The Department for Energy Security & Net Zero (DESNZ) has published its 2024-25 accounts. Gareth Davies, the Comptroller and Auditor General (C&AG), has issued a clean audit opinion, providing assurance to Parliament on the financial statements.

Here we share highlights from his audit certificate. You can read the full certificate and report on the accounts in context in DESNZ’s annual report and accounts.

Opinion on financial statements

In my opinion, the financial statements:

  • give a true and fair view of the state of the Department and the Departmental Group’s affairs as at 31 March 2025 and their net expenditure for the year then ended; and
  • have been properly prepared in accordance with the Government Resources and Accounts Act 2000 and HM Treasury directions issued thereunder.

Opinion on regularity

In my opinion, in all material respects:

  • the Statement of Outturn against Parliamentary Supply properly presents the outturn against voted Parliamentary control totals for the year ended 31 March 2025 and shows that those totals have not been exceeded; and
  • the income and expenditure recorded in the financial statements have been applied to the purposes intended by Parliament and the financial transactions recorded in the financial statements conform to the authorities which govern them.

Key audit matters

Group Valuation of Nuclear Provisions

Description of risk

The Departmental Group holds nuclear decommissioning provisions from the Nuclear Decommissioning Authority (NDA) which are comprised of several individual estimates of the decommissioning costs associated with the group’s subsidiaries and for several additional sites and entities. In its Statement of Financial Position, the Department recognised nuclear provisions totalling £110.1 billion at 31 March 2025 (31 March 2024: £105.3 billion), representing discounted expected cashflows. See note 19 to the financial statements.

The valuation of the nuclear provision is highly material to the Departmental Group financial statements.

I treat this as a significant matter for audit because of the high degree of estimation and uncertainty inherent in the valuation of the nuclear provision. The nature of the work performed is in many ways unique as management must estimate the cost of decommissioning facilities of uncertain content and condition over long timescales as the programme of decommissioning work is currently planned to take until 2137.

The provision also contains uncertainty in respect of the valuation of the Geological Disposal Facility affected by Nuclear Waste Service Ltd’s progress with the siting process. The timing of the completion of construction works may have a material impact on the provision.

Key observations

I have obtained sufficient assurance over this risk through my substantive testing. I did not identify material misstatements in relation to the valuation of the nuclear decommissioning provision as a result of the work I have performed.

I draw attention to the disclosures in made in note 19 to the financial statements concerning the uncertainties inherent in the nuclear decommissioning provisions. As set out in these notes, given the very long timescales involved and the complexity of the plants and materials being handled, a considerable degree of uncertainty remains over the value of the liability for decommissioning nuclear sites designated by the Secretary of State. Significant changes to the liability could occur as a result of subsequent information and events which are different from the current assumptions adopted by the Department.

Group Valuation of Contracts for Difference

Description of risk

Through the Low Carbon Contracts Company (LCCC), the Departmental Group holds highly material Contracts for Difference (CfD) assets and liabilities, which present a risk of material misstatement arising from both their significant value and the degree of uncertainty inherent in forecasting generation volumes and wholesale prices into the future, which require significant, complex, and subjective judgements. I consider the valuation of CfDs to be a key audit matter as I consider the fair value measurement of CfDs could be materially misstated due to: the use of inappropriate data; the application of inappropriate assumptions; errors in the design or operation of the valuation model; or insufficient or inappropriate disclosure of estimation uncertainty. The risk is inherently greater for the Hinkley Point C (HPC) CfDs due to: its significance to the financial statements; it relying on forecasting over a much longer timescale in comparison to ‘standard’ CfDs (35 years compared to 15 years for other CfDs); and the contract containing numerous clauses and conditions whose forecasted impact can materially alter the lifetime valuation of the HPC CfD.

