The Energy Bill 2010/11, which started its legislative passage in the House of Lords on 9 December 2010, received Royal Assent yesterday.

The Energy Act 2011 (the Act) establishes the framework to implement the Coalition Government's "Green Deal" plans, intended to improve the energy efficiency of properties in the UK. It also grants powers for the creation of an "Energy Company Obligation" and contains provisions to facilitate the roll out of smart meters, the development of carbon capture and storage projects and the implementation of the offshore transmission regime. The Act also clarifies the Secretary of State's powers to modify approved nuclear decommissioning programmes, providing much needed certainty for investors.

Energy sector participants should make sure they are aware of the effects the policy measures the Act introduces will have on their businesses.

The Green Deal

The majority of the Act consists of provisions which establish a framework for the Government's Green Deal energy efficiency scheme, which it believes will "revolutionise the energy efficiency of British properties".

The framework enables private firms to offer consumers energy efficiency improvements to their homes, community spaces and businesses at no upfront cost to the owner/occupier, and recoup the costs through a charge added to their energy bill.

To benefit from the scheme:

  • the property must be eligible;
  • the energy efficiency improvements must be "qualifying energy improvements";
  • conditions must be satisfied relating to the assessment of the property by an authorised green deal assessor and Green Deal provider and the terms of the plan; and
  • a relevant supplier must supply the property.

The Act enables the Secretary of State to make regulations to flesh out the framework and authorise people to act as Green Deal assessors, providers and installers and to regulate their conduct.

Electricity and gas suppliers participating in the Green Deal scheme will act as agent and trustee for the underlying improvement provider, unless they are that person, in recovering the upfront costs of the improvements through the energy bill for a property. In this capacity, suppliers are protected through amendments to the underlying gas and electricity legislation which will enable them to take action if a bill payer defaults on payments due in connection with green deal improvements, and also allow sums due to be collected via prepayment meters.

The Government has specifically targeted the rental sector and the Act contains provisions requiring the Secretary of State to make regulations by 1 April 2016 which will prevent domestic landlords from unreasonably refusing a request from a tenant to enter into a Green Deal plan. The Secretary of State is also required to make regulations by 1 April 2018 which will require landlords, both domestic and non-domestic, to make energy efficiency improvements to properties they own if the energy efficiency of the property (as demonstrated by the energy performance certificate for that property) is below the level set in the regulations.

Property owners and landlords will be obliged to disclose the fact that a property is participating in a Green Deal plan and secure an acknowledgement from prospective purchasers or tenants that the bill payer will be bound by the plan.

The Government's Green Deal scheme has provoked much discussion. Since the first reading of the Bill in the House of Lords (see our e-bulletin dated 13 December 2009), concerns have been voiced that take-up by consumers may not be as high as the Government hopes if interest rates on loans are unattractive. An industry-led consortium with 16 members has set up a not-for-profit entity, the Green Deal Finance Company, which is searching for ways to bring interest rates down for consumers, for example by aggregating loans. The success of the scheme may hinge on how attractive the financing terms are to consumers.

The Energy Company Obligation

To ensure that funding is available for improvements to properties where the "golden rule" of the Green Deal (that the cost of energy saving measures installed should not exceed the estimated energy bill savings during the term of the finance arrangements) is not satisfied, the Energy Act 2011 introduces powers to impose an "Energy Company Obligation". This will replace the existing obligations imposed by the Carbon Emissions Reduction Target and the Community Energy Saving Programme when they end in 2012.

Smart metering

The Act amends the Secretary of State's powers, contained in the Energy Act 2008, the Gas Act 1986 and the Electricity Act 1989, to implement the roll out of smart meters. The amendments are intended to ensure that the Government has the appropriate powers to address any unforeseen issues which arise in the later stages of the roll out and ensure that projected economic benefits are achieved.

Security of energy supplies

Electricity

The Government acknowledges that the increase in low carbon generation will cause significant changes to the way the electricity market operates and that this will require the market to be closely monitored to ensure that sufficient capacity is available to meet demand.

The Act therefore contains measures which will require Ofgem to report annually to the Secretary of State, giving an assessment of how much capacity Great Britain will need in the future (Northern Ireland has a separate electricity market). The Secretary of State will then publish his assessment of the level of capacity that is needed.

More detail regarding proposed reforms to the electricity market, and how the availability of capacity will be incentivised and secured, will be known when DECC publishes the technical update to its Electricity Market Reform White Paper, expected later this year.

Gas

The Act gives Ofgem the power to review the current gas emergency arrangements and to direct modifications to be made to the Uniform Network Code to strengthen the market incentive mechanism for ensuring that sufficient gas is available to meet demand. The Government envisages that Ofgem could use this power, following consultation with industry, to implement changes that would allow for more effective management of a gas supply emergency, for example by allowing the gas price charged to suppliers who are short of gas to be responsive to market prices.

Third party access to upstream petroleum infrastructure

To facilitate third party access to oil and gas infrastructure the Act includes provisions which re-enact and streamline existing legislative provisions for third party access and replace them with one set of requirements covering access to all platforms, pipelines and terminals.

A procedure is set out to deal with situations where a person has sought access but has not been able to reach an agreement with the owner – an application may be made to the Secretary of State for a notice requiring the owner to grant access.

Special administration for energy supply companies

The current arrangements on insolvency of an energy supply company provide for Ofgem to revoke the insolvent company's licence and appoint another supplier (known as a "supplier of last resort") to take on its customers. Whilst the process has been tested on several occasions in the last few years, the Government is concerned that the process may not be effective if a large supplier were to become insolvent due to the significant volumes of customers that would need to be transferred.

