Energy Act 2023

Policy background

Parts 1 and 2: Carbon Dioxide Capture, Transport and Storage etc and Hydrogen Production, Transport and Storage

6. Carbon Capture, Usage and Storage (CCUS) is a process involving the capture of carbon dioxide (CO2), from industrial and commercial activities, as well as power generation, and its transportation for the purposes of permanent containment, for example in very deep subsurface rock formations, or reuse, for example in cement. CCUS can be applied to a range of processes including chemical refining, cement, and residual waste management processes, and is likely to play an essential role in meeting the UK’s statutory carbon emissions targets. The Climate Change Committee has described carbon capture and storage as "a necessity, not an option" for reaching net zero emissions 1 .
7. The Government has committed to provide support for the deployment of two CCUS ‘clusters’ by the mid-2020s and a further two by the end of the 2020s. The Government’s Net Zero Strategy , published in 2021, sets out the ambition to capture and store 20 to 30Mt of CO2, which includes 6MtCO₂ of industrial emissions, per year, by 2030 2 . A new carbon capture industry could support up to 50,000 jobs by 2030, split across industry, power and the transport and storage network.
8. The Government consulted in 2019 on commercial models to pull through the investment needed to deploy CCUS at scale. The Government’s response 3 , published in 2020, set out that the proposed model for CO2 transport and storage is one of economic regulation. This is because CO₂ pipeline transport and storage networks are likely to be operated as regional monopolies, encompassing a range of different network users and emitters operating under different commercial models. In this model, a transport and storage company would receive a licence from an economic regulator which grants it the right to charge users in exchange for delivering and operating the transport and storage network. Here the regulator-approved prices charged would reflect efficient costs and a reasonable rate of return based on the level of risk assumed by a transport and storage company.
9. The Government considers Ofgem to be the most appropriate entity to take on the role of economic regulator for CO2 transport and storage. Part 1 of the Act establishes the duties and functions for Ofgem to act as economic regulator of CO2 transport and storage and a framework for the economic licensing of CO2 transport and storage activities.
10. The Oil and Gas Authority (OGA) and ministers in the Devolved Administrations (the Department for the Economy in Northern Ireland) remain the relevant licensing authorities for regulating CO2 storage under the powers set out in the Energy Act 2008 to ensure the secure geological storage of CO2.
11. To help meet the ambitions set out in paragraph 7, the Government confirmed development of the industrial carbon capture business model to provide carbon capture facilities with financial assistance to support the deep decarbonisation of industrial and commercial activities that often have no viable alternatives, such as chemicals, refining, cement, and residual waste management processes.
12. As a gas that can be used as a fuel without emitting harmful greenhouse gases, hydrogen will be critical in reducing emissions from heavy industry, as well as in power, transport, and potentially heat.
13. Under the British Energy Security Strategy 4 , the Government announced ambitions for up to 10GW of low carbon hydrogen production capacity by 2030, subject to affordability and value for money, with at least half of this from electrolytic hydrogen.
14. The Government consulted in 2021 on the commercial model to unlock private investment and address market barriers to deploy low carbon hydrogen production at scale. The Government’s response 5 , published in 2022, confirmed the design of a contractual producer-focused business model to provide revenue support to a range of low carbon hydrogen production pathways to facilitate hydrogen use in a broad range of sectors.
15. In the British Energy Security Strategy, the Government set out its intention to design new business models for hydrogen transport and storage. The Government consulted in 2022 on high-level design options for both the hydrogen transport business model and the hydrogen storage business model. The Government’s response, published in 2023, set out minded to positions for the business models. An external subsidy mechanism will be required to support the business models. This external subsidy mechanism will be delivered through business model contracts. This external subsidy mechanism will be delivered through business model contracts. Alongside these contracts, it is considered that another element of the hydrogen transport business model should be a Regulated Asset Base (RAB) to facilitate and support the financing of certain hydrogen pipeline projects.
16. Part 2 of the Act introduces spending powers to provide financial assistance to support the establishment of CCUS, low carbon hydrogen production and hydrogen transport and storage. The Act also provides delegated powers to establish the detailed framework for business models, including the designation and duties of a counterparty to enter into and manage business model contracts with carbon capture entities, CO2 transport and storage companies, low carbon hydrogen producers, hydrogen transport providers and hydrogen storage providers. It also provides powers to raise a levy or levies to fund the hydrogen business models – production, transport and storage. The hydrogen production business model will initially be Exchequer funded, with the intention to transition to levy funding. The Government will hold a public consultation before making regulations introducing the levy. A decision on funding for the hydrogen transport and storage business models has not yet been taken. Powers are also provided to appoint allocation bodies to administer future more competitive allocation processes for hydrogen production and carbon capture revenue support contracts.
17. Part 2 Chapter 5 establishes powers for the OGA to require carbon storage licensees to retain and report information and samples gathered as part of activities associated with the geological storage of carbon dioxide, and to enable the NSTA to publicly disclose this information after a suitable confidentiality period. Provisions in Part 2 will also allow the OGA to identify and discourage potentially undesirable changes of ownership and control of carbon storage licensees before they take place. This Part also provides the OGA with powers to require that relevant information acquired by carbon storage licensees as part of their licensed activities, is appropriately retained and reported, and is able to be publicly disclosed after a suitable confidentiality period. These powers will ensure valuable information collected by storage licensees is appropriately preserved and, in due course, made available for the benefit of the sector more broadly.

Part 3: Hydrogen Pipeline Projects

18. Part 3 provides powers for the implementation, via gas transporter licence conditions, of a RAB in respect of certain hydrogen pipeline projects. A RAB is expected to form part of the hydrogen transport business model mentioned further above and these powers are intended to enable the implementation of a RAB to align and effectively operate with any accompanying external subsidy mechanism.
19. This Part also includes provisions regarding the inclusion and modification of conditions in a gas transporter licence so far as it authorises a person to convey hydrogen through pipelines in connection with the carrying on of a hydrogen pipeline project. These are intended to help ensure a level playing field across relevant licence holders and for new entrants to the hydrogen market.

