The Energy Act 2023 – the future of the UK’s energy market

Posted: 01/12/2023

The Energy Act has been billed by the government as the ‘biggest piece of energy legislation in the UK’s history’. The aim of the Act is to lay a solid foundation for the future of the energy market in the UK. The Act represents the latest version of Great Britain’s recent energy laws[i] and forms part of the government's plan to reach net zero by 2050.

Given the nature of the energy market at the moment, it is not a surprise that the Act is incredibly wide ranging. In this first in a series of articles on the Act, we set out its overall structure, and the broad range of areas covered.

The Act seeks to govern not just the traditional energy markets of oil, gas and nuclear, but also the newer and emerging markets such as renewable energy, nuclear fusion and hydrogen, as well as carbon capture and storage; to this end, it should be applauded. The Act also includes, among other things, new provisions regarding market reform and consumer protection.

By passing the Act, the government is trying to address the energy trilemma of security of supply, affordability of pricing and sustainability of source.

Recent world events have highlighted the reliance we place on the supply of energy from a few key locations. To improve security of supply, the Act gives the Secretary of State for Energy Security and Net Zero powers to impose obligations on energy companies to take such actions as thought necessary to ensure the resilience of supply of certain core fuels. In addition, by improving government support and regulation for new and emerging energy markets, it is hoped that this will lead to increased investment in, and greater capacity for energy generation at a national level, thereby reducing our reliance on foreign energy supplies, as well as increasing our use of cleaner energy.

The Act also gives new powers and responsibilities to the energy regulator, Ofgem, which are designed to improve consumer protection from unfair pricing, and increase competition within the energy sector. The government’s aim in doing this is to allow the consumer to benefit from a reduction in energy costs, as well as improve confidence in energy smart appliances to help consumers reduce their energy consumption.

The Act received royal assent on 26 October 2023; however, the commencement provisions mean that, for many of the provisions, secondary legislation is required before they will come into force. Under the Act the Secretary of State is given wide ranging powers to implement many provisions via new regulations. It is therefore difficult to surmise in any meaningful way exactly how the Act will impact businesses in the energy sector.

From the content of the legislation, however, a few notable provisions can be determined:

• It provides for the creation of an independent system operator and planner (known as the ‘Future System Operator’ in government publications), a body whose role will be to plan and coordinate the development of the UK’s energy systems in the future, particularly in relation to electricity and gas networks. Again, when this body will be created is yet to be determined by the Secretary of State.
• As one of the first laws to recognise the new hydrogen economy and carbon economies, and the need for carbon capture and storage, the Act sets the foundation of regulation for these markets, and expands existing legislation to include hydrogen. This should help to encourage investment and growth in these areas, whilst also providing a realistic framework within which operators can work.
• The Act increases Ofgem’s remit considerably to cover the new and emerging energy sectors, as well as mandating that Ofgem consider the government’s net zero target of 2050 when making its decisions.
• It allows for the establishment of large-scale hydrogen trials, aimed at determining the feasibility of using hydrogen for day to day heating and cooking.
• The Secretary of State is granted the power to implement various low-carbon heat schemes, designed to encourage the wider installation of low-carbon heating systems, such as air pumps.
• The Act amends the Nuclear Installations Act to exclude fusion energy from the need for a nuclear site licence, which creates a distinct regulatory approach to fusion energy facilities and supports the safety case for fusion energy development.
• The creation of ‘Great British Nuclear’, a body whose aim is to facilitate the construction and operation of nuclear energy projects within the UK.
• Energy savings opportunity schemes may be created by the Secretary of State, pursuant to which certain businesses or organisations can have various obligations imposed on them to reduce their energy consumption or carbon emissions.
• The Act provides for the creation of a ‘marine recovery fund’ into which energy companies pay when developing offshore wind farms. This fund can then be used to pay for measures to compensate for environmental damage as a result of offshore wind activities.

In summary, the Act is an ambitious piece of legislation which looks to cover a wide range of energy markets. The framework it provides promises improved regulation and confidence in these emerging energy markets, as well as increased competition to ensure consumers are better protected.

However, the Act only provides the framework from which regulations, to be created by the Secretary of State, can hang. It is therefore a waiting game to see how these provisions will play out in practice. That said, investors are waiting for clear regulations to make certain energy investments ‘bankable’, yet over-regulating may dissuade the investors; the Secretary of State therefore needs to strike a mercantile balance.

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