The Energy Act 2023 (the Act) received Royal Assent on 26 October 2023, and represents a significant step in the UK's efforts to achieve net zero emissions by 2050. The Act introduces measures to support the deployment of low-carbon technologies, such as carbon capture, utilisation and storage (CCUS) and hydrogen. It also introduces a licensing and zoning regime in relation to heat networks and creates the successor body responsible for the UK’s electricity and gas networks: the Independent Systems Operator and Planner.
Several provisions of the Act came into force on 26 October 2023, while other provisions will come into effect on 26 December 2023 or following further commencement orders. Many provisions of the Act will require significant secondary legislation in order to implement key changes.
This article does not intend to cover all the changes made by the Act, but instead gives a brief overview of just some of the proposed changes.
Independent Systems Operator and Planner
One of the most notable features of the Act is the establishment of a new independent body - the Independent Systems Operator and Planner (ISOP) - that will be responsible for ensuring that the UK’s gas and electricity networks develop efficiently and securely. The ISOP will take over some of the functions currently performed by the National Grid Electricity System Operator (ESO) and the National Grid Gas System Operator (GSO), such as planning, balancing, and procuring services. ISOP will also have a duty to facilitate the decarbonisation of the energy system and to promote competition and innovation. The ISOP will be regulated by Ofgem.
Carbon Capture and Storage
The Act introduces a number of measures in relation to CCUS, including the framework for licensing and decommissioning regimes, and also appoints Ofgem as the regulator of these regimes. A license will be required for a person carrying out CCUS activities and the license will contain a number of specified provisions.
The Act also sets out the business models for industrial carbon capture (ICC). The government may enter into contracts with private companies to provide revenue support for these activities.
The Act sets out the framework for the regulation of heat networks in the United Kingdom, to the extent regulation does not sit within devolved competence (note that the Heat Networks (Scotland) Act 2021 will apply in respect of heat networks in Scotland). The Act formally appoints Ofgem as the heat networks regulator and establishes an authorisation regime that will be managed by the government and Ofgem. The regime will include provisions for pricing and consumer protection, as well as limits on technical standards and carbon emissions. The Act also introduces heat networks ‘zoning’ to England, whereby local authorities will identify areas where heat networks are the most cost-effective and environmentally friendly option for heating. Further secondary legislation will implement the regime and set out minimum technical requirements for heat networks.
The Act designates electricity storage, such as battery and pumped hydro schemes, as a distinct part of electricity generation, rather than a subset of generation or demand. The Electricity Act 1989 will be amended and storage will be defined as energy that was converted from electricity and is stored for the purpose of its future reconversion into electricity.
Climate change duties
The Act strengthens the existing duties of the government and the Gas and Electricity Markets Authority (the governing body of Ofgem), to have regard to the UK's climate change targets and the need to conserve and enhance the natural environment. The Act also requires the government to publish a statement of policy on how it intends to exercise its powers under the Act in relation to climate change and the environment.
Onshore electricity networks
The Act introduces a new regime for the development and operation of onshore electricity networks, which will allow for more competition and innovation in the sector. The Act enables the appointment of a body to decide which onshore electricity network projects can be run by competitive tenders, rather than being awarded to the incumbent network operators. The Act also allows for the creation of multi-purpose infrastructure (MPI) projects, which are integrated projects that combine electricity transmission, distribution, and storage assets.
The major offshore wind developments set out in the Act are in relation to consenting and the environmental impact of potential projects. In particular the Act:
- facilitates strategic compensation to deal with adverse effects on habitats, etc.
- enables the creation of marine recovery funds to be used for environmental compensation, potentially providing an alternative mechanism for developers to fund compensation
- enables the making of new regulations in relation to assessment of impacts on protected sites and compensation
Oil and Gas
Although the Act is mainly concerned with low emission technologies, the Act also contains various provisions in relation to oil and gas. It enables the future introduction of an offshore decommissioning charging regime, on which further consultation will be required before this is introduced. It amends the model clauses of both existing and future licences to allow the North Sea Transition Authority (NTSA) to revoke the licence in the event of an unapproved change of control. The Act also provides NTSA with powers to be provided with information about prospective licensees from a number of stakeholders.
The Act enables the government to establish a new financing model for nuclear power plants, known as the Regulated Asset Base (RAB) model, which will allow investors to recover their costs and earn a return through a regulated charge on consumers' bills. The Act also gives the government the power to create a new national policy statement for nuclear power, to be carried out by Great British Nuclear, which will set out the strategic need and locations for new nuclear plants in the UK.
The Energy Act 2023 is a vast piece of legislation that aims to transform the UK's energy system and support its transition to a low-carbon economy. The Act introduces a number of reforms and initiatives that will have significant implications for the energy sector and its stakeholders, as well as for the consumers and the environment. The Act is due to be accompanied by a raft of secondary legislation and guidance that will provide more details on the implementation and operation of the new regimes and measures. In the meantime, we will continue to monitor the developments and provide analysis and insights into the main aspects of the Act.
Previous Law Nows on the Energy Bill can be seen here:
- The proposed Independent Systems Operator and Planner (formerly called Future Systems Operator) here
- The proposed CCUS business models and licensing regimes here and here
- The treatment of energy storage here
- Onshore competition and MPIs here
- Oil and gas industry proposals here