Part 4: New Technology

Low-Carbon heat schemes

20. As set out in the 2021 Heat and Buildings Strategy , 6 meeting the UK’s net zero target requires decarbonising the large majority of heat in buildings. For most buildings, this requires a transition from being heated by appliances which burn fossil fuels to the use of low-carbon technologies. Since nearly half of UK annual natural gas consumption is used for heating buildings, accelerating this transition will also reduce dependency on global fossil fuel markets.
21. The Act will give the Department for Energy Security and Net Zero’s Secretary of State the powers to establish a scheme to encourage the sale and installation of low-carbon heating appliances, such as electric heat pumps.
22. The low-carbon heat scheme envisaged by these powers will play an important role in growing the supply chain for such technologies, through setting targets for certain companies. This will help, for instance, to strengthen the incentives to invest in bringing these technologies to market and promoting and expanding their uptake by consumers.

Hydrogen trials

23. Low carbon hydrogen could be one of a few key options for decarbonising heat in buildings, alongside more established technologies such as heat pumps and heat networks. The Government is working with industry, regulators, and others to deliver a range of research, development, and testing projects to assess the feasibility, costs, and benefits of using 100% hydrogen for heating. This work includes a programme of community trials. As set out in the Government’s Heat and Buildings Strategy, the Government will support industry to deliver a neighbourhood trial by 2024; (preparation is underway, with the trial due to start in the second half of 2024); a village scale trial by 2025; and a potential hydrogen heated town before the end of the decade.
24. The trials, together with the results of a wider research, development and testing programme, will enable strategic decisions in 2026 on the role of hydrogen for heat decarbonisation and whether to proceed with a hydrogen heated town, as set out in the Hydrogen Strategy 7 , and the Net Zero Strategy 8 .
25. The hydrogen village trial will be led by a gas distribution network operator and will be a grid conversion trial. This means it will involve disconnecting a section of the local gas grid from the natural gas supply and connecting it instead to a hydrogen supply. The Act will enable this by including provisions that allow trial operators to deliver the trial safely and effectively and allow for additional consumer protections to be put in place.

Hydrogen

26. Hydrogen is a low carbon solution which can help the UK achieve net zero by 2050, and our Sixth Carbon Budget target by 2035. The hydrogen economy is in its infancy and will take time to establish at scale. While hydrogen is already a gas for the purpose of the Gas Act 1986, the implications of this at scale cannot be fully tested without transport and storage projects being operationalised. As a result, there is some uncertainty as to whether every provision applying to natural gas in the Gas Act will technically work for hydrogen or whether unforeseen problems will arise that require a provision be disapplied or modified in respect of its application to hydrogen.
27. This power enables the Secretary of State to make regulations that provide for any provisions of the Gas Act 1986 not to apply, or apply with modifications, in relation to the production, transportation, storage or use of hydrogen. It may only be used for the purpose of facilitating or promoting the production, transportation, storage or use of hydrogen. Fusion Energy.
28. Fusion energy facilities are not identified in the Nuclear Installations Act 1965 as sites that require a nuclear site licence. This section amends the Nuclear Installations Act 1965 to make the exclusion of fusion energy facilities explicit: to make clear that they will not require nuclear site licences and regulation by the Office for Nuclear Regulation. This will enable a regulatory framework for fusion that is appropriate and proportionate to the overall hazard of a fusion energy facility.

Renewable Transport Fuels

29. The Energy Act 2004 currently provides powers for the Secretary of State for Transport to create Renewable Transport Fuel Orders. Such orders are support schemes that encourage the supply of renewable transport fuels. New technologies are being developed which can produce low carbon fuels, including those critical to Sustainable Aviation Fuel production, from non-renewable energy sources whilst providing comparable greenhouse gas emissions savings to renewable fuels. This section extends the range of fuels that can be supported under renewable transport fuel orders to include specific non-renewable fuels, namely recycled carbon fuels and nuclear derived fuels.

Renewable Liquid Heating Fuel Obligations

30. Heat in buildings is currently responsible for 23%9 of the UK’s greenhouse gas emissions. Decarbonising the way we heat our buildings is essential for reducing our reliance on fossil fuels and combating climate change. We expect most off-grid properties will ultimately switch to heat pumps as these are a proven technology which have been installed in high numbers in other countries. Renewable liquid fuels may play a role in decarbonising off-grid buildings that are not suitable for low temperature heat pumps.
31. Renewable liquid fuels are more expensive than existing fossil fuels used in homes off the gas grid. To make these fuels available at affordable prices to customers off the gas grid, it may be necessary to impose obligations on suppliers of off gas grid heating fuels.
32. The Act will give the Department for Energy Security and Net Zero’s Secretary of State the powers to establish a scheme to encourage the sale of renewable liquid heating fuels.
33. The scheme enabled by these powers could play an important role in increasing the affordability and availability of these fuels for heating off gas grid homes, through setting targets for certain off gas grid heating fuel suppliers, should that be necessary to support our net zero ambitions.

Part 5: Independent System Operator and Planner

34. The Government committed, in the Energy White Paper 2020 10 and Future Systems Operator consultation response 11 , to update the governance of the energy system to reflect the ambition required to build a net zero energy system. There are many plausible paths to a fully decarbonised system and each of them require significant investment in infrastructure and innovation. This creates an ever-greater requirement for expert and coordinated strategic advice and recommendations.
35. This Act makes provision for the establishment of an Independent System Operator and Planner (ISOP) within the electricity and gas supply sectors. The ISOP is to be a public sector body, with operational independence from the Government, with responsibilities for planning the development of the electricity and gas transmission systems and operation of the electricity transmission system. This body will also take on a range of additional net zero focused roles, helping drive a more open, flexible and efficient system, and is expected to result in a net saving on energy bills.
36. Many of the functions that the ISOP will undertake are currently carried out by licensed operators owned by National Grid plc. Provision is made for the transfer of the whole or parts of these operators out of their current ownership as part of the establishment of the ISOP, with the overall aim of increasing independence and removing potential conflicts of interest.
37. The Act also makes provision for conferring on the ISOP duties, powers and functions, and enabling its regulation (by licence) by the Gas and Electricity Markets Authority (GEMA).

