The Energy Act 2023 enters into force: a milestone in the UK’s energy transition

Following its introduction in July 2022, the Energy Act 2023 (the “Act”) finally gained royal assent on 26 October 2023. Dubbed the “the biggest piece of energy legislation in the UK’s history” the Act is a crucial piece of legislation, including regulation of new energy technologies such as low carbon hydrogen, carbon capture and storage (“CCUS”) as well as laying the foundations for structural regulatory reforms to electricity networks and new regulation of heat networks. 

It is envisaged that the Act will play a vital role in achieving the UK’s net zero targets across a range of sectors. The UK Government expects the measures introduced by the Act to create significant savings for energy users, stimulate thousands of new jobs in the energy sector, and unlock private investment into UK energy assets. 

We highlight key features of the Act below. 

Pillar 1: Promoting investment in clean technologies 

• Creation of an economic licensing regime, overseen by Ofgem, for the transport and storage of carbon dioxide establishing the framework for the delivery of UK CCUS infrastructure in the UK.
• Introduction of business models to enable funding and encourage private investment in low carbon hydrogen and CCUS in the UK. With allocation processes already underway, the first contracts for electrolytic hydrogen production may be awarded as early as the end of 2023 / Q1 2024. For more information on the business models, please see our recent publications focused on hydrogen and CCUS available here.
• Establishing a regime for the designation of persons in relation to the construction, alteration or operation of a hydrogen pipeline project under the existing licensing regime set out by the Gas Act 1986, paving the way for the introduction of a business model by 2025. 
• Supporting the Government’s aim to assess hydrogen for heating, the Act introduces amendments to facilitate hydrogen heating grid conversion trials as well as strengthening consumer protection for those in the trial areas.
• Establishment of a market-based mechanism to incentivise low-carbon heat. Under proposals for the scheme design, manufacturers of fossil fuel heating appliances will be required to meet a rising standard for low-carbon heat pump sales as a proportion of their total appliance sales. 

Pillar 2: Reforming the energy system to protect consumers 

• The creation of the Future System Operator (“FSO”) (referred to in the Act as the Independent System Operator and Planner) for efficient planning of gas and electricity networks. The FSO must carry out its functions in a way that best promotes three objectives: (i) net zero objectives under the Climate Change Act 2008; (ii) the security of supply to consumers of electricity and natural gas; and (iii) an efficient, co-ordinated, and economical electricity and gas system. The FSO is expected to be in place next year and will take responsibility for strategic planning initiatives such as the Centralised Strategic Network Plan.
• Amendment of Ofgem’s duties under the Electricity Act 1989 and the Gas Act 1986 to have regard to the UK’s net zero target by 2050 and the intervening carbon budgets.
• Appointment of Ofgem as the heat networks regulator in England, Wales and Scotland and the establishment of an authorisation regime for regulating heat networks. The Act also provides powers for heat network zoning in England to identify cost-effective, low carbon heating solutions. 
• Introduction of a new legal definition for the operation of multi-purpose interconnectors (“MPIs”) into the Electricity Act 1989 alongside a new licensable activity of operating an MPI. MPIs are subsea electricity cables that connect Great Britain to neighbouring markets and also connect offshore generation to shore. MPIs mark an evolution in offshore grids, which have to date been characterised by point-to-point interconnectors and separate radial connections for individual offshore wind projects.
• Establishment of a funding mechanism for the Network Charging Compensation scheme to support energy-intensive industries with their electricity bills.
• Extension of powers to undertake competitive tenders for onshore electricity networks, as well as those offshore, in Great Britain. This is intended to increase competition and drive down the costs to consumers. The Act (via amendment to the Electricity Act 1989) enables the Secretary of State to appoint a body to run tenders and extends Ofgem's powers to make tender regulations determining the eligibility criteria and the process by which tenders are to be run. 
• The introduction of a new merger regime for energy network companies to promote active competition in the nation's energy infrastructure. The Act amends the Enterprise Act 2002 to empower the Competition and Markets Authority to investigate mergers between energy network enterprises (i.e., holders of gas transporter, electricity transmission or distribution licences) of the same type.

Pillar 3: Protecting the safety, security, and resilience of the UK’s energy system 

• Introducing powers allowing changes to the offshore oil and gas environmental regulatory regime through secondary legislation.
• Simplification of the regulatory framework that applies to the final stages of nuclear decommissioning and the nuclear third-party liability regime, allowing nuclear sites to be delicensed earlier than at present, while remaining under regulation by the relevant environment agency and the Health and Safety Executive.
• Giving the Secretary of State the power to designate a new publicly owned company, Great British Nuclear (“GBN"), to oversee the Government’s involvement in delivering new nuclear projects, supporting the UK’s aim to increase nuclear capacity to 24GW by 2050. Part of GBN’s remit will be to support small modular nuclear reactors, with invitations to bid for contracts expected to be issued later this year.

The passing of the Act is not the end of the UK’s programme of reforms to implement its energy transition ambitions. Crucially, the Act establishes enabling powers for a raft of secondary legislation. So, although its passing marks an important milestone, a significant programme of secondary legislation is expected in the coming months.