Energy Bill (HC Bill 100)

Part 1 Electricity Market Reform

CHAPTER 1 General considerations

1 General considerations relating to this Part

(1) 5In exercising the function of making—

(a) regulations under section 2;

(b) an order under section 13;

(c) a modification under section 16;

(d) regulations under section 17;

(e) 10a modification under section 25;

(f) a modification under section 29;

(g) an order under section 30;

the Secretary of State must have regard to the matters mentioned in subsection
(2).

(2) The matters are—

(a) the duties of the Secretary of State under sections 1 and 4(1)(b) of the
Climate Change Act 2008 (carbon targets and budgets);

(b) ensuring the security of supply to consumers of electricity;

(c) 5the likely cost to consumers of electricity;

(d) the target set out in Article 3(1) of, and Annex 1 to, the renewables
directive (use of energy from renewable sources).

(3) In subsection (2)(d) “the renewables directive” means Directive 2009/28/EC of
the European Parliament and of the Council of 23 April 2009 on the promotion
10of the use of energy from renewable sources.

CHAPTER 2 Contracts for Difference

2 Regulations to encourage low carbon electricity generation

(1) The Secretary of State may for the purpose of encouraging low carbon
electricity generation make regulations about contracts for difference between
15a CFD counterparty and an eligible generator.

(2) A contract for difference is a contract—

(a) certain payments under which are to be funded by electricity suppliers
(see further section 5), and

(b) which a CFD counterparty is required to enter into by virtue of section
206;

and such a contract is referred to in this Chapter as a “CFD”.

(3) For the purposes of this Chapter—

• “CFD counterparty” is to be construed in accordance with section 3(2);

• “eligible generator” is to be construed in accordance with section 6(3);

• 25“low carbon electricity generation” means electricity generation which in
  the opinion of the Secretary of State will contribute to a reduction in
  emissions of greenhouse gases;

• “regulations” means regulations under this section.

(4) In subsection (3) “greenhouse gas” has the meaning given by section 92(1) of
30the Climate Change Act 2008.

(5) The provision which may be made by regulations includes, but is not limited
to, the provision described in this Chapter.

(6) Regulations may—

(a) include incidental, supplementary and consequential provision;

(b) 35make transitory or transitional provision or savings;

(c) make different provision for different cases or circumstances or for
different purposes;

(d) make provision subject to exceptions.

(7) Regulations are to be made by statutory instrument.

(8) 40An instrument containing regulations which make provision falling within
section 5, 6 or 7 (whether or not also making any other provision) may not be

made unless a draft of the instrument has been laid before and approved by a
resolution of each House of Parliament.

(9) Any other instrument containing regulations is subject to annulment in
pursuance of a resolution of either House of Parliament.

3 5Designation of a CFD counterparty

(1) The Secretary of State may by order made by statutory instrument designate
an eligible person to be a counterparty for contracts for difference.

(2) A person designated under this section is referred to in this Chapter as a “CFD
counterparty”.

(3) 10A person is eligible if the person is—

(a) a company formed and registered under the Companies Act 2006, or

(b) a public authority, including any person any of whose functions are of
a public nature.

(4) A designation may be made only with the consent of the person designated.

(5) 15More than one designation may have effect under this section.

(6) A designation ceases to have effect if—

(a) the Secretary of State by order made by statutory instrument revokes
the designation, or

(b) the person withdraws consent to the designation by giving not less than
2028 days’ notice in writing to the Secretary of State.

(7) At any time after the first designation has effect, the Secretary of State must, so
far as reasonably practicable, exercise the power to designate so as to ensure
that at least one designation has effect under this section.

(8) Schedule 1 (which makes provision about schemes to transfer property, rights
25and liabilities from a person who has ceased to be a CFD counterparty to a
person who is a CFD counterparty) has effect.

(9) As soon as reasonably practicable after a designation ceases to have effect the
Secretary of State must make a transfer scheme under Schedule 1 to ensure the
transfer of all rights and obligations under any CFD to which the person who
30has ceased to be a CFD counterparty was a party.

(10) Regulations may include provision about the period of time for which, and the
circumstances in which, a person who has ceased to be a CFD counterparty is
to continue to be treated as a CFD counterparty for the purposes of the
regulations.