Part 6: Governance of Gas and Electricity Industry Codes

38. The Act makes provision for the establishment of a new governance framework for the energy codes. It does this by granting GEMA, Ofgem’s decision-making board, a collection of new code-related functions, such as the ability to direct strategic change across the codes, and by creating code management as a new licensable activity. It also includes transitional powers that will make it possible for the GEMA to facilitate the necessary changes to implement the new code governance framework.
39. The energy codes are the detailed technical, operational and commercial rules of the electricity and gas systems, which cover areas like generation, transmission, distribution, supply and retail. They are documents that in most cases act as multi-lateral contracts between industry signatories, each of which is governed by some form of industry-led panel or board with the support of an appointed ‘code administrator’.
40. In the Energy White Paper 2020 12 the Government stated that the energy codes needed to be overhauled to allow Great Britain to transition to a clean energy system and to enable strategic alignment with its net zero ambitions. The Government and the GEMA published two joint consultations on energy code reform: the first 13 in 2019 and the second 14 in 2021. Both consultations built on the recommendations of a 2016 report by the CMA which found that the existing system of energy code governance was adversely impacting competition due to conflicting interests; a lack of incentives to deliver policy changes; and the GEMA’s insufficient ability to influence code change processes.

Part 7: Market Reform and Consumer Protection

Principal objectives of Secretary of State and the Gas and Electricity Markets Authority

41. GEMA, the governing body of Ofgem, has its duties set out in the Gas Act 1986 and Electricity Act 1989.
42. The Secretary of State and the Authority are each given a principal objective by S4AA Gas Act 1986 and S3A Electricity Act 1989 which applies when carrying out their respective functions under Part 1 of the Gas 1986 and Part 1 of the Electricity Act 1989. This principal objective is to protect the interests of existing and future consumers taken as a whole when carrying out those functions.
43. The Act amends the GEMA’s duties by including reference to the net zero and carbon budgets targets set out in the Climate Change Act 2008.
44. This will require Ofgem and the Secretary of State to consider how decisions may assist the Secretary of State in meeting the government’s net zero and carbon budget targets, when carrying out their functions under Part 1 of the Gas 1986 and Part 1 of the Electricity Act 1989.
45. Amending the GEMA’s duties in this way will ensure that the regulator is clear that it has a duty to assist the government to achieve net zero and carbon budget targets.

Competitive tendering for electricity projects

46. In order for the UK to reach net zero by 2050 and achieve independence from imported fossil fuels the Government will fully decarbonise the electricity system by 2035, subject to security of supply. Alongside this, the Government also expects a doubling of electricity demand by 2050, as sectors like transport and heat switch to electricity as a fuel source. To accommodate this, there needs to be a significant increase in the amount of electricity network infrastructure in Great Britain.
47. Under the current system, privately-owned electricity network companies build, own and operate electricity network infrastructure across Great Britain. These companies are regional monopolies, regulated by Ofgem, the independent energy regulator, to undertake their network owner role in an efficient way in the interest of consumers. Ofgem does this through benchmarking the network companies against one another to set their allowed revenues. There is an inherent information asymmetry in this process due to the closed nature of the market, and as such regulation may not fully realise benefits to consumers when setting allowed costs. In addition, as only a few network companies have access to and control over the electricity network, innovation can be limited by not allowing third parties to contribute to new ideas and develop them on the network.
48. There is an existing competition regime in place for offshore transmission assets which has saved consumers over £800 million to date. The measures in the Act will amend the Electricity Act 1989 to extend this competitive process to enable competition to identify onshore network solutions, including smart and flexible options as well as traditional wire-based solutions.
49. Creating new competitive markets in this way will provide new opportunities to invest in networks and should improve efficiency in investment, foster innovative solutions to network needs, including increasing the opportunities for smart and flexible solutions, as well as reducing costs to consumers. This is also expected to encourage greater levels of inward investment to help provide sufficient additional electricity network capacity to meet growing demand in Great Britain.

Mergers of energy network enterprises

50. Energy network enterprises are regional monopolies, meaning that each serves different areas of Great Britain exclusively. As such, there is no direct competition between them. The energy regulator, Ofgem 15 , licenses energy network enterprises operating in Great Britain and sets their price controls through ‘comparative benchmarking’, which involves comparing data from all energy network enterprises.
51. The price control is the main method that Ofgem uses to regulate the amount that energy network enterprises can charge suppliers, who in turn pass the costs on to consumers. When network ownership is consolidated into fewer enterprises through mergers and acquisitions there is a potential detriment to Ofgem’s ability to carry out effective comparative benchmarking when setting the price control, as there is a reduction in independent entities that can be compared. For example, if the number of independent network enterprises is reduced, then this may reduce the diversity of approaches and data sets available, impacting the way that Ofgem sets efficiencies and requires service quality improvements.
52. Section 204 and Schedule 16 amend the Enterprise Act 2002 to enable the CMA to investigate energy network enterprise mergers in Great Britain effectively. The legislation will mean that, where the energy network enterprise acquired has a GB turnover of over £70 million, and it is merging with another energy network enterprise that holds the same type of licence, then the CMA must refer the merger to a CMA inquiry group, comprised of CMA panel members, for investigation if conditions are met. The main condition is that the merger has substantially prejudiced, or may substantially prejudice, Ofgem’s ability to carry out its functions to make comparisons when setting price controls. The CMA may decide not to refer if there is a consumer benefit arising from the merger that outweighs this prejudice or, for mergers that have not yet completed, the merger is not sufficiently far advanced or sufficiently likely to proceed to justify the reference.
53. Ultimately, if the CMA group concludes that there has been or may be a prejudicial outcome, the CMA will be required to take action to remedy, mitigate or prevent the prejudice and any adverse impacts which have resulted or may result from the merger. In this instance, the CMA will be empowered to place restrictions on the merger, up to and including preventing it from taking place, if this action is reasonable and practicable. The CMA already has these remedial options under the existing merger regime (which assesses if a merger has or may result in a substantial lessening of competition), but the CMA cannot access/use these remedial options effectively for energy networks due to their unique nature as regional monopolies that do not compete for market share. There are opportunities for the merging enterprises to offer undertakings in lieu of a referral to investigation by a CMA group; for example, the enterprises could offer to guarantee no price impacts to consumers for an agreed period, or ring fence parts of the business to protect operational independence.

