The Energy Act is wide-ranging in scope, but (at a high level) the key changes introduced include:
- The establishment of a new independent body – the Future System Operator (FSO) - to oversee the UK's electricity and gas networks. The FSO's three key objectives are: identifying and creating opportunities to facilitate the transition from electricity and gas to drive net zero outcomes; ensuring security of supply of energy and gas; and promoting an efficient and economical electricity and gas system with a view to reducing costs for energy customers.
- The regulation of heat networks (heat from a central source to consumers via a network of underground pipes carrying hot water) under the oversight of Ofgem. Ofgem has also been given a new specific net zero remit requiring it to consider how its decisions may assist the government in meeting its net zero targets.
- Powers for the government to introduce a framework to establish and assign 'heat network zones' - the method by which certain areas are identified and designated where heat networks provide the lowest-cost, low carbon heating option.
- The creation of a merger regime for power networks that will be enforced by the Competition and Markets Authority with a view to minimising the risk of mergers between energy network companies having a detrimental effect on consumers.
But perhaps of most significance to the UK infrastructure market is that that it aims to:
- Private investment: "help unlock £100 billion private investment in energy infrastructure";
- Offshore wind power: accelerate development in offshore wind power with plans to increase the installed capacity to at least 70 gigawatts by 2045;
- Onshore electricity: bring more competition to onshore electricity networks by granting powers to enable competitive tendering for electricity projects;
- Heat Pumps: incentivise the heating industry to invest in low-carbon heat pumps (as an alternative to domestic gas boilers) to support the government's target of 600,000 heat pump installations annually from 2028;
- Smart meters: encourage smart meter rollout via regulations controlling energy smart appliances and load demand;
- Carbon capture and storage: help deliver the UK's first carbon capture sites by introducing a framework consisting of a licensing regime for carbon dioxide transport and storage, a support regime (via revenue support contracts) for carbon dioxide capture, transport and storage and a regulatory regime allowing the government to assist in overseeing the decommissioning of carbon storage installations.
- Hydrogen: introduce business models for hydrogen transport and storage and provide mechanisms to permit funding for government backed low-carbon hydrogen projects;
- Nuclear power: deliver a quarter of the UK's electricity from nuclear energy by 2050 via 24GW of nuclear capacity. Great British Nuclear (a new publicly-owned company) has been created to deliver the government's nuclear commitment and oversee the design, construction, commissioning and operation of new nuclear projects. The growth is expected to be delivered in part by a number of small modular reactor development, which are expected to be cheaper and quicker to build that large nuclear power plants, such as Hinkley Point C;
- Energy Performance of premises: amend existing regulations in relation to the assessment, certification and publication of energy performance certificates for premises.
The introduction of the Energy Act into law is welcomed. It should provide confidence to investors and encourage private finance to boost growth. However, large parts of the Energy Act will not come into force until a date to be specified in regulations, and other parts rely on regulations being passed to implement the detail as to exactly how the various powers and models will operate in practice, so it will be a case of 'watch this space' before we can see the full effect of the new measures.
How can we help
DAC Beachcroft's Infrastructure and Projects lawyers advise on a range of energy infrastructure projects. If you require advice on the Energy Act and/or your energy infrastructure projects, please contact our energy infrastructure experts Alison Martin and Rachel Gibson.