4 35Duties of a CFD counterparty

(1) A CFD counterparty must act in accordance with—

(a) any direction given by the Secretary of State or the national system
operator by virtue of this Chapter;

(b) any provision included in regulations.

(2) 40In this Chapter “national system operator” means the person operating the
national transmission system for Great Britain (and for this purpose

“transmission system” has the same meaning as in EA 1989 - see section 4(4) of
that Act).

5 Supplier obligation

(1) Regulations must make provision for electricity suppliers to pay a CFD counterparty
5for the purpose of enabling the counterparty to make payments under CFDs.

(2) Regulations may make provision for electricity suppliers to pay a CFD counterparty
for the purpose of enabling the counterparty—

(a) to meet such other descriptions of its costs as the Secretary of State considers
appropriate;

(b) 10to hold sums in reserve;

(c) to cover losses in the case of insolvency or default of an electricity supplier.

(3) Regulations may make provision to require electricity suppliers to provide financial
collateral to a CFD counterparty (whether in cash, securities or any other form).

(4) Provision made by virtue of this section may include provision for—

(a) 15a CFD counterparty to determine the form and terms of any financial
collateral;

(b) a CFD counterparty to calculate or determine, in accordance with such
criteria as may be provided for by or under the regulations, amounts
which are owed by an electricity supplier or are to be provided as
20financial collateral by an electricity supplier;

(c) the issuing of notices by a CFD counterparty to require the payment or
provision of such amounts;

(d) the enforcement of obligations arising under such notices.

(5) Provision made by virtue of subsection (4)(b) may provide for anything which
25is to be calculated or determined under the regulations to be calculated or
determined by such persons, in accordance with such procedure and by
reference to such matters and to the opinion of such persons, as may be
specified in the regulations.

(6) Provision made by virtue of subsection (4)(d) may include provision—

(a) 30about costs;

(b) about interest on late payments under notices;

(c) about references to arbitration;

(d) about appeals.

(7) In this section “electricity supplier”, subject to any provision made by
35regulations, means a person who is a holder of a licence to supply electricity
under—

(a) section 6(1)(d) of EA 1989, or

(b) Article 10(1)(c) of the Electricity (Northern Ireland) Order 1992 (S.I.
1992/231 (N.I.1)).

6 40Direction to offer to contract

(1) The Secretary of State or the national system operator may, in accordance with
provision made by regulations, direct a CFD counterparty to offer to contract
with a person specified in the direction, on terms specified in the direction.

(2) A person may be specified in a direction under subsection (1) only if that
person is an eligible generator.

(3) Regulations must make provision defining who is an “eligible generator” for
the purposes of a direction under this section.

(4) 5Regulations may make further provision about a direction under this section
and in particular about—

(a) the circumstances in which a direction may or must be given;

(b) the terms which may or must be specified in a direction.

(5) Provision falling within subsection (4) may include provision for—

(a) 10the determination of a matter on a competitive basis,

(b) calculations or determinations to be made under the regulations,
including by such persons, in accordance with such procedure and by
reference to such matters and to the opinion of such persons, as may be
specified in the regulations.

(6) 15Regulations may make provision about appeals against a decision of the
Secretary of State or the national system operator not to issue a direction by
virtue of this section.

(7) A direction may not be given under this section in relation to an electricity
generating station in Northern Ireland unless the Department of Enterprise,
20Trade and Investment consent to the direction.

(8) But regulations may, with the consent of that Department, include provision
for circumstances in which consent under subsection (7) is not required.

(9) In subsection (7) “Northern Ireland” includes so much of the internal waters
and territorial sea of the United Kingdom as are adjacent to Northern Ireland.

7 25Payments to electricity suppliers

(1) Regulations may make provision about the amounts which must be paid by a
CFD counterparty to electricity suppliers.

(2) In this section “electricity supplier”, subject to any provision made by
regulations, means a person who is a holder of a licence to supply electricity
30under—

(a) section 6(1)(d) of EA 1989; or

(b) Article 10(1)(c) of the Electricity (Northern Ireland) Order 1992 (S.I.
1992/231 (N.I.1)).

8 Application of sums held by a CFD counterparty

(1) 35Regulations may make provision for apportioning sums—

(a) received by a CFD counterparty from electricity suppliers under
provision made by virtue of section 5;

(b) received by a CFD counterparty under a CFD,

in circumstances where the CFD counterparty is unable fully to meet
40obligations under a CFD.