Multi-purpose Interconnectors

54. Multi-purpose interconnectors (MPIs) are a form of Offshore Hybrid Assets which combine electricity interconnection between Great Britain and other jurisdictions with direct connections to offshore generation in Great Britain waters, such as wind energy. The Act will create a new licensable activity for MPIs. Operating an MPI without a licence will be prohibited and Ofgem will be empowered to grant licences.
55. As set out in ‘Powering Up Britain: Energy Security Plan’ in April 2023, Government committed to "work with Ofgem, developers and the UK’s European partners to realise at least 18 gigawatts of interconnector capacity by 2030", over double the current capacity of 8.4 gigawatts and to deliver the first MPI for the UK. The Government has also set targets to achieve 50 gigawatts of offshore wind generation by 2030, and net zero by 2050.
56. Increasing the level of interconnection to 18 gigawatts has been shown to facilitate trade with other markets, reduce consumer bills, enhance the flexibility of the energy system, and support increased levels of intermittent renewable energy such as offshore wind. The UK Government supports interconnection as a core part of its energy strategy, due to its benefits in helping to provide an electricity supply that progresses towards the Government’s net zero decarbonisation goal in a low cost and secure way.
57. In comparison to separate interconnectors and point-to-point offshore wind connections, MPIs offer increased benefits in terms of reduced capital expenditure, reduced wind curtailment, and fewer coastal landing points.

Energy Intensive Industries

58. On 23 February 2023, the Government announced the British Industry Supercharger, a decisive set of measures to make Britain’s strategic Energy Intensive Industries (EIIs) more competitive and tackle the challenge of indirect carbon leakage. This is targeted to be achieved by addressing three areas of the domestic energy system which together contribute to higher electricity costs for GB EIIs. Sections 211 and 212 refer to the third of these measures which aims to reduce electricity prices for EIIs by £10/MWH through the creation of the Network Charging Compensation Scheme which will compensate EIIs for a portion of their network costs. The sections will also establish a levy on licensed electricity suppliers to fund the compensation payments.
59. In recent years, GB EIIs have faced the steepest industrial electricity prices in Europe, even with existing Government support schemes applied, primarily due to a long-term disparity in network and policy costs. On average, Ofgem analysis found that GB EIIs faced electricity prices that were 50% higher than their EII counterparts in France and Germany and nearly 40% higher than in the Netherlands.
60. This is a particular issue for EIIs, for whom the resulting cost differential in electricity prices puts them at an international competitive disadvantage and increases the risk of having to rely on import markets, sourcing goods from territories with less stringent climate policies which would come with associated job losses and a loss of investment and increases the risk of carbon leakage.
61. Carbon leakage is defined as the movement of production and associated emissions from one country to another due to different levels of decarbonisation effort through carbon pricing and climate regulation. As a result of carbon leakage, the objective of decarbonisation efforts would be undermined.
62. The industries impacted include companies in strategically important sectors such as steel, metals, chemicals, paper and other foundational industries that employ hundreds of thousands of skilled workers across the UK and support many more in the supply chain. This puts the UK at risk of significant job loss and disinvestment in these sectors, and means the UK is disadvantaged in attracting inward investment, as similar costs are exempted from most energy intensive industries in comparable neighbouring countries.

Electricity Storage

63. Electricity storage is a key technology in the transition to a smarter and more flexible energy system and will play an important role in helping to reduce emissions to net zero by 2050 16 . Technologies such as electricity storage, demand side response and interconnectors can provide flexibility to the system, by shifting when electricity is generated and shifting demand from peak times. Flexibility in the energy system is essential to the integration of high volumes of low carbon power, heat, and transport. Analysis carried out by the Government estimated that flexibility could reduce system costs between £30 to 70 billion from 2020 to 2050 17 .
64. In July 2017 the Government and Ofgem published the first Smart Systems and Flexibility Plan 18 this was followed by a Progress Update to the Plan 19 in 2018, and a second Smart Systems and Flexibility 20 in July 2021. These documents set out actions for the Government, Ofgem and industry to support the transition to a smarter and more flexible system, including removing barriers to electricity storage. One of the commitments from the 2017 Smart System and Flexibility Plan, re-iterated in the 2021 Plan was to define electricity storage in primary legislation.
65. The regulatory framework for electricity was not built with technologies such as electricity storage in mind. This has led to a lack of legal clarity over its treatment, creating a barrier to its deployment. To some degree, clarity has been achieved in relation to securing planning consent for electricity storage, but further clarity is needed for electricity storage to be developed, providing certainty to developers and investors.
66. The intention of formalising storage as a distinct subset of generation within the Electricity Act 1989 is to remove the current ambiguities and provide clarity and certainty over its treatment within the existing frameworks and possible future frameworks. The proposed definition is supported by responses to the Government and Ofgem’s Call for Evidence on a smart, flexible energy system 21 . This approach avoids unnecessary duplication of regulations while still allowing specific regulations to be determined for storage assets, in the shortest possible timeframe.

Energy Company Obligation

67. The Energy Company Obligation (ECO) places an obligation on energy suppliers to install energy efficiency and heating measures in England, Scotland and Wales and is focused on providing support primarily to low income and vulnerable households. Suppliers meet their obligation by using their own in-house installation arms or by contracting with a third party to find eligible households and install measures and are likely to seek to pass these costs onto customer bills.
68. Since ECO came into effect, there has been a large increase in the number of suppliers in the market and therefore those obligated under ECO. Currently a potential market distortion exists where some suppliers are obligated, and others are not. This means non-obligated suppliers do not incur these costs as compared to larger, obligated suppliers.
69. In the Energy White Paper 22 the Government committed to reducing the participation threshold for ECO, subject to not introducing disproportionate costs for smaller suppliers. If this was to be done currently (with no buy-out available) it could cause financial hardship for those smaller suppliers who are not able to benefit from economies of scale.
70. This Act will expand the powers for the ECO scheme to give energy suppliers the option to meet their ECO obligations simply by making a payment to an approved third party for an approved purpose, therefore reflecting the Government’s commitment to establish a fair and competitive market by allowing smaller suppliers to fulfil their ECO obligation in a more cost-effective way.
71. Once a buy-out mechanism is established, the intention is that all suppliers will be obligated under ECO, with only a few exemptions for the very smallest suppliers where the cost of administration would be disproportionate, due to their customer numbers and supply volumes being too low. This will address the current issue of potential market distortion without placing undue financial strain on smaller suppliers.

