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Media Briefing Note: The Energy Act 2011

25 October 2011

LONDON, 25 October 2011 - Commenting on The Energy Act 2011, which received Royal Assent on 18 October 2011, Lis Blunsdon, Of Counsel in Hogan Lovells' Energy practice, said:

"The Energy Act 2011 introduces important new measures aimed at improving the energy efficiency of the UK's housing stock and puts consumers' needs much higher up the suppliers' agenda".

SUMMARY OF THE ENERGY ACT 2011

The Act received Royal Assent in the afternoon of 18 October 2011 after finishing its passage through Parliament a fortnight earlier. Initially intended to be passed before the summer break, ongoing discussions about the financing of the Green Deal meant that the date for the Act to come onto the statute books had to be postponed.
Most sections of the Act require a Statutory Instrument to be passed to come into force. Exceptions to this general rule have been highlighted as they arise below:

OPERATIVE PROVISIONS

Establishing the Green Deal

With the intention of saving the domestic or business consumer money by making estimated savings on bills always equal to or exceeding the cost of the required work, the Green Deal aims to create a new financing framework for improving the energy efficiency of households and business properties. Essentially, households will be able to borrow funds for energy-saving home improvements with repayments collected through the utilities bills connected to the property (i.e. any new owners of that property will pick up the repayments on sale).

Green Deal will launch in December 2012. 

The Green Deal in the rental market

The Secretary of State ("SoS") must make regulations (by April 2016 for domestic tenants, and by April 2018 for non-domestic tenants) to ensure that landlords will not be able to refuse "reasonable requests" from tenants, or local authorities acting on behalf of tenants, to improve their property under the Green Deal.

Furthermore, from April 2018 it will be unlawful for landlords to rent out a domestic or non-domestic property that has less than an "E" energy efficiency rating. The government believes that this will result in the improvement of at least 682,000 properties across the UK.

Energy company obligations

The government now has the power to create a new obligation on energy companies to reduce emissions. This will replace existing powers in the Gas Act 1986, Electricity Act 1989 and the Utilities Act 2000 regarding the Carbon Emissions Reduction Target and the Community Energy Saving Programme when they expire at the end of 2012.

Smart meters

With the government having published its response to the consultation on smart meters in April 2011, saying it expects a full rollout to get underway by 2014, this Act allows the SoS to continue to dictate the licensing and technical requirements of a rollout through to 2018 by extending the provisions of the Energy Act 2008. This section comes into force in two months.

Energy Performance Certificates

Coming into force in two months' time, the Act gives the SoS power to make the emissions performance data of households and businesses more widely available by amending the Energy Performance of Buildings Regulations 2007, which restricts access to the data. Under current rules it can be seen only by owners, operators of accreditation schemes, and government officials. New regulations would give authorisation to disclose that data, with the intention of improving data access and therefore also improve any analysis of energy performance.

Consumer energy bills 

From December 2011, energy supply companies must provide customers with information regarding the cheapest tariff available from their current supplier. To enforce this condition, the SoS has the power to modify individual supplier's licence conditions, but can only do so in order to ensure that the particular licence holder implements this section voluntarily within their own operating procedures.

Ofgem also has the power to set "home-heating cost reduction targets" for gas and electricity suppliers, in parallel to the "carbon emission reduction targets" that they may also set. It is not clear what the sanctions for failing to meet these targets will be.

Energy security

With the percentage of the intermittent energy sources increasing in the UK's energy mix, ensuring security of supply is becoming more important than ever. Therefore, in order to improve the accuracy of demand predictions, and thus security of supply, the new provisions obligate Ofgem to assess future demand, the first report on the subject being required by 1 September 2012.

The Gas Act 1986 is also amended (with immediate effect) to give Ofgem powers either to create financial incentives for gas shippers or transporters or change the Uniform Network Code in respect of Gas Supply Emergencies in order to reduce the likelihood or severity of such an emergency.

Ofgem will, in two months' time, also have the power to ensure that gas and electricity continue to be supplied as cost effectively as possible in the event that an energy supply company goes into administration. The Act gives the administrator appointed by the court obligations to secure that the lowest cost reasonably practicable is attained for energy supplies from that company, and further that the administrator tries to secure the rescue of the company (as a primary objective) or the transfer of all or part of the company (if a rescue is no reasonably practicable) as a going concern.

Upstream Petroleum Infrastructure

The Act gives the SoS the power to adjudicate over applications for the right to use a pipeline, oil processing facility or gas processing facility in Great Britain, and also to force modifications of such infrastructure where appropriate (the cost of which can be passed to the applicant as appropriate).

The Offshore Transmission Regime

Current powers under the Energy Act 2004 that allow the SoS to make modifications to codes, licences and agreements around the Offshore Transmission Regime expired in December last year. The Act extends these powers (with immediate effect) for a further seven years so that changes to the regime can continue to be made.

Nuclear decommissioning

Current provisions for the construction of new nuclear power plants require that the business case includes the financing of the decommissioning of the site to ensure that the private sector operators, and not the taxpayer, cover the full cost of decommissioning and their full share of waste management and disposal costs.

With this section coming into force in December, the Act will reduce the government's power to modify a Funded Decommissioning Programme ("FDP") without consulting the operator. Current legislation is somewhat one-sided, with the government able to intervene to alter an FDP at will, while the operator cannot alter the FDP without government permission. Operators will welcome this change, which will increase their input in future adjustments to the disposal requirements.

 
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