Energy UK briefing on Energy Bill – Updated December 2022

Key Points

The Energy Bill will deliver significant improvements to the UK’s energy sector, opening the door to investment in newer technologies such as hydrogen, carbon capture, or simply updating legislation in areas such as low carbon heat networks and zoning, as well as the wider energy system.

The measures within this Bill will improve protections for consumers, increase our energy independence, modernise our energy system, and continue the UK’s role as a global leader in low carbon technology, bringing forward private investment in services and industries across the economy.

Many of the measures tabled in the Energy Bill are welcomed across the sector as critical and much needed reforms. The reforms and certainty are needed now more than ever given the energy crisis. While the Bill needs to be passed at pace, some measures require more detail from the Government, and there remain areas where additional statutory provisions could be added to improve the legislation further.

Energy UK’s top four asks of the Bill are:

1. The sector is seeking urgent reframing and clarification of the broad new powers for the Secretary of State granted in the Energy Prices Act. This piece of legislation was rushed through Parliament in two weeks and contains significant powers to intervene in the energy market causing real uncertainty during the energy crisis.
2. Introducing a Net Zero Test for all government policy and a Net Zero Duty for Ofgem, alongside its other statutory duties within the Gas Act 1986 and the Electricity Act 1989 and exploring what is needed to ensure those operating in the retail market are financially resilient.
3. Legislating for energy efficiency. The Energy Bill will not solve the crisis for this winter but has an opportunity to legislate for a long-term solution to rolling out energy efficiency to the UK’s housing stock.
4. The introduction of competition in electricity network connections. With the With the ambition of government targets, the need for significant investment into networks is clear.

1. Reframing and clarification of the broad new powers for the Secretary of State granted in Energy Prices Act

The government passed the Energy Prices Act in October 2022 which granted the Secretary of State broad and (in some cases) enduring powers in a number of fundamental parts of the energy industry. This granting of broad powers has already caused confidence in the energy industry to fall due to uncertainty around decisions in the future being made on a political, rather than factual, basis.

The areas of concern include the ability of the Secretary of State:

a) to revoke an energy licence outside of the existing and long-standing revocation provisions within the licences. Licenses are usually revoked for non-compliance or insolvency type events. These were administered by the regulator; however, the Bill now grants powers to the Secretary of State.

b) to acquire energy infrastructure. Confidence in the stability of the existing licensing regime and certainty of asset ownership are fundamental to investor confidence, energy licence holders, and therefore jobs and security of supply.

c) to set the tariff price cap. The government currently supports household energy bills through the Energy Price Guarantee (EPG). If the Secretary of State is to continue setting the cap at which suppliers can charge energy, then considerable notice of changes to the level or mechanism of support is needed to ensure effective delivery and risk management.

Confidence in the energy market is needed to deal with the current energy crisis as well as any future issues which may arise. Investment and delivery of infrastructure needs to happen on an exponential scale to ensure the UK is resilient to future crises and can develop more secure, affordable, and low-carbon energy on our shores. The parts outlined for the legislation were poorly formed and require immediate review.

The Energy Bill provides an important opportunity to scrutinise these provisions and amend relevant sections of the Energy Prices Act to ensure that extended powers enable Government to respond a timely way as the energy crisis evolves without unnecessarily impacting investor confidence.

Questions to ask:
a) Can the Secretary of State commit to introducing an appropriate sunset clause to the powers as set out in the Energy Prices Act?

b) What assurances can the Secretary of State provide that he will consult extensively with the energy sector before using the broad powers as set out in the Energy Prices Act?

c) What clarification can the Secretary of State provide around the application of extended powers under the Energy Prices Act?

d) What is Ofgem’s role in regulating the energy sector now many of its powers sit with the Secretary of State? How will the Secretary of State ensure that those operating in the market are financially resilient?

• 2. Net Zero Test for governmental policy and a Net Zero duty for Ofgem

To ensure that the UK seizes the opportunities of the transition and that prosperity is distributed across the country, government needs to better understand the environmental impacts of its decisions.

A number of bodies have called on the Government to apply a Net Zero Test to all policy, regulatory, spending and taxation decisions in legislation, as well as Budgets and Spending Reviews to ensure that the overall approach across government puts us on track to meet our climate and nature goals. Organisations across the economy have expressed support for the Net Zero Test, including the CBI, the Corporate Leaders Group, National Grid, and the Climate Change Committee.

Government should also assist in planning now for Net Zero by publishing a strong and detailed Strategy and Policy Statement (SPS) for Ofgem which will help ensure strategic alignment between Ofgem and Government, including delivery of the energy transition. An SPS needs to allow for the significant investment required in advance of our 2035 and 2050 energy targets.

Energy UK supports Ofgem having a duty to deliver Net Zero and Government should deliver against its commitment to reviewing regulators’ duties. Strengthening Ofgem’s statutory duties to explicitly support the delivery of the legally binding Net Zero target would help ensure it balances the need to serve both current and future consumers.

Supplier financial resilience is critical to avoiding a number of energy suppliers exiting the retail market like what happened in 2021. Energy UK is supportive of Ofgem consulting with industry on this area. We are responding to the consultation and support its objective to ensure suppliers are financially resilient and are also balancing the need for a market that is innovative and diverse.

Questions to ask:

a) When will the Secretary of State bring forward a detailed Strategy and Planning Statement (SPS) for Ofgem to ensure strategic alignment between Government and the regulator?

b) How does this Bill legislate to ensure that companies operating in the retail energy market are financially resilient?

c) When will the Government deliver against its commitment to review regulators’ duties?

• 3. Legislating for energy efficiency

The Bill will not address the energy crisis this winter, but it does provide an opportunity to ensure that long-term strategies can be put in place to tackle the energy efficiency of the UK’s housing stock.

The Bill outlines its intention to create powers to remove European Performance of Buildings Regulation (EPBR) requirements in the UK. While not perfect, these regulations have put in place a supply chain which is effectively delivering energy efficiency measures and low carbon technologies like electric vehicle charging. If these powers were to be passed and implemented, we would seek assurances from the government that they will not roll back on these requirements which will be vital for bringing down energy bills as well as developing robust UK supply chains and a skilled workforce.

We need to see detail in the Bill regarding how the Government will safeguard against the potential for the UK to fall behind the rest of Europe in this space. Beyond this, we need clarification of what measures the Government will take to ensure all buildings are fit for the future, given the lack of measures in the Bill to reform planning and building regulations. This latter requirement could be met by the introduction of a Net Zero test as set out above, or by a specific measure requiring this Government to review the approach to delivery and set out a strategy for delivery within a specific timeline.

Questions to ask:

a) How will the Government safeguard against the potential for the UK to roll back energy performance of buildings regulations and fall behind the rest of Europe in this space?

b) What measures will Government take to ensure all buildings are fit for the future, given the lack of measures in the Bill to reform planning & building regulations or set specific targets for delivery?

• 4. Introduction of competition in electricity network connections

Given the ambitious 2035 and 2050 targets set by the Government, the need for significant investment in networks is clear. It is vital to ensure that extending competition in networks is applied in a way which benefits consumers and does not delay investment. The proposals for Competitive Allocated Transmission Owner (CATOs) and by extension Competitively Allocated Distribution owners (CADOs) must allow for financial fair play and full customer protections.

Questions to ask:

a) Given the ambitious 2035 and 2050 targets set by Government, how will they manage the transition to new competitive arrangements across transmission networks to ensure investment is not delayed and consumer benefits are maximised?