Smart meters

72. The Energy Act 2008, the Electricity Act 1989 and the Gas Act 1986 provide the Secretary of State a number of powers in relation to smart metering including to: make activities relating to smart metering licensable; modify gas and electricity licence conditions and industry codes; and veto any proposal by Ofgem to consent to the transfer of the smart meter communication licences.
73. The Government has used the first of these powers to make the provision of the GB-wide smart meter communication service licensable, and the second to develop the regulatory framework. The regulatory framework continues to develop to facilitate the rollout of smart meters in Great Britain. The third power has not yet been used but is provided in order to maintain regulatory stability and government oversight of smart metering. 
74. These powers are currently due to expire on 1 November 2023. This Act provides for these powers to continue to be available to the Secretary of State for the Department for Energy Security and Net Zero for a further five years until 1 November 2028. This will enable the Secretary of State to intervene where required to drive the rollout of smart meters in line with the annual targets imposed on gas and electricity suppliers through licence conditions for the 4 years to 2025. The extended timeframe will also enable the Secretary of State to ensure that the benefits enabled by the rollout can be fully realised, including through a post-implementation review of the rollout after 2025.

Part 8: Heat Networks

75. Heat networks are a crucial part of how the UK will reach its net-zero targets as they are one of the most cost-effective ways of decarbonising heating. There are over 14,000 heat networks in the UK, providing heating and hot water to approximately 480,000 consumers. The Climate Change Committee, in its advice on the fifth carbon budget 23 estimated that around 18% of UK heat could come from heat networks by 2050 to support cost-effective delivery of the UK’s carbon targets (up from around 2% currently). The measures within this Act will drive forward the growth and decarbonisation of the market whilst ensuring consumers receive the same level of protections afforded to other energy consumers.
76. Currently, there are no sector specific protections for heat networks consumers. In its 2018 heat networks market study 24 the CMA found that, although on average heat networks deliver a comparable service to individual heating systems, there was a sufficient minority of consumers who receive significantly worse outcomes and government should therefore regulate the sector. These measures will deliver on this recommendation and the commitment in the 2020 Energy White Paper to regulate the sector and will extend Ofgem’s role to cover heat networks. As the regulator Ofgem will help to ensure consumers get a fair price and reliable supply of heat.
77. In the Heat and Buildings Strategy 25 and Net Zero Strategy 26 , the Government committed to invest £338m in the Heat Network Transformation Programme, and to enable heat network zoning to create a step-change in low-carbon heat network market growth. The measures in this Act contain key zoning provisions and will facilitate central and local government working together, with industry and local stakeholders, to identify and designate areas within which heat networks are expected to be the lowest cost solution for decarbonising heat. This will help to accelerate deployment of heat networks by enabling long term planning and coordination between stakeholders and increasing investor certainty. The proposals are expected to deliver an additional 7% of England’s space and water heating demand through low carbon heat networks by 2050 and save 14.3 million tonnes of CO2 emissions over carbon budgets 4 to 6 (2023 to 2037).

Part 9: Energy Smart Appliances and Load Control

78. Transitioning to a smart and flexible energy system is essential to improving energy security, reducing consumer bills, enabling new and innovative industries to flourish, and meeting the UK’s net zero targets. A smart system could reduce costs by up to £10 billion a year by 2050, by reducing the amount of new generation and network infrastructure needed to meet increased electricity demand.
79. In a smart and flexible system, consumers can shift their electricity usage to times when it is beneficial for the energy system and be rewarded for doing so by saving money on their energy bills. This is often termed "Demand Side Response" (DSR), and the activity of sending signals to Energy Smart Appliances (ESAs) to control their consumption is referred to as "load control." ESAs are connected devices such as smart electric heating appliances, batteries, and smart Electric Vehicle (EV) charge points, which can adjust their energy consumption to help deliver DSR.
80. In line with the commitments set out in the Smart Systems and Flexibility Plan (2021) 27 and the Energy White Paper 2020 28 , the Act will allow the Government to establish a new regulatory framework for smart energy. This includes provisions to set regulatory requirements for ESAs, to mandate that electric heating appliances must have smart functionality and to require certain activities related to load control to only be carried out by persons holding licences for those activities. In addition, the Government will take new powers to mandate smart functionality for smart EV charge points, in addition to those in the Automated and Electric Vehicles Act 2018, to ensure cohesive regulation across all ESAs.
81. As the uptake of ESAs and related services increases, new risks such as cyber security and grid instability need to be mitigated. Furthermore, without intervention consumers may become locked-in to a particular service provider when they buy an appliance, or locked-out from certain services or tariffs. These new measures will enable the Government to ensure the electrification of heat and transport in particular can be delivered securely and at the lowest cost, saving consumers money on their energy bills while protecting the energy system.

Part 10: Energy Performance of Premises

The Energy Performance of Premises

82. The Act includes sections which will give the Secretary of State, Scottish Ministers, and the Department of Finance in Northern Ireland the power to make changes to their existing Energy Performance of Buildings (EPB) regimes to ensure that they are fit for purpose and reflect the UK’s ambitions on climate change, including to support achieving the UK’s target for net-zero greenhouse gas emissions by 2050. The future regulations dealing with the energy performance of premises across the UK will need to play an increasingly important role if the UK is to achieve this goal. Energy certificates provide consumers, building owners and occupiers, and third parties with information on the energy performance of the premises stock and support effective decision-making on improving the energy efficiency of premises. "Premises" is defined as a building or a part of a building, such as a private home or apartment and includes any equipment, systems or facilities used by a building or part of a building, such as air-conditioning units, which are subject to separate energy certification under the existing EPB regime.
83. The current EPB regime derives from EU Law and is reflected in the Energy Performance of Buildings (England and Wales) Regulations 2012 (S.I. 2012/3118) (the EPB Regulations 2012) , the Energy Performance of Buildings (Certificates and Inspections) Regulations (Northern Ireland) 2008 (S.I. 2008/170) and Energy Performance of Buildings (Scotland) Regulations 2008 (SSI 2008/309). Previously, Section 2(2) of the European Communities Act 1972 permitted the Secretary of State to make provisions for the purpose of implementing any EU obligation, including the power to legislate by means of orders, rules, regulations or other subordinate instruments. The EPB regime was largely implemented in the UK using this power. Pursuant to the European Union (Withdrawal) Act 2018, section 2(2) was repealed. The current EPB regime is classed as Retained EU Law as it was derived from EU Law. It therefore falls under the scope of the Retained EU Law (Revocation and Reform) Act 2023. The new power in the Energy Act will provide a replacement power, enabling the Scottish, Northern Irish and UK governments to amend, revoke or replace their existing EPB regimes to ensure they continue to meet UK-specific objectives. The power includes the power to make regulations requiring the assessment, certification and publication of information relating to the energy efficiency and energy usage of premises.

