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The biggest reform to the UK’s energy system in a decade: The Energy Security Bill

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The UK Government has introduced new legislation which aims to transform the UK’s energy system and deliver “a cleaner, more affordable and more secure energy system for the long t...

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Date: 09/08/2022

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Sam Tye

Partner

The UK Government has introduced new legislation which aims to transform the UK’s energy system and deliver “a cleaner, more affordable and more secure energy system for the long term”.

Its introduction follows the publication of The Ten Point Plan for a Green Industrial Revolution and the British energy security strategy policy paper earlier this year (2022).

The intention is that the changes will deliver more home-grown energy from more diverse sources and reduced dependency on imported fossil fuels and exposure to volatile and high prices in international markets.

The publication of the Bill was brought forward following the surge in wholesale energy prices seen in response to increased demand as the world emerges from the Covid-19 pandemic and compounded by supply disruption arising from Russia’s invasion of Ukraine and the implementation of sanctions on Russia by the international community.

Business and Energy Secretary Kwasi Kwarteng commented “to ensure we are no longer held hostage by rogue states and volatile markets, we must accelerate plans to build a truly clean, affordable, home-grown energy system in BritainThis is the biggest reform of our energy system in a decade. We’re going to slash red tape, get investment into the UK, and grab as much global market share as possible in new technologies to make this plan a reality.”

The aim of the Energy Security Bill ("Bill") is to help increase the resilience and reliability of energy systems across the UK, support the delivery of the UK’s climate change commitments and reform the UK’s energy system while minimising costs to consumers and protecting them from unfair pricing.

The Bill will mainly apply to Great Britain with some provisions applying across the UK.

Amongst other things, the Bill introduces provisions addressing: the licensing of carbon dioxide transport and storage; commercial arrangements for industrial carbon capture and storage and for hydrogen production; low-carbon heat schemes and hydrogen grid trials; the gas and electricity industry codes; smart appliances and load control; the energy performance of premises; offshore energy production, including environmental protection, licensing and decommissioning; and the civil nuclear sector.

The Bill is structured around three main areas:

1) Leveraging investment in clean technologies (Parts 1 to 3 of the Bill)

      Summary: to develop a low carbon energy system, reduce emissions from industry, transport and potentially heat, and provide low carbon power.

      Measures include:

      • Establishing an economic regulation and licensing regime for CO₂ transport and storage.
      • Enabling the Government to implement and administer hydrogen and carbon capture business models including introducing a new hydrogen levy.
      • Enabling the establishment of a market-based mechanism for low-carbon heat.
      • Enabling the effective and safe delivery of a large village hydrogen heating trial.
      • Excluding fusion energy facilities from nuclear site licensing requirements under the Nuclear Installations Act 1965 (NIA 1965)

      2) Reforming the UK’s energy system and protecting consumers (Parts 4 to 9 of the Bill)

          Summary: to ensure market frameworks and governance arrangements are geared towards strengthening energy security and becoming a net zero energy system while minimising costs to consumers.

          Measures include:

          • Establishing an Independent System Operator and Planner (Future System Operator).
          • Reforming the current energy code governance framework including granting Ofgem new functions to provide strategic direction and oversight on codes and creating a new class of more independent code managers to deliver an improved system for consumers and competition.
          • Enabling competitive tenders in onshore electricity networks.
          • Enabling the Competition and Markets Authority to investigate more effectively the impacts of mergers between energy companies. The government estimates this move could save consumers up to £420 million over the next 10 years by protecting them from increasing network prices following mergers.
          • Introducing a definition of multi-purpose interconnectors from which a new licensing and economic regime can be developed.
          • Maintaining the existing price cap beyond 2023.
          • Clarifying electricity storage as a distinct subset of generation in the 1989 Electricity Act.
          • Removing obligation thresholds under the Energy Company Obligation scheme.
          • Driving the rollout of smart meters across Great Britain.
          • Regulating the heat network market.
          • Introducing heat network zoning in areas where they are the most viable solution for decarbonising heat.
          • Setting regulatory requirements for Energy Smart Appliances including enabling mandatory functionality for electric heating appliances and electric vehicle (EV) charge points and establishing a new regulatory framework for actors who control these devices.
          • Ensuring the energy performance of premises regime is fit for purpose and reflects the UK’s ambitions on climate change, including to support achieving the UK’s target for net-zero greenhouse gas emissions by 2050.

          3) Maintaining the safety, security and resilience of the energy systems across the UK (Parts 10 to 12)

            Summary: to guarantee a robust and resilient supply of core fuels for the UK, to ensure that the UK is a responsible nuclear state and take essential action in protecting the UK Continental Shelf while transitioning to net zero.

            Measures include:

            • Reducing the risk of fuel supply disruption and improve fuel supply resilience in the core fuels sector.
            • Ensuring that the offshore oil and gas environmental regulatory regime continues to be effective, to maintain current levels of environmental standards and facilitate the offshore oil and gas industry’s transition to net zero.
            • Amending the Petroleum Act 1998 to change the fee regime and cost recovery mechanism for the regulation and offshore decommissioning activities of oil and gas producers.
            • Granting the North Sea Transition Authority additional powers to ensure the UK’s oil and gas and carbon storage infrastructure remains in the hands of companies best able to operate or decommission it.
            • Make expressly clear that certain nuclear sites located wholly or partly in or under the territorial sea adjacent to the UK require a licence and are regulated by the Office for Nuclear Regulation.
            • Amending the regulatory framework for the final stages of nuclear decommissioning including bringing the UK into alignment with internationally agreed recommendations for ending nuclear third-party liability and allowing former nuclear sites to be delicensed earlier than at present.
            • Enhancing the UK’s nuclear third party liability regime by enabling the UK’s accession to the Convention on Supplementary Compensation for Nuclear Damage through amendments to the NIA 1965.
            • Amending the remit and powers of the Civil Nuclear Constabulary to ensure that the constabulary can support other critical infrastructure sites and assist other police forces.

            While the bill covers a great deal of ground, as the government struggles to address the UK’s cost of living crisis, we expect that the government’s main focus in the immediate term will be on the implementation of the measures in the bill which are focused on security of supply for the UK market and the maintenance of existing price cap provisions.

            While the aspects of the bill which are intended to support the UK’s climate change goals will continue to be important to the UK government, we expect that these may take a back seat in the immediate term as the government looks to address the more politically urgent imperatives relating to the management of consumer energy costs.

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