The Energy Act 2023, which the government have called the “biggest piece of energy legislation in the UK’s history” received Royal Assent and passed through parliament on 26th October 2023.
This vast and comprehensive Act aims to transform the energy system, enhance energy security and resilience while securing long-term affordability and ultimately, deliver net zero. The Act is expected to leverage an additional £1bn of private investment, generating growth in new technologies and clean energy whilst boosting employment opportunities.
Regulation Manager, Andrew Jones looks at some key aspects of the Energy Act and what these may mean for customers in the coming years.
“As the scope of this Act is vast and wide ranging, several aspects still require further legislation, so we won’t see all parts start to take effect immediately. We do know this act will bring a significant overhaul to the UK energy regulation framework with provisions that range from; new licensing of carbon transportation and storage; changes to the scope of Ofgem’s remit as they now become the UK’s official regulator of heat networks with an additional mandate to support government to reach net zero by 2050; to the new formation of a public corporation, the Future System Operator (FSO).
The FSO will now be responsible for turning government policy into strategy, aimed at delivering a coordinated response across both the gas and electricity systems, which has never been done before, to deliver the energy transition and ensure system efficiency in order to reduce cost for consumers.
Additional processes will also be put in place to provide a new framework with funding for the UK hydrogen industry and further legislation in place for a low carbon heat scheme. This is a very brief overview of what this Act will bring and based on the information we’ve had since the announcement in October; I’ve outlined a range of key benefits this will bring to customers and discuss two fundamental areas which will hold significance starting from 2025.
Key benefits for businesses:
- Reduce costs and improve competitiveness – through increased efficiency, we expect to see lower cost of energy.
- New investment opportunities – with an additional £1bn of private investment and a clear framework for businesses to invest in the clean energy sector and energy storage we should see this area gain momentum
- Clarity on the UK’s future energy policy and strategy – providing UK businesses with a clear view on long term plans
The first area I’d like to touch on is a hydrogen levy on gas shippers to support the development of hydrogen in the UK. In late 2026 the levy will be introduced, but until then the costs will be picked up by the Treasury. Draft of the levy rules will take place next year as part of the industry consultation process, but the current understanding is it will support hydrogen production and not the construction of new capacity. The impact on customer bills is not yet known as it is dependent on how quickly hydrogen production increases.
Energy Intensive Industries (EII) Support Levy
The second area is an Energy Intensive Industries (EII) support levy. EII’s in the UK have faced the steepest industrial electricity prices in Europe. Providing targeted measures to ensure the energy costs for key UK industries are in line with other major economies around the world will level the playing field for British companies.
This new support will; increase the level of exemption on Feed in Tariffs, Renewables Obligations and Contracts for Difference provided through the EII Exemption Scheme to 100%.
A 100% exemption on Capacity Market Charges will be implemented along with compensation on network charging costs, which are costs users pay for the use of the electricity grid. The levy is due to be implemented in April 2025 and is expected to increase electricity costs for non-eligible businesses by £1/MWh. There are still elements that need to be fully understood, such as if the EII has to also pay these costs and reclaim them back or if they’ll be exempt.
I very much welcome the Energy Act 2023, and with critical focus placed on hydrogen which I believe will be vital component in achieving net zero, this will pave the way for future development in securing our energy security and ultimately delivering a decarbonized energy system. This is a positive step for the UK and in the coming months, we expect secondary legislation to follow which will outline exactly how the new set of provisions within the Act will operate.”
Click HERE to download the Energy Act 2023 and to find out more information.