(2) Provision made by virtue of subsection (1) may include provision about the
meaning of “unable fully to meet obligations under a CFD”.

(3) Regulations may make provision about the application of sums held by a CFD
counterparty.

(4) Provision made by virtue of subsection (3) may include provision that sums are to be
paid, or not to be paid, into the Consolidated Fund.

9 5Information and advice

(1) Regulations may make provision about the provision and publication of
information.

(2) Provision made by virtue of subsection (1) may include provision—

(a) for the Secretary of State to require the national system operator to
10provide advice to the Secretary of State;

(b) for the Secretary of State to require a CFD counterparty, the Authority,
the Northern Ireland Authority for Utility Regulation or the Northern
Ireland system operator to provide advice to the Secretary of State or
any other person specified in the regulations;

(c) 15for the Secretary of State to require a CFD counterparty, the national
system operator, the Authority, the Northern Ireland Authority for
Utility Regulation, the Northern Ireland system operator or a generator
who is party to a CFD to provide information to the Secretary of State
or any other person specified in the regulations;

(d) 20for the national system operator to require information to be provided
to it by a CFD counterparty, a generator who is party to a CFD or the
Northern Ireland system operator;

(e) for a CFD counterparty to require information to be provided to it by
electricity suppliers or the Northern Ireland system operator;

(f) 25for the classification and protection of confidential or sensitive
information;

(g) for the enforcement of any requirement imposed by virtue of
paragraphs (a) to (f).

(3) In subsection (2)—

(a) 30“Northern Ireland system operator” means the holder of a licence
under Article 10(1)(b) of the Electricity (Northern Ireland) Order 1992
(S.I. 1992/231 (N.I.1)S.I. 1992/231 (N.I.1));

(b) “electricity supplier”, subject to any provision made by regulations,
means a person who is a holder of a licence to supply electricity
35under—

(i) section 6(1)(d) of EA 1989; or

(ii) Article 10(1)(c) of the Electricity (Northern Ireland) Order 1992
(S.I. 1992/231 (N.I.1)S.I. 1992/231 (N.I.1)).

(4) The prohibition on disclosure of information by—

(a) 40section 105(1) of the Utilities Act 2000;

(b) Article 63(1) of the Energy (Northern Ireland) Order 2003 (S.I. 2003/419S.I. 2003/419
(N.I.6));

does not apply to a disclosure required by virtue of this section.

10 Functions of the Authority

Regulations may make provision conferring functions on the Authority for the
purpose of offering advice to, or making determinations on behalf of, a party
to a CFD.

11 5Regulations: further provision

(1) Regulations may make provision—

(a) to require a CFD counterparty to enter into arrangements or to offer to
contract for purposes connected to a CFD;

(b) specifying things that a CFD counterparty may or must do, or things
10that a CFD counterparty may not do;

(c) conferring on the Secretary of State further powers to direct a CFD
counterparty to do, or not to do, things specified in the regulations or
the direction.

(2) Provision made by virtue of subsection (1)(b) or (c) includes provision
15requiring consultation with, or the consent of, the Secretary of State in relation
to—

(a) the enforcement of obligations under a CFD;

(b) a variation or termination of a CFD;

(c) the settlement or compromise of a claim under a CFD;

(d) 20the conduct of legal proceedings relating to a CFD;

(e) the exercise of rights under a CFD.

12 Enforcement

(1) Regulations may make provision for requirements under the regulations to be
enforceable—

(a) 25by the Authority as if they were relevant requirements on a regulated
person for the purposes of section 25 of EA 1989;

(b) by the Northern Ireland Authority for Utility Regulations as if they
were relevant requirements on a regulated person for the purposes of
Article 41A of the Energy (Northern Ireland) Order 2003 (S.I 2003/419
30(N.I. 6)).

(2) Provision made by virtue of subsection (1)(a) may include provision about the
enforcement of requirements imposed on the national system operator.

(3) Provision made by virtue of subsection (1)(b) may be made in relation only to
the enforcement of requirements imposed on the holder of a licence under
35Article 10(1)(c) of the Electricity (Northern Ireland) Order 1992 (S.I. 1992/231S.I. 1992/231
(N.I.1)).