Part 11: Energy Savings Opportunity Schemes

84. The Act includes provisions which will give the Secretary of State the power to make changes to the existing Energy Savings Opportunity Scheme (ESOS). ESOS currently requires large undertakings (businesses) as defined under the Companies Act 2006, and small or medium undertakings that are in the same corporate group as a large undertaking, to carry out an energy audit at least once every four years. This audit must cover the energy used in their buildings, transport and industrial processes. Following the audit, recommendations must be made on cost-effective energy saving measures which will enable the undertaking to improve its energy efficiency. Audits must be either carried out or reviewed by approved assessors who meet the competence requirements in Publicly Available Specification 51215.
85. ESOS is important to the UK’s plans to meet net zero targets and reduce energy costs for businesses. The scheme helps businesses by providing information on cost-effective actions they can take to improve their energy efficiency; information having been identified as a key barrier to business energy efficiency. The existing scheme’s net benefit is estimated at £1.6 billion; with the costs of audits expected to be significantly outweighed by the savings from the proposed recommendations.
86. The requirements for the current ESOS scheme are set out in the Energy Savings Opportunity Scheme Regulations 2014. As part of the EU Exit, the European Communities Act 1972, which provided the primary powers to amend the 2014 ESOS regulations, was repealed. This means no changes to the regulations can currently be made. The new powers in the Act will provide replacement powers, enabling the Government to amend or replace the existing ESOS regulations, subject to any consultation requirements, to ensure the ESOS scheme continues to meet UK-specific objectives.
87. An independent evaluation and post-implementation review of the scheme in 2020 and a Business, Energy and Industrial Strategy (BEIS) select committee report in 2019 both identified opportunities to improve the scheme, and the scheme also needs updating to reflect changes such as the UK’s 2050 net zero target.
88. The government consulted29 in 2021 on making changes to strengthen ESOS and in the 2022 government response30 committed to implementing four core options to:
    • Strengthen requirements for audits and make them more standardised,
    • Improve the quality of ESOS audits,
    • Add a mandatory net zero element to the audits in future phases, and
    • Require public disclosure of high-level recommendations by participants.

89. The government also committed to consulting again before introducing any secondary legislation to cover two longer-term options to:
    • Extend the scheme to Medium-Sized Enterprises, and
    • Mandate action to improve energy efficiency.

90. The powers set out in these sections will allow regulations to be made to cover both changes the government has announced following the consultation via amendment of the existing scheme, as well as enable the current scheme to be maintained. The estimated total discounted energy bill savings to businesses from the announced changes over the period 2024 to 2037 is £1.5 billion.

Part 12: Core Fuel Sector Resilience

91. This part of the Act relates to measures which will help ensure that the resilience of the UK core fuel supply system is maintained, and which will apply to core fuels and core fuel activity. Core fuels in this measure are crude oil-based fuels and renewable transport fuels. Core fuel activity is the storage, handling, carriage, transport, conveyance, processing, or production of such fuels in the UK, which contributes to the supply of core fuels to consumers or persons carrying on business in the UK. Currently, crude oil-based fuels provide >90% of the energy for transport and so this subsector will initially provide the majority of persons likely to be within the scope of this Part. Crude oil-based fuels are also used by more than 1.5 million homes for heating. As the UK economy transitions towards net zero greenhouse gas emissions, the balance of this will change, with renewable transport fuels likely to grow in importance.
92. A consultation held in 2017 investigated the resilience of the sector and identified a substantial level of risk to fuel supplies caused by changes to the industry over many years. Detail of the economic case is set out in the impact assessment that accompanies this Act.
93. The supply of fuels is largely unregulated and has no central system coordinator. There is only limited regulation which addresses the risks to the supply of fuel before a state of emergency is declared. Examples of such limited sector regulation include: the National Security and Investment Act 2021 which now covers acquisitions of major core fuel sector companies; the Offshore Safety Act 1992 which allows the Department for Energy Security and Net Zero Secretary of State to direct the operator of an oil refinery for the purpose of preserving its security; and the Network and Information Systems Regulations 2018, to boost the overall level of security (both cyber and physical resilience) of network information systems of certain companies which provide essential services including in the oil sector.
94. Following consultation, full regulation of the sector (i.e., creating a licensing regime) was considered inappropriate as the sector has no existing monopoly and the recent Competition and Markets Authority ‘Road fuel market study’ did not recommend a sector regulator. However, while the Government works closely with industry on a voluntary basis to try to address issues relating to core fuel sector resilience and risks to security of core fuel supplies as they arise, market participants have repeatedly told the Government that competition concerns remain a barrier to full co-operation on a voluntary basis, thus requiring legislative intervention.
95. The purpose of the measures is to improve the resilience of the sector, reduce the risk of disruption to economic activities from the loss of fuel supplies, and reduce the risk of emergencies affecting fuel supplies. The intention is to give the Government powers to take pre-emptive action to encourage the sector to build resilience rather than respond to an emergency. The principal measures provide for powers to require information and to direct certain entities to take action to maintain or improve, or reduce risks to, resilience or continuity of supply of core fuels. The information powers will allow the Government to identify fuel supply risks. The powers of direction will allow the Government to support the industry in ensuring resilience ahead of any potential crisis and within the structure of the core fuel supply market, thereby reducing the need for the use of emergency powers. This is accompanied by a funding power if required.

Part 13: Offshore Wind Electricity Generation, Oil and Gas

Offshore Wind Electricity Generation

96. The Act provides primary powers to implement the Offshore Wind Environmental Improvement Package. This package will address the impacts of offshore wind infrastructure in the marine environment and help to speed up the consenting process for offshore wind. These powers will enable the Secretary of State (and, in certain circumstances, Scottish Ministers, Welsh Ministers and the Department of Agriculture, Environment and Rural Affairs in Northern Ireland) to make provision in regulations to tailor the assessment of the environmental effects of offshore wind developments on protected sites. Where measures are required to compensate for damage to the national site network or a protected marine area, these sections will allow compensation to be delivered by developers working together if that is more appropriate through "strategic compensation." The powers will enable future delivery of a Marine Recovery Fund(s), which will be an optional mechanism that developers can choose to use to deliver their compensatory measures.