At 31 March 2025, the Department has reported a net liability for the fair value of CfDs of £90.4 billion (31 March 2024: £89.2 billion), including £3.0 billion of contracts in an asset position (31 March 2024: £2.9 billion), and £93.4 billion (31 March 2024: £92.1 billion) in a liability position. This includes HPC CfDs with a fair value of £49.8 billion (31 March 2024: £56.5 billion). In note 10.1 to the financial statements, the Department has further disclosed the approach to valuing CfDs, including observable and unobservable inputs, the forecasting of significant assumptions and an analysis of the sensitivity of the valuation. In note 22, the Department further disclose risks impacting the valuation of CfDs.

Key observations

I found that controls are appropriately designed and implemented.

I am satisfied that the CfD model contains materially accurate inputs, the model has calculated the valuation appropriately and that the impact of changes in modelling are appropriately accounted for in the current year.

Following my review of the assumptions underpinning the fair value model, I am content that management has made a reasonable estimate, within a material range of estimation uncertainty. I am content that, alongside the associated sensitivity analysis disclosed, management’s valuation is fairly presented and disclosed.

I do, however, draw attention to the disclosures made in notes 1.18 and 10 to the financial statements concerning the measurement of liabilities relating to CfDs. As set out in these notes, there is a high degree of estimation uncertainty inherent in forecasting electricity generation volumes and wholesale electricity prices into the late 2030s (and 2060s for the purposes of the Hinkley Point C CfD) and there is a great deal of subjectivity involved in selecting a wholesale electricity price forecast input that conforms to the principles of fair value. Significant changes to the liability could occur as a result of subsequent information and events which are different from the current assumptions adopted.

Group accounting for Carbon Capture Usage and Storage (CCUS)

Description of risk

In 2024-25, through its subsidiary the Low Carbon Contracts Company (LCCC), the Department signed contracts to become the counter-party to a number of new schemes, including the Dispatchable Power Agreement (DPA) and the Revenue Support Agreement (RSA). The accounting treatment for these new schemes has been assessed for the first time in 2024-25.

This assessment includes whether the appropriate recognition point, the valuation method and the disclosures have been identified for each scheme. These valuations, where quantifiable, employ a series of inputs and assumptions with increased complexity arising from relative infancy of the underlying markets in which the schemes operate, and therefore a lack of historic data to inform management’s judgements. The accounting treatments of these new schemes have been determined by the relevant contractual terms, principally whether these schemes are recognised or only disclosed in the 2024-25 financial statements.

This risk over the DPA and RSA has been recognised due to: the contracts being novel and containing significant differences to the existing ‘standard’ Contracts for Difference (CfDs); the contracts and associated accounting requiring a full assessment in-year; and the risk that 2024-25 financial statements may include, for both schemes, inappropriate accounting, recognition, valuation and disclosure. This also includes the risk to the Statement of Parliamentary Supply.

I also recognise the possibility of additional schemes being signed after the year-end, triggering the need for disclosure.

The Department estimates that Availability Payment mechanism under the DPA signed during the year, which compensate the generator for maintaining the availability of its facility to generate electricity and capture CO₂, regardless of whether the facility is actively dispatching power, has future exposure to the Department of £7.7 billion.

As RSAs have been signed between companies consolidated into the Departmental Group, the impact of RSAs have been eliminated within the Departmental Group results.

Key observations

I am satisfied that the controls I reviewed were designed and implemented appropriately to design appropriate accounting policies and determine appropriate disclosures with regards to DPA and RSA. I am also satisfied that appropriate and materially accurate disclosures have been made within the 2024-25 financial statements.

Group accounting for Low Carbon Hydrogen Agreements (LCHA)

Description of risk

In 2024-25 through its subsidiary the Low Carbon Contracts Company (LCCC), the Department signed contracts to become the counter-party to a number of new schemes, including the Low Carbon Hydrogen Agreement (LCHA). The accounting treatment for this new scheme has been assessed for the first time in 2024-25.

In January 2024, the Department became counterparty for eleven LCHA contracts awarded in Hydrogen Allocation Round 1; at 31 March 2025, five out of the eleven LCHA contracts awarded had been formally signed, with a fair value of £1,243 million. A further five contracts were signed during the post balance sheet period, valued at £932m.