The Act therefore creates a special administration regime designed to supplement the supplier of last resort mechanism. The provisions allow the Secretary of State (or Ofgem with the Secretary of State's consent) to apply to court for a special administration order. Provided the statutory insolvency tests are satisfied and the order is granted a special administrator would be appointed who would continue to contract to supply gas and electricity to the insolvent company's customers until the company was rescued, sold or its customers transferred to other companies.

UK Continental Shelf re-designation

The Act enables Orders designating the UK Continental Shelf to be revoked, thereby providing the Government with flexibility regarding the management of the Continental Shelf. The Government intends, for example, to use these powers to re-designate two small areas currently designated to Ireland to the UK (in exchange for the transfer of two areas of the same size to Ireland). The Government intends the increased flexibility to contribute to energy security as it will allow for better management of hydrocarbon resources.

Offshore transmission

The Act extends the time period during which the Secretary of State may exercise his existing powers under the Energy Act 2004 to amend offshore transmission and distribution licences (these powers expired on 18 December 2010).

The Act also amends the Electricity Act 1989 to allow the Secretary of State to make an order extending Ofgem's powers to make property transfer schemes relating to the transfer of transmission assets to offshore transmission system owners by the generators who built them. Through the extension of Ofgem's powers the Government seeks to enable the implementation of an enduring offshore transmission regime, with a generator build option.

Security of nuclear construction sites

The Act amends section 77 of the Anti-terrorism, Crime and Security Act 2001, bringing nuclear construction sites and equipment used or stored on such sites within the ambit of existing security regulation.

Nuclear decommissioning

The Act amends the powers granted to the Secretary of State in the Energy Act 2008 to approve and propose modifications to funded decommissioning programmes. The Secretary of State can enter into a contract setting out where he has rights to exercise his powers to impose modifications to a decommissioning programme. This contract must, together with the funded decommissioning programme, offer prudent provision. Through the amendments the Government aims to provide welcome clarity and certainty to those submitting programmes as part of an investment package, regarding the circumstances in which the Secretary of State's modification powers may be exercised.

Carbon capture and storage demonstration projects

The Act facilitates the development of carbon capture and storage (CCS) demonstration projects by amending the Energy Act 2008 to provide the Secretary of State with a discretionary power to designate an offshore installation or pipeline which, when the designated installation is used for the purpose of CCS demonstration, removes the possibility that the organisation that had previously used the facilities only for petroleum production activities can be made liable for its decommissioning.

The Act also amends the Pipelines Act 1962 to allow the compulsory acquisition of rights to transport carbon dioxide from the owners of the land through which pipelines pass.

These provisions enable the Secretary of State to remove the possibility that the previous users of offshore structures and pipelines used for petroleum production could be made liable for their decommissioning once they have been used for the purpose of CCS demonstration. The provisions also enable the owner of an existing pipeline to compulsorily acquire rights from landowners enabling them to transport carbon dioxide through the pipeline.

Renewable heat incentives in Northern Ireland

The Act will allow the Department of Enterprise, Trade and Investment to make regulations to establish a scheme to facilitate and encourage the generation of heat from renewable sources in Northern Ireland.

Extension of the remit of the Coal Authority

The Act will allow the Coal Authority, which has developed expertise in the treatment of mine workings and mine shafts, the management of surface hazards, subsidence and the remediation of contaminated mine water, to offer services relating to the alleviation of the effects of subsidence and the treatment of water discharges resulting from causes other than coal mining.

Commencement

The following provisions of the Act come into force immediately:

  • section 37 (preparatory expenditure: framework regulations);
  • section 81 (modification of the Uniform Network Code);
  • subsections (1) and (2) of section 104 (offshore transmission and distribution of electricity); and
  • sections 119, 120, 121 and 122 (general provisions).

The following provisions come into force in two months:

  • sections 66 to 72 (reducing carbon emissions and home-heating costs);
  • section 73 (smart meters);
  • section 74 (access to register of energy performance certificates etc:
  • England and Wales);
  • sections 76 to 78 (information about tariffs);
  • sections 79 and 80 (security of electricity supply);
  • sections 93 to 102 (special administration);
  • section 103 (designations under Continental Shelf Act 1964);
  • subsection (3) of section 104 (offshore transmission and distribution of
  • electricity);
  • section 105 (regulation of security of nuclear construction sites);
  • section 106 (agreement about modifying decommissioning
  • programme);
  • section 107 (abandonment: infrastructure converted for CCS
  • demonstration projects);
  • section 111 (adjustment of electricity transmission charges);
  • section 112 (electricity from renewable sources: National Park
  • authorities and Broads Authority); and
  • sections 113 and 114 (renewable heat incentives in Northern Ireland).

Schedule 1 of the Act (reducing carbon emissions and home-heating costs: minor and consequential amendments) comes into force as follows:

  • paragraphs 1, 2, 7, 8(1), (2)(a), (3)(a) and (4) and 9 come into force at the end of the period of two months beginning with the day on which this Act is passed;
  • paragraphs 4 and 8(2)(b), (3)(b) and (5) come into force on 1 January
  • 2013;
  • paragraphs 3, 5 and 6 come into force on 6 April 2014.

The remaining provisions of the Act will come into force on dates that will be set out in statutory instruments made by either the Secretary of State or the Scottish Ministers.

The Government plans to launch the Green Deal in autumn 2012.