Offshore Oil and Gas (Habitats and Arrangements for Responding to Marine Oil Pollution)

97. The Act provides powers to ensure that the offshore oil and gas environmental regulatory regime remains fit for purpose by allowing the future introduction of changes through secondary legislation. The delegated powers would ensure that the Secretary of State for Energy Security and Net Zero is able to adequately: (i) respond to changes in policy delivery required to meet the challenges of achieving net zero, including extending regulatory regimes for habitats assessment and emergency oil pollution planning and response to new offshore activities, such as hydrogen production and storage; (ii) implement changes, resulting from any future court judgments; and (iii) implement lessons learned from any future offshore incident.

Oil and gas cost recovery

98. It is a fundamental principle of the decommissioning regime that a person who is responsible for developing or operating an offshore installation or pipeline should also be responsible for decommissioning at the end of its useful life. The Department for Energy Security and Net Zero currently has powers to charge those responsible for offshore installations and pipelines fees at two points in time, in connection with its regulatory functions in approving and revising offshore (oil and gas and carbon storage) decommissioning programmes. Due to the increasing scale of offshore decommissioning activities and the associated complexity and duration of the regulatory functions associated with them, the current cost recovery mechanism is no longer fit for purpose. This measure will make amendments to future proof the cost recovery mechanism in line with the polluter pays principle of environmental law.

Change in control of licensee

99. The Oil and Gas Authority (OGA) cannot currently prevent undesirable changes of ownership and control of petroleum licensees before they happen. It can only examine and seek to remedy them after the event.
100. The Act will allow the OGA to identify and discourage potentially undesirable changes of ownership and control before they happen. This will help ensure that the UK’s oil and gas infrastructure remains in the hands of companies with the best ability to operate it.

Part 14: Civil Nuclear Sector

Licensing a Geological Disposal Facility Beneath the Seabed

101. A Geological Disposal Facility (GDF) is a highly engineered facility capable of isolating radioactive waste within multiple protective barriers, deep underground, so that no harmful quantities of radioactivity ever reach the surface.
102. In its 2018 policy paper, Implementing geological disposal – working with communities: An updated framework for the long-term management of higher activity radioactive waste 31 the Government reiterated its commitment to geological disposal as the best means to manage the most hazardous radioactive waste for the long term. In the same policy document, the Government also reiterated that a GDF would be a nuclear installation under the Nuclear Installations Act 1965 and would therefore require a licence from the Office for Nuclear Regulation (ONR).
103. The process to find a location for a GDF is underway and there is interest from communities in locating a GDF off the coast deep below the seabed. The measure in the Act makes clear that certain nuclear sites, located wholly or partly in or under the sea (within the boundaries of the territorial sea adjacent to the UK) are required to be licensed and made subject to regulatory oversight by the ONR in Great Britain and by the Secretary of State in Northern Ireland. As the ONR’s powers in relation to nuclear sites are principally set out in the Nuclear Installations Act 1965 and the Energy Act 2013 (EA 2013), amendments to both of these Acts are required. While the policy driver for this change is to ensure a GDF beneath the seabed is licensable, the legislative changes cover other nuclear sites located wholly or partly in or under the territorial sea adjacent to the UK.
104. In due course, using an existing delegated power in the Nuclear Installations Act 1965, a statutory instrument will be brought forward to make a GDF (whether located beneath the seabed or otherwise) a prescribed installation that requires a licence, and as such, subject to ONR regulation.

Decommissioning of Nuclear Sites

105. These measures follow the Government’s 2018 consultation32 on adopting the Organisation for Economic Co-operation and Development (OECD) Nuclear Energy Agency’s "Decommissioning Exclusion" 33 recommendation (2014), to allow qualifying nuclear sites to exit the requirement for nuclear third-party liability and on amending the processes for ending or varying nuclear licences.
106. Firstly, under the current regulatory arrangements, nuclear third-party liability continues for longer in the UK than required by international agreements. This measure will align the UK with those agreements.
107. Secondly, in the final stages of decommissioning and clean-up of nuclear sites, hazards and risks fall to levels comparable to those on non-nuclear industrial sites. This measure will allow ONR to end the nuclear licence once satisfied that nuclear safety matters have been resolved and to pass responsibility for regulation of work activities during the remaining demolition work to the Health and Safety Executive (HSE).
108. Former nuclear sites will also remain under regulation by the relevant environment agency for years or decades after the end of the nuclear licence. The environmental legislation is more suitable for land remediation than the existing nuclear regulation. In particular, the environmental legislation allows for lightly radioactively contaminated concrete substructures and pipes to remain buried on site, where it is safe to do so and subject to environmental permits. It is anticipated that there will be applications for on-site disposal, which will reduce the negative impacts of excavation of the material (generation of radioactive dust, risk to workers) and the impacts of transporting waste to disposal facilities elsewhere.

Excluded Disposal Sites

109. The UK is a signatory to the Paris and Brussels Conventions on Nuclear Third-Party Liability. These Conventions were amended by Protocols in 2004. One of the amendments was to extend the requirement for nuclear third-party liability to disposal facilities for radioactive waste of nuclear origin. In 2016, the UK passed the Nuclear Installations (Liability for Damage) Order to implement these proposals. This Order came into effect on 1 January 2022.
110. The Act will implement the OECD Nuclear Energy Agency’s 2016 "Low Level Waste Exclusion" 34 This will allow qualifying low level waste disposal facilities to exit the requirement for nuclear third-party liability in view of the low levels of risk they present. This will reduce costs for operators of these disposal facilities and ensure disposal capacity as the nuclear decommissioning programme accelerates.

