contending that publication of the September documents constituted a decision to make a subsidy scheme within the meaning of the SCA.

The second application - the February decision

On 18 December 2025, the Planning and Infrastructure Bill received Royal Assent. Section 26 of the resulting Act inserted a new section 10P into the Electricity Act 1989, imposing a statutory duty on GEMA (the Gas and Electricity Markets Authority, operating through Ofgem) to establish and operate the LDES cap and floor scheme "as soon as reasonably practicable". The scheme had been developed in parallel with the Bill's passage through Parliament. Section 10P came into force on 18 February 2026.

On the same date, Ofgem published an open letter formally adopting all prior development work on the LDES scheme for the purposes of its statutory responsibilities under section 10P (the February decision). Zenobē filed a second application challenging that decision, and the two applications were consolidated.

Zenobē's grounds

Zenobē argued that Ofgem had failed to comply with the SCA's requirements before making the scheme. In particular, Ofgem had not considered the subsidy control principles (section 12) or the energy and environment principles (section 13) - assessments designed to ensure that subsidies do not cause undue distortions to competition or trade. Ofgem had also not requested a report from the CMA's Subsidy Advice Unit (section 52) - a mandatory step for schemes in "sensitive sectors" such as electricity production - and had not made an entry in the subsidy database (section 33). It was common ground that Ofgem had done none of those things.What the Tribunal found

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No "subsidy decision" had been made

The CAT found that neither the September documents nor the February decision constituted a "subsidy decision" within the meaning of section 70 of the SCA - and that it therefore had no jurisdiction to review either.

The September documents, whilst an important stage in the scheme's development, left significant decisions outstanding - including the aggregate storage capacity to be supported and the licence conditions. In the Tribunal's view, publishing them was a step in developing a scheme, not the point at which the scheme was made. The February decision fared no better: because the September documents had not themselves made a subsidy scheme, adopting them did not do so either. The work remained preparatory, undertaken with a view to the future establishment of the scheme once section 10P was in force.

The Tribunal also confirmed that the September documents had been superseded by the February decision, in which Ofgem explicitly adopted all prior development work under section 10P. Any ongoing legal effect of the September documents derives from that adoption, making Zenobē's challenge to them academic.

The primary legislation exemption applied in any event

The Tribunal went further, addressing whether the primary legislation exemption under section 78 and Schedule 3 of the SCA would have applied even if a reviewable decision had been made. In short, the SCA carves out schemes that are made "by means of primary legislation" from most of its substantive requirements - including the right to challenge them before the CAT. The key question was whether the LDES scheme fell within that carve-out.

Section 10P uses the imperative "must" and specifies the timescale, purpose, eligible installations, and the nature of cap and floor support. Reading paragraphs 4 and 5 of Schedule 3 together, the Tribunal held that the exemption extends to schemes made by a public authority pursuant to a legislative duty - not only to schemes wholly prescribed by legislation - even where the authority retains design discretion.

The Tribunal rejected Zenobē's narrower reading, which would have confined the exemption to schemes where every detail is prescribed by the legislation itself, leaving no discretion to the implementing authority. On that interpretation, a public authority under a statutory duty to make a subsidy scheme could be prohibited from doing so if it concluded the scheme did not comply with the SCA's principles. The Tribunal found this would be directly contrary to Parliament's intention: Parliament had already made the key policy choices by specifying the nature of the scheme and the eligible projects in section 10P. Requiring Ofgem to undertake a separate assessment that might lead it to conclude it "must not make the scheme" would undermine the very duty Parliament had imposed.

The Tribunal also declined to admit a Ministerial statement from the passage of the Subsidy Control Bill under the rule in Pepper v Hart on the basis that the statutory language was neither ambiguous nor obscure, and the statement addressed individual subsidies rather than subsidy schemes.

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The CAT's jurisdiction extends to public law grounds

GEMA argued that section 70 jurisdiction is confined to subsidy control issues. The Tribunal rejected this, finding it would be highly undesirable to require parallel proceedings before the CAT and the High Court. The vires question did not ultimately arise.

What this means for businesses

The judgment establishes a potentially broad carve-out from the SCA's substantive requirements. Where Parliament imposes a mandatory obligation on a public authority to establish a support scheme, the scheme will be treated as made by means of primary legislation for the purposes of section 78 - even where the implementing authority retains significant discretion over the scheme's detailed design. The practical effect is to narrow the scope for challenge under section 70 of the SCA.

For businesses affected by government support schemes, the message is clear: once Parliament has legislated and the relevant authority is acting within its statutory duty, any SCA-based challenge is likely to face jurisdictional hurdles, leaving affected businesses to consider challenges via judicial review or CMA appeal, for example, where a subsidy or scheme is made through modifications to energy licence conditions. The Zenobē judgment indicates that the opportunity to influence scheme design may arise well before the point at which a formal legal challenge can be brought.

It is equally important to note what the Tribunal did not decide. The CAT did not rule on whether the LDES scheme involves financial assistance "from public resources" within the meaning of the SCA. As a result, that issue remains open and may yet be tested in future proceedings concerning schemes funded through comparable levy or charging arrangements.

Businesses should engage legal, policy and public affairs advisers at the earliest opportunity, using consultation processes to advance commercial and economic arguments with government and regulators. Where a scheme is developed alongside primary legislation, consultation and Parliamentary scrutiny may represent the most important opportunities to influence its design. In those circumstances, stakeholders may wish to ensure that any potential subsidy control concerns are clearly identified and considered during the legislative process, giving Parliament the opportunity to determine whether additional safeguards or constraints are required. The Zenobē judgment suggests that, where a scheme is underpinned by a statutory duty, a challenge before the CAT may face significant hurdles. This reinforces the importance of engaging with legislative and regulatory processes at an early stage, while recognising that formal legal challenge will remain appropriate in some cases.

This publication is intended for general guidance and represents our understanding of the relevant law and practice as at July 2026. Specific advice should be sought for specific cases. For more information see our terms & conditions.

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