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Energy Act 2023

Contents

Part 7: Market Reform and Consumer Protection

Section 202: Principal objectives of Secretary of State and GEMA

  1. Section 202 amends the existing duties of the Gas and Electricity Markets Authority (GEMA) (the governing body of Ofgem) by including reference to the net zero targets in the Climate Change Act 2008. This will require the regulator to consider how their decisions may assist the Secretary of State in meeting the government’s net zero targets.

Section 203: Competitive tenders for electricity projects

  1. This provision is self-explanatory.

Section 204: Mergers of energy network enterprises

  1. This provision is self-explanatory.

Section 205: Licence required for operation of multi-purpose interconnector

  1. Participating in the operation of a multi-purpose interconnector cannot easily be licensed at present as it is not currently addressed in the Electricity Act 1989. This section amends the Electricity Act 1989 to ensure that a person who operates a multi-purpose interconnector will be required to hold a licence or an exemption. A definition of ‘multi-purpose interconnector’ is introduced into Section 4 of the Electricity Act 1989 (by way of a new subsection (3EA)), alongside a description of what it means to participate in the operation of a multi-purpose interconnector (by way of a new subsection (3CA)). The amendments also, as a consequence of amending Section 4(1) of the Electricity Act 1989, make unauthorised participation in the operation of a multi-purpose interconnector a prohibited activity. The wording of new subsection (3CA) of section 4 ensures that persons already holding an interconnector or offshore transmission licence are not caught by that prohibition. In addition, the new definition of a multi-purpose interconnector covers the range of technologies involved in their operation. For example, new subsection (3EA)(b)(ii) describes conveyance "between a generating station and a substation" which also captures an MPI which includes multiple generating stations and/or substations (including demand stations).
  2. By way of a new subsection (2AA) of section 6 of the Electricity Act 1989, the holder of an MPI licence may not also be a holder of a licence falling within paragraphs (a) to (e) of section 6(1) of the Electricity Act 1989. This ensures a level of separation between licence holders that will enable GEMA to properly regulate licensed activities.
  3. The exact operational requirements and level of business separation required between holders of MPI licences and holders of different licence types will be determined by GEMA.
  4. The intention of this section is not to create a stricter separation between licence holders than is necessary for regulatory purposes. In particular, the intention is not to impose strict business separation between MPI licence holders and interconnector licence holders.

Section 206: Standard conditions for MPI licences

  1. Section 206 sets out the procedures for determining the standard licence conditions for multi-purpose interconnectors. The procedures are in line with those for existing licences. After the commencement of subsection (6), the Secretary of State will have no further role in relation to the standard licence conditions although he or she may veto proposals made by GEMA to modify the standard licence conditions either on the grant of a licence or subsequently.

Section 207: Operation of multi-purpose interconnectors: independence

  1. Section 207 amends the Electricity Act 1989 to ensure that any person who participates in the operation of a multi-purpose interconnector is certified by Ofgem to be independent in relation to generation and supply activities, in order to be able to hold an MPI licence.

Section 208: Grant of MPI licences to existing operators

  1. Section 208 gives the Secretary of State the power under section 6 of the Electricity Act 1989 to issue a multi-purpose interconnector licence to a person operating under an electricity interconnector or offshore transmission licence when the prohibition enters into force.

Section 209: Power to make consequential etc provision

  1. Section 209 confers a regulation making power on the Secretary of State to make further consequential amendments which may arise because of the sections which relate to multi-purpose interconnectors. Regulations that make consequential provision may amend, repeal, or revoke an enactment.

Section 210: Consequential amendments relating to multi-purpose interconnectors

  1. This provision is self-explanatory.

Section 211: Electricity support payments for energy-intensive industries

  1. The powers in this section will be used to make regulations creating the proposed Network Charging Compensation Scheme, to provide some relief on the network charging costs paid by energy-intensive industries.
  2. Subsection (1) enables the secretary of State to make regulations to provide electricity support payments to those who carry out an energy-intensive activity, for the purpose of alleviating the impact of electricity costs.
  3. Subsection (2) allows "energy-intensive activity" to be defined in regulations.
  4. Subsection (3) sets out a number of specific provisions which may be included in such regulations, including around determining eligibility, the corresponding application process, information sharing, enforcement of obligations and dispute resolution.
  5. Subsection (4) requires that, where such regulations provide for enforcement through a fine, they must also provide for a right of appeal.
  6. Subsections (5) and (8) between them make provision for regulations to determine the appointment, functions, remuneration and termination of an administrator for the payment scheme, including that such a person cannot be appointed without their consent.
  7. Subsection (6) allows that where the administrator is the Gas and Electricity Markets Authority ("GEMA"), such regulations may make provision for GEMA to enforce obligations under the scheme against regulated persons (defined in section 25(8) of the Electricity Act 1989) as if they were "relevant requirements" for the purposes of the Electricity Act 1989.
  8. Subsection (7) allows for payments owed under these regulations to be enforced as a civil debt.
  9. Subsection (9) allows regulations to make provision for the transition from one administrator to another, allowing continuation of the functions of the administrator if there is a change in the identity of that person.
  10. Subsection (10) clarifies that the regulations may confer a discretion on the administrator or the Secretary of State.
  11. Subsection (11) requires that such regulations must be made subject to the affirmative procedure.