Convention on Supplementary Compensation for Nuclear Damage

111. Nuclear Third-Party Liability (NTPL) treaties are international agreements that ensure that in the unlikely event of a nuclear incident there is a minimum amount of compensation available to victims and that claims are channeled to the operator of the nuclear installation (and not the supply chain). Operators are required to have sufficient coverage to meet their liability cap to ensure that compensation would be available to victims. These agreements ensure that claims are heard in the country in which the incident occurs, which gives clarity to victims regarding the appropriate jurisdiction for bringing claims. Further, the agreements provide for strict liability, so that claimants need only prove harm and not fault. This brings benefits to potential victims, while encouraging investment by limiting the potential liability of operators who can cover their liability through private insurance and protecting the supply chain from claims. Additionally, some regimes create an international pooling mechanism amongst contracting parties to provide additional funds to victims if the operator liability cap is reached. The UK is currently party to the 1960 Paris Convention and 1963 Brussels Supplementary Convention (together Paris-Brussels) and has ratified the 2004 Protocols that came into force on 1 January 2022. NTPL treaties are implemented domestically through the Nuclear Installations Act 1965. The UK is intending to enhance its NTPL regime by seeking accession to the Convention on Supplementary Compensation for Nuclear Damage (CSC).
112. The legislation will introduce amendments to the Nuclear Installations Act 1965 in order to implement the requirements of the CSC to enable the UK’s accession. Accession to the CSC will establish treaty relations with the 11 members of the CSC, and any other countries who may join the CSC in the future. Nuclear power has an important role to play in domestic energy security and in reducing greenhouse gas emissions to net zero in 2050, and an effective NTPL regime is a key enabler for driving new nuclear projects. Accession would be likely to give private sector developers increased confidence in investing in new nuclear projects; offer participants in the UK’s nuclear supply chain protection from claims; and reduce the risk of increased costs and timings associated with essential projects such as decommissioning. Additionally, these benefits are also equally applicable to potential UK exports, both presently and into the future.
113. The UK is potentially the first Paris Convention member to seek accession to the CSC. The legislation includes a section that gives the Secretary of State the power to make changes to the implementing legislation if required in the future. This is intended to future proof the legislation and ensure that the CSC works as part of the UK’s NTPL regime.
114. As with the 1963 Brussels Supplementary Convention, the CSC establishes a pool of funds which countries can draw from to provide compensation for victims. The size of the fund is dependent on the United Nations contributions and installed nuclear capacity of the contracting parties at the time of an incident. The exact size of the fund will change over time as reactors come offline and online, exchange rates fluctuate, and United Nations contribution rates of contracting parties change. At present, with the UK as a contracting party the fund would be around £116 million, with the UK’s contribution £7.5 million. This would only be called upon in the event of an incident occurring in a CSC member country after exceeding the operator liability limit. To date no party has drawn on any international funds. 

Civil Nuclear Constabulary

115. The Civil Nuclear Constabulary (CNC) is the specialist armed police force that protects civil nuclear sites in England, Wales and Scotland, and civil nuclear material in transit in Great Britain and internationally. The CNC’s remit is defined in Chapter 3 of the Energy Act 2004 (c.3). That Act establishes the Civil Nuclear Police Authority (CNPA) to govern the CNC, the Constabulary’s function, jurisdiction and powers, and mandates inspection by Her Majesty’s Inspectorate of Constabulary and Fire & Rescue Services.
116. The Act amends the functions and powers of the CNC and CNPA to enable the CNC to utilise their expertise in deterrence and armed response to support the security of other critical infrastructure sites or provide other policing services in the interests of national security. It also streamlines the CNC’s arrangements to provide assistance to other police forces and enables the CNC to apprehend individuals across jurisdictions in Great Britain. In addition, it amends the timetable for the publication of the CNPA’s three-year strategy plan.

Relevant Nuclear Pension Schemes

117. Government policy, led by HM Treasury, is to reform public sector pension schemes by implementing the recommendations from Lord Hutton’s review conducted in 2011. This resulted in the Public Service Pensions Act 2013, which reformed the majority of pension schemes within the public service. Government policy is for final salary pension schemes in the public sector to be reformed to a Career Average Revalued Earnings (CARE) based scheme, in line with the Public Service Pensions Act 2013 and over four million public sector workers have already moved to new pension arrangements.
118. There are two final salary public sector schemes (with a total of approximately 8000 scheme members) within the Nuclear Decommissioning Authority’s (NDA) group that are therefore within scope for reform, with estimated savings currently expected to total in the region of £200 million subject to the date of implementation.
119. Recognising the vital work that the NDA and its workforce delivers, the Department for Energy Security and Net Zero and the NDA worked with national trade unions in 2017 to develop an agreed pension benefit structure that was tailored to the characteristics of the affected NDA employees. This resulted in a proposed bespoke CARE benefit structure which is in line with the key principles of reforms already implemented in respect of other public sector pension schemes. The bespoke CARE scheme design was formally accepted by the national trade unions following statutory consultation with affected NDA employees and a ballot of union members.
120. A public consultation was undertaken and published in December 2018, inviting views from stakeholders about how government proposes to enable the Nuclear Decommissioning Authority to implement pension reform of the two pension schemes in scope: the Combined Nuclear Pension Plan (CNPP) and the SLC section of the Magnox Electric Group of the Electricity Supply Pension Scheme.
121. Following the public consultation, the policy outlined in paragraph above was adopted. The measures featured in the Act will enable NDA to amend pension schemes for their employees in the nuclear sector in alignment with wider changes to public sector pensions.

Great British Nuclear

122. The Government is committed to ensuring that the UK is one of the best places in the world to invest in civil nuclear power and is taking steps to revitalise the UK’s nuclear industry. The 2022 British Energy Security Strategy set out our ambition to deploy up to 24 Gigawatts of civil nuclear generation by 2050, around 25% of our projected 2050 electricity demand. 35
123. Great British Nuclear (GBN) was launched as part of our Powering Up Britain plan to be an arms-length body responsible for helping deliver new nuclear projects 36 . GBN will act as an expert-led delivery body with the requisite skills and knowledge to deliver on the policy set by HM Government. This approach will not only give the supply chain the long-term certainty it needs to invest in homegrown capability and skills, in time it will offset plant retirements and strengthen UK energy independence.
124. The Energy Act provides statutory backing to support GBN’s long-term operational mandate to carry its objectives with confidence. The Act makes provisions to enable GBN to have an evolving and enduring role within the civil nuclear sector given the changing market and HMG’s evolving policy ambitions. To better support this adaptability, the Act includes powers and duties in relation to GBN.