13 Order for maximum cost and targets

(1) The Secretary of State may by order provide for—

(a) the power to give a direction under section 6 not to be exercisable if a
40maximum cost incurred or to be incurred by a CFD counterparty has
been reached (such cost to be calculated in accordance with provision
made by or under the order);

(b) a power for the Secretary of State to direct the national system operator
not to give a direction by virtue of this Chapter if the Secretary of State

believes that by virtue of the direction being given a cost greater than
the maximum cost provided for by the order would be incurred;

(c) any other targets to be met or taken into account by the national system
operator in the giving of directions under this Chapter.

(2) 5If more than one designation has effect under section 3, the reference in
subsection (1)(a) is a reference to all CFD counterparties.

(3) Provision made by virtue of subsection (1)(a) may provide for anything which
is to be calculated under the order to be calculated by such persons, in
accordance with such procedure and by reference to such matters and to the
10opinion of such persons, as may be specified in the order.

(4) Provision made by virtue of subsection (1)(c) may include targets relating to—

(a) the means by which electricity is to be generated;

(b) the generating capacity of electricity generating stations;

(c) the geographical location of electricity generating stations.

(5) 15An order under this section is to be made by statutory instrument and a
statutory instrument containing an order may not be made unless a draft of the
instrument has been laid before and approved by a resolution of each House of
Parliament.

14 Consultation

(1) 20Before making regulations under this Chapter or an order under section 13 the
Secretary of State must consult—

(a) the Scottish Ministers,

(b) the Welsh Ministers,

(c) the Department of Enterprise, Trade and Investment,

(d) 25any person who is a holder of a licence to supply electricity under
section 6(1)(d) of EA 1989,

(e) any person who is a holder of a licence under Article 10(1)(b) or (c) of
the Electricity (Northern Ireland) Order 1992 (S.I. 1992/231 (N.I.1)S.I. 1992/231 (N.I.1))
(transmission or supply licence),

(f) 30the Authority,

(g) the national system operator, and

(h) such other persons as the Secretary of State considers it appropriate to
consult.

(2) The requirement to consult may be satisfied by consultation before, as well as
35consultation after, the passing of this Act.

15 Shadow directors, etc.

Neither the Secretary of State nor the national system operator is, by virtue of
the exercise of a power conferred by or by virtue of this Chapter, to be regarded
as—

(a) 40a person occupying in relation to a CFD counterparty the position of
director;

(b) being a person in accordance with whose directions or instructions the
directors of a CFD counterparty are accustomed to act;

(c) exercising any function of management in a CFD counterparty;

(d) 45a principal of a CFD counterparty.

16 Licence modifications

(1) The Secretary of State may modify—

(a) a condition of a particular licence under section 6(1)(a), (b) or (c) of EA
1989 (generation, transmission and distribution licences);

(b) 5the standard conditions incorporated in licences under that provision
by virtue of section 8A(1A) of that Act;

(c) a document maintained in accordance with the conditions of licences
under that provision, or an agreement that gives effect to a document
so maintained.

(2) 10The Secretary of State may make a modification under subsection (1) only for
the purpose of—

(a) conferring functions on the national system operator in connection
with its functions by or by virtue of this Chapter;

(b) allowing or requiring services to be provided to a CFD counterparty;

(c) 15enforcing obligations under a CFD.

(3) Provision included in a licence, or in a document or agreement relating to
licences, by virtue of the power under subsection (1) may in particular include
provision of a kind that may be included in regulations.

(4) Before making a modification under this section, the Secretary of State must
20consult—

(a) the Scottish Ministers,

(b) the Welsh Ministers,

(c) the holder of any licence being modified,

(d) any person who is a holder of a licence to supply electricity under
25section 6(1)(d) of EA 1989,

(e) any person who is a holder of a licence to supply electricity under
Article 10(1)(c) of the Electricity (Northern Ireland) Order 1992 (S.I.
1992/231 (N.I.1)),

(f) the Department of Enterprise, Trade and Investment,

(g) 30the Authority, and

(h) such other persons as the Secretary of State considers it appropriate to
consult.

(5) Subsection (4) may be satisfied by consultation before, as well as by
consultation after, the passing of this Act.

CHAPTER 3 35Capacity Market

17 Power to make electricity capacity regulations

(1) The Secretary of State may by regulations make provision for the purpose of
providing capacity to meet the demands of consumers for the supply of
electricity in Great Britain.

(2) 40Regulations under this section are referred to in this Chapter as “electricity
capacity regulations”.