Section 212: Levy to fund electricity support payments

  1. This section makes provision allowing for the funding of the payments and scheme provided for in section 211, including the appointment and role of an administrator (which may or may not be the same administrator as is appointed under section 211).
  2. Subsection (1) enables the Secretary of State to make regulations requiring levy payments from electricity suppliers for purpose of funding both the electricity support payments in section 211 and any other costs arising out of that provision. This includes the costs of the administration of the levy as well as the support payment scheme and might include, for example, the funding of administrative and enforcement costs.
  3. Subsection (2) sets out a number of specific provisions which may be included in such regulations, including around determining the levy rate to be applied to individual suppliers, establishing the process by which the levy is paid by suppliers, providing for the sharing of information, enforcement and dispute resolution.
  4. Subsection (3) requires that, where such regulations provide for enforcement through a fine, they must also provide for a right of appeal.
  5. Subsections (4) and (7) between them make provision for regulations to determine the appointment, functions, remuneration and termination of an administrator for the levy, including that such a person cannot be appointed without their consent.
  6. Subsection (5) allows that where the administrator is the Gas and Electricity Markets Authority ("GEMA"), such regulations may make provision for GEMA to enforce obligations under the scheme against regulated persons (defined in section 25(8) of the Electricity Act 1989) as if they were "relevant requirements" for the purposes of the Electricity Act 1989.
  7. Subsection (6) allows for payments owed under these regulations to be enforced as a civil debt.
  8. Subsection (8) allows regulations to make provision for the transition from one administrator to another, allowing continuation of the functions of the administrator if there is a change in the identity of that person.
  9. Subsection (9) clarifies that the regulations may confer a discretion on the levy administrator or the Secretary of State.
  10. Subsection (10) requires that such regulations must be made subject to the affirmative procedure.
  11. Subsection (11) defines "electricity supplier" by reference to section 6(1)(d) of the Electricity Act 1989.

Section 213: Electricity storage

  1. Section 213 amends the Electricity Act 1989 to clarify that electricity storage is a distinct subset of generation and defines the storage as energy that was converted from electricity and is stored for the purpose of its future reconversion into electricity.
  2. A non-exhaustive list of technologies that are considered electricity storage includes electro-chemical batteries; gravity energy storage systems; air-based storage systems; kinetic energy storage systems; thermal storage where the stored chemical energy is then converted back into electricity.
  3. The definition does not include the following:
    1. Systems which convert electricity to another energy vector and back to electricity, where the other energy vector is not stored within a closed system. For example, power to gas to power systems which do not reconvert into electricity the same energy as was converted from it. This is because it is not the same energy being reconverted to electricity.
    2. Systems which store energy that has been converted from electricity, but that energy is not then reconverted back to electricity. For example, thermal systems where the stored energy is used directly as heat. This technology lacks the key final stage of reconversion to electricity, meaning that it does not act as a temporary store with respect to the electricity system.
    3. Industrial processes powered by electricity whereby the reconversion of potential energy into electricity is a by-product of another process. This is because such processes are not used to perform storage on the electricity system as the term is properly understood.
    4. Network equipment whose primary function is not energy storage on the power electricity system. For example, capacitors and supercapacitors (where used as circuit impedance components), transformers and inductors are licensable as equipment or apparatus that are used for, or for purposes connected with, the transmission or distribution of electricity, rather than its generation. This is because they are not used to perform storage on the electricity system as the term is properly understood.

Section 214: Payment as alternative to complying with certain energy company obligations

  1. Section 214 grants the Secretary of State the power to introduce a buy-out mechanism under the Energy Company Obligation (ECO) scheme.
  2. This allows the Secretary of State powers to include provisions in the secondary legislation for the ECO scheme that gives suppliers the option to meet their obligations by making a payment to an approved third party, for an approved purpose.
  3. The section also provides powers that enable the Secretary of State to make provisions on the amount of payment and the determination of the approved third parties and approved purposes.

Section 215: Smart meters: extension of time for exercise of powers

  1. Subsection (1) amends section 88(5) of the Energy Act 2008 to extend until 1 November 2028 the period within which the Secretary of State can exercise the power under section 88(1). Section 88(1) provides for the Secretary of State to modify conditions of licences, and documents maintained in accordance with licence conditions (and agreements giving effect to such documents), for example industry codes.
  2. Subsections (2)(a) and (3)(a) amend section 8AA(10D) of the Gas Act 1986 and section 7A(10D) of the Electricity Act 1989 to extend to 1 November 2028 the expiry date for the provisions allowing for the Secretary of State to veto a proposed transfer of the smart meter communication licences.
  3. Subsections (2)(b) and (3)(b) amend section 41HB(2) of the Gas Act 1986 and section 56FB(2) of the Electricity Act 1989 to extend until 1 November 2028 the period within which the Secretary of State can exercise the power to provide for activities connected with smart meters to be licensable activities. Licensable activities are those determined in legislation to be prohibited to undertake without being the holder of a licence or without an exemption from the requirement to hold a licence.
  4. Subsections (4) to (6) deal with transitional issues that arise if this section comes into force after 1 November 2023.
  5. Subsection (7) makes consequential repeals.

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