This assessment includes whether the appropriate recognition point, valuation method and disclosures have been identified for LCHA. The valuation employs a series of inputs and assumptions, with increased complexity arising from relative infancy of the underlying hydrogen market and therefore a lack of historic data to inform management’s judgements. The accounting treatment of this new scheme has been determined by the relevant contractual terms of the LCHA.

This risk has been recognised due to: the contracts being novel and containing significant differences to the existing ‘standard’ CfDs; the contracts and associated accounting requiring a full assessment in-year; and the risk that 2024-25 financial statements may include inappropriate accounting, recognition, valuation and disclosure. This also includes the risk to the Statement of Parliamentary Supply.

I also recognise the possibility of additional schemes being signed after the year-end, triggering the need for disclosure.

Key observations

I found that the controls around the recognition and valuation of the LCHAs were designed and implemented appropriately.

I found that management’s model accurately calculated the LCHA valuations using the model inputs and assumptions.

I am satisfied that the assumptions employed by management are materially appropriate.

I identified five further contracts signed after year-end which required disclosure in the 2024-25 financial statements. This is disclosed in note 27 to the financial statements.

Application of materiality

Departmental group

Materiality: £4.0 billion (2023-24: £3.76 billion when presented on the same basis). This covers balances and transactions associated with the Nuclear Decommissioning Provision and Contracts for Difference net liabilities.

Basis for determining overall account materiality: 2% of nuclear provision and Contracts for Difference liabilities of £201.6 billion (2023-24: 2% of nuclear provision liabilities of £99.0 billion and 2% of fair value of Contracts for Difference of £89.2 billion).

Rationale for the benchmark applied: The nuclear decommissioning provision and Contracts for Difference are the largest items in the Departmental Group Statement of Financial Position and is of primary interest to users of the accounts as the largest and most complex balances being managed by the Department. Their valuation is subject to significant uncertainty arising from both the complexity of the decommissioning work to be performed and forecasting of future cashflows and the very long timescales involved.

Particular classes of transactions, account balances and disclosures where an additional level of materiality has been applied: Additional materiality of £122.3 million applies to all transactions, balances and disclosures except for those in relation to the nuclear provisions and Contracts for Difference (2023-24: £132 million).

Basis for determining residual account materiality: 1.75% of adjusted gross expenditure of £7.0 billion (2023/24: 1.25% of adjusted gross expenditure of £10.6 billion)

Rationale for the benchmark applied: The Department’s main activities result in grant expenditure in line with their policy objectives – a key area of user interest. I have therefore used expenditure as the materiality benchmark for balances and transactions not related to the nuclear decommissioning liabilities or Contracts for Difference. I have adjusted the expenditure benchmark to exclude movements relating to the nuclear decommissioning provision and the Contracts for Difference, because this line reflects valuation movements sensitive to external market movements. I have used 1.75% as the basis for determining materiality as this is within the range normally used for departments.

Department parent

Materiality: £122.2 million (2023-24: £112.0 million)

Basis for determining overall account materiality: 1.75% of adjusted Departmental group gross operating expenditure of £7.0 billion (2023-24: 1.25% of adjusted gross expenditure of £9.0 billion)

Rationale for the benchmark applied: Expenditure is used as the materiality benchmark for the additional group materiality level because the Department’s main activities result in grant expenditure in line with their policy objectives – a key area of user interest. Before calculating materiality, I have adjusted total operating expenditure to remove the provision expenditure which is subject to group materiality. I have capped parent expenditure by the total operating expenditure of the Department group to ensure that sufficient assurance from work on the parent is obtained for the group.

Particular classes of transactions, account balances and disclosures where an additional level of materiality has been applied: All balances within the Parent financial statements have been audited to this materiality, except for where I consider them to be material by nature.

Basis for determining residual account materiality: N/A

Rationale for the benchmark applied: N/A

DESNZ Annual Report and Accounts 2024-25

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