On 26 November 2008, the Energy Act 2008 received Royal Assent. It was one of three key pieces of legislation (the others being the Climate Change Act 2008 and Planning Act 2008) which aim to strengthen and bring up-to-date the current legislative framework concerning energy, infrastructure and climate change. The Act itself aims to drive development of new civil nuclear power, expand the use of renewables and push clean technologies such as carbon capture and storage and the use of smart meters.
GAS AND CO2 LICENSING REGIME
The Act establishes new licensing regimes for the importation and storage of combustible gas and for the storage of carbon dioxide in offshore areas. It is intended that, by strengthening the regulatory framework, private sector investment will be encouraged, helping to maintain reliable supplies of energy. This is potentially a key provision, given that we expect to rely on imported gas to meet up to 80% of our demand by 2020.
The Act makes changes to the Renewables Obligation which is hoped will increase the efficiency and deployment of renewables in the UK. In particular the Act gives the Secretary of State the power to band the obligation, allowing for differing levels of support for different types of renewable technologies. The intended result will be a more diverse mix of electricity, thereby improving the reliability of our energy supplies and helping to lower the carbon emissions from the electricity sector. (See our July article on the re-banding proposals).
OFFSHORE ELECTRICITY TRANSMISSION
The Act contains provisions to facilitate the implementation of offshore electricity transmission (generally from wind turbines). In particular, the Act provides that Ofgem:
- can recover costs related to competitive tenders for determining to whom offshore electricity transmission licences will be granted;
- has the power to make regulations to enable a competitive tender process to be run;
- has the power to run such competitive tender processes; and
- has the power to make property transfer schemes to facilitate the award of a licence to the selected bidder.
DECOMMISSIONING OF ENERGY INSTALLATIONS
The Act ensures that, in three sectors: nuclear; offshore renewables; and oil and gas, the person with a decommissioning obligation meets the cost of decommissioning the energy installation.
In particular, operators of new nuclear power stations must accumulate funds to meet the full costs of decommissioning and their full share of waste management costs. The Act also strengthens statutory decommissioning provisions for offshore renewables and oil and gas installations to minimise the risk of liabilities falling to the Government.
The Act gives the Secretary of State the power to modify electricity and gas distribution and supply licences to require the licence holder to install, or facilitate the installation of smart meters. Recent trials have suggested that smart meters, displayed and fitted in homes, could help the UK reduce carbon emission by around 3% of the 153 million tonnes of carbon dioxide the Energy Saving Trust estimates are emitted from UK households each year. More encouraging is the backing of the consumer. The Energy Retail Association (ERA) carried out recent research which found that 70% of energy customers believed smart metering technology would help them reduce their energy consumption. Garry Felgate, Chief Executive of ERA said: "This is a momentous decision for households across Britain. We're delighted the Government has decided to forge ahead with the roll out of smart meters. It is vital that no time is wasted in implementing this decision and that Government provides the necessary parliamentary time to debate the detailed plans".
THE LOW CARBON ELECTRICITY TARIFF AND RENEWABLE HEAT INCENTIVE
The most recent additions made to the Act during the Parliamentary process included the Feed in Tariff (a provision that will enable Government to introduce tailor-made schemes to financially support low carbon generation of electricity up to 5MW) and the Renewable Heat Incentive (a provision that will allow the Secretary of State to establish a financial support mechanism for renewable heat right across the spectrum, from large industrial sites to household level). DECC has said that both schemes should be operational by 2010.
Commenting on the inclusion of the feed in tariff, Andy Atkins of Friends of the Earth said "Britain's renewable energy potential is enormous…The inclusion of a feed-in tariff in the Energy [Act] will hopefully encourage homes, businesses and communities to install green energy systems and play a key role in cutting emissions. Ministers must ensure that payments are high enough to make this happen."
As the Act is primarily an enabling piece of legislation, we are expecting a number of consultations on secondary legislation to be produced early next year, not least on the details of the low-carbon electricity tariff and the renewable heat incentive. We will provide you with up-to-date reviews of developments as they arise.