With less than one month until the Strategy for Maximising Economic Recovery of Offshore UK Petroleum (the “Strategy”) is due to come into force, the legislative process on the Energy Bill 2015 (the “Bill”) is of primary importance. On 15 March 2016, the Bill passed through the Third Reading of the House of Commons without a division, following the Report Stage on 14 March 2016. Our last Law-Now on this topic commented on the amendments considered at the Committee Stage review.
The Principle Objective and the Oil & Gas Authority
Although a number of amendments were proposed at Third Reading, most of those have not been accepted. Most notably, the Bill as it now stands leaves the Principle Objective unamended from the version enacted by the Infrastructure Act 2015; the House of Lords’ amendment of the Principle Objectives, so that it required the maximising economic return (rather than recovery) of UK petroleum while retaining oversight of the decommissioning of infrastructure and securing its re-use for transportation and storage of greenhouse gases, has been overturned.
Secondly, the Oil Taxation Act 1975 and the Corporation Tax Act 2010 were amended to confirm the transfer of relevant functions from the Secretary of State to the OGA. These are technical and non-controversial amendments that make the OGA’s function of determining oil fields and cluster areas clear. This was always intended, and puts the OGA’s status here beyond doubt once it is established as a Government company.
Thirdly, the time period within which the Secretary of State is required to review OGA performance has been increased to a period of 3 years (which was the Government’s original proposal) in lieu of the annual review period that had been inserted by the House of Lords. The Government sought to reinstate the 3 year review period on the basis that annual reviews would be too burdensome and could be an impediment to the work of the OGA as an independent regulator.
RO Closure for onshore wind in England, Wales and Scotland
As widely trailed and argued by the Government as part of the House of Commons processes in Parliament, the latest version of the Energy Bill reinstates the insertion of new sections to Part 1 of the Electricity Act 1989 such that, subject to grace periods, “no renewables obligation certificates will be issued under a renewables obligation order in respect of electricity generated after 31 March 2016 by an onshore wind generating station”. The early closure of the RO would impact wind generating stations situated in England, Wales or Scotland, “but not in waters in or adjacent to England, Wales or Scotland up to the seaward limits of the territorial sea”.
The Energy Bill still provides for a number of grace periods, which allow projects to accredit after 31 March 2016 if they met certain criteria (relating to planning, grid and land rights) on 18 June 2015 (the “approved development” condition), or if they are delayed for certain reasons relating to grid connections, radar, or lack of funding pending enactment of the Energy Bill (the “investment freeze” condition).
RO Closure for onshore wind in Northern Ireland
The Energy Bill gives the Secretary of State the power to prevent the use of relevant Northern Ireland certificates by GB suppliers in fulfilling their renewable obligations. Relevant Northern Ireland certificates are those issued in respect of electricity generated after 31 March 2016 to onshore wind farms accredited after that date (or by additional capacity added to existing onshore wind farms after that date).
Following negotiations between the Department of Enterprise, Trade and Investment (DETI) and the Department of Energy & Climate Change (DECC), it is understood that DECC has confirmed to DETI that it intends to exercise this power only if Northern Ireland does not close the Northern Ireland renewables obligation (the “NIRO”) on equivalent terms to GB or ensure that any additional support is funded by Northern Ireland. DETI is now proposing to close the NIRO for large scale onshore wind farms (being those over 5MW) on “equivalent terms”, but is currently proposing to leave the NIRO open for small-scale onshore wind farms. A consultation on how this will work and be funded is promised.
The Energy Bill continues to be on a tight schedule, with the Government anticipating Royal Assent before the Strategy is effective. Amendments to the Bill made in the Report Stage and Third Reading will now revert to the House of Lords for consideration. If the Lords disagree with any of these amendments, then the Bill will be sent back to the Commons for further consideration – it will be interesting to see what if any further changes the Lords propose, given that the intended legislative timescale does not allow for a lengthy period of “ping pong” to try to reach agreement between the two Houses.