Energy Bill: Not just about nuclear

While many commentators have understandably been focussing on the Government’s announcement on nuclear energy on 10 January, the Energy Bill and the recently published Government Response on the Renewables Obligation Consultation also set out measures which will be important to investors and energy companies involved in the renewable energy industry or interested in investing in the carbon capture and storage sector.

Carbon Capture and Storage (CCS)

Regulatory uncertainty is regularly cited as a key concern for the nascent CCS sector. Following the launch of a competition for a CCS demonstration project in November 2007, the Government has proposed in the Energy Bill a regulatory framework to deal with the storage of CO2, an activity which is not currently regulated. In particular, the Energy Bill would put in place a licensing and enforcement framework (including any financial security required) for companies carrying out one of the following activities:

• the storage of CO2 with a view to its permanent disposal;

• conversion of a natural feature (for example, a saline aquifer) for such storage;

• exploration for a CO2 storage site; and

• establishment or maintenance of an installation for any of those purposes.

Licences would be granted by the Secretary of State or a delegated authority. This framework is currently limited to the offshore storage of CO2, as regulating the onshore storage of CO2 would require amending existing EU Directives. For further details on CCS projects, please see the following Law-Now.

Reform of the Renewables Obligation (RO)

The Government is going ahead with the introduction of banding of the RO in order to give more support to emerging renewable technologies. Renewables Obligation Certificates (ROCs) entitlements automatically affect the economics of different technologies and these proposals will therefore be important to the renewable energy industry. The Government proposes the following banding regime for the RO to come into effect from 1 April 2009 subject to statutory consultation:

• Established Band 1 (Landfill Gas): 0.25 ROC/MWh;
• Established Band 2 (Sewage gas, co-firing on non-energy crop (regular) biomass): 0.5 ROC/MWh;
• Reference Band (includes onshore wind, hydro-electric, co-firing of energy crops and other similarly established technologies): 1 ROC/MWh;
• Post-Demonstration Band (offshore wind, dedicated regular biomass): 1.5 ROCs/MWh;
• Emerging Band (includes wave, tidal stream, solar photovoltaic and other types of emerging technologies): 2 ROCs/MWh.

Other key decisions made by the Government in its response to the RO Consultation include:

• an increase in the level of “guaranteed headroom” by setting the RO at 8% (rather than 6%) above the number of expected ROCs in the market in any obligation period after 2015/16;
• the fossil fuel content of mixed waste initially being deemed to be 50% and increasing over time to 65%; and
• the cap on co-firing being retained.

The Government has also dropped the possibility of curtailing the grandfathering provisions for operational capacity before 2027.

Decommissioning of Offshore Renewable Energy Installations (OREIs)

As previously reported (see the Law-Now on the UK Government’s offshore wind plans), the Government’s Environment Assessment could open up the bulk of the UK Continental Shelf to OREIs, with 25GW of additional offshore wind capacity by 2020.

As part of this, the Energy Bill would also amend the existing decommissioning regime for OREIs set out in the Energy Act 2004. In particular, it would enable the Secretary of State to serve a decommissioning notice on an associate of an OREI developer requiring it to submit a decommissioning programme in circumstances where the Secretary of State is not satisfied that adequate decommissioning arrangements (including financial arrangements) have been put in place by the developer in question. The Energy Bill also introduces some security provisions to ensure that in the event of insolvency, funds set aside for decommissioning purposes do not become available to creditors.

While nuclear steals the headline, the proposals on CCS, the RO and offshore decommissioning will be important factors to consider for the renewable energy industry and investors. The Energy Bill will now proceed through Parliament and the proposals are likely to develop further through that process.