House of Commons - Explanatory Note
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Clause 109 and Clause 110: Approval of decommissioning programmes and failure to submit or rejection of decommissioning programmes

272.     These clauses set out a process for the approval of decommissioning programmes by the Secretary of State and provide for situations where either the person responsible for submitting the programme fails to do so or the programme which is submitted is considered by the Secretary of State to be inadequate and is rejected. In these latter two cases the Secretary of State has the power to prepare himself a suitable decommissioning programme and recover costs from the responsible person.

Clause 111: Reviews and revisions of decommissioning programmes

273.     Subsections (3) - (9) set out a process for dealing with transfers of ownership of renewable energy installations or related electric lines. The process can be initiated either by the Secretary of State or the person who has the duty to carry out the decommissioning programme. Again the powers in the clause are supplemented by the requirement at clause 115 to inform the Secretary of State where a person becomes responsible for a renewable energy installation or related electrical lines.

Clause 112: Carrying out of decommissioning programmes and clause 113: Default in carrying out decommissioning programmes

274.     These clauses come into play when the renewable energy installation or related electric line is ready to be decommissioned. In most cases decommissioning will take place many years after the initial decommissioning programme was drawn up. Clause 113 sets out a process to cover such situations where either the decommissioning does not take place or is not in accordance with the agreed programme.

CHAPTER 3: RENEWABLES OBLIGATIONS

Clause 118: Discharge of renewables obligation in Great Britain by payment

     275. Section 32(3) of the Electricity Act 1989 (c.29) provides that electricity suppliers must before one or more specified days provide to GEMA evidence regarding their supply of electricity generated from renewable sources to discharge their renewables obligation. The effect of clause 118(1) is to make it clear that the Secretary of State may provide for more than one specified day in a year. This would mean suppliers would be required to produce evidence of their compliance with the renewables obligation before each of the days.The timing of each specified day and the associated obligation periods would be set out in an order.

     276. Section 32C of the Electricity Act 1989 (c.29) provides that an order made under section 32 may allow electricity suppliers to discharge their renewables obligation by making buy-out payments to GEMA, instead of producing evidence regarding their supply of electricity generated from renewable sources. Clause 118(2) - (5) amends section 32C and provides for suppliers who have not discharged their renewables obligation by the specified day, to be treated as having discharged it by making a late buy-out payment. The Secretary of State is also empowered to introduce surcharges which will be added to any late buy-out payments made by a supplier. The surcharge will increase at a daily rate from the date on which the supplier should have complied with the renewables obligation. The Secretary of State may also specify steps under 27A of the Electricity Act 1989 (c.29) which cannot be taken during a specified period following the date on which the supplier should have complied with the renewables obligation. The period during which late payments can be made, the amount of the surcharge and the manner of its calculation would be set out in an order.

      Clause 119: Issue of green certificates in Great Britain

     277.     Clause 119 provides that an order under section 32 of the Electricity Act 1989 may, by virtue of section 32B, empower GEMA to issue renewable energy certificates ("ROCs") to Northern Ireland suppliers as well as GB suppliers. It also provides that such an order may provide for the issue of these certificates in respect of electricity which is generated by certain renewables generating stations and is supplied to customers in Northern Ireland, and that a GB supplier may discharge its renewable obligation in GB by presentation of these certificates.

     Clause 120: Electricity to be exempted when determining electricity supplied

     278.     Clause 120 makes provision in relation to electricity generated by generating stations producing a heating or cooling effect in association with electricity.

Clause 121: Use of green certificates issued in Northern Ireland

279.     Clause 121 provides that an order made under section 32 of the Electricity Act 1989 may provide for a GB electricity supplier to discharge its renewables obligation in GB by producing a renewables obligation certificate ("NIROC") issued under the Northern Ireland equivalent of the section 32 order.

Clause 122: Distributions to Northern Ireland suppliers

280.     Section 32C of the Electricity Act 1989 (c.29) provides that an order made under section 32 may allow electricity suppliers, instead of producing evidence regarding the supply of electricity generated from renewable sources, to discharge their renewables obligation by making payments to GEMA. Section 32C(3) requires GEMA to distribute the amounts so received (which are known as the "buy-out fund") to electricity suppliers in Great Britain in accordance with an order made under section 32. Clause 122 amends section 32C by providing that Northern Ireland electricity suppliers shall also be potentially eligible for distribution by GEMA by virtue of section 32C(3).

Clause 124: Issue of green certificates in Northern Ireland

281.     Clause 124 relates to the issue of NIROCs under the Energy (Northern Ireland) Order 2003 and amends that Order accordingly. The clause defines Northern Ireland for the purpose of the issue of NIROCs as excluding the territorial sea adjacent to Northern Ireland. This avoids overlap between GEMA's role and that of the Northern Ireland Authority for Energy Regulation ("NIAER") in respect of electricity supplied to customers in Northern Ireland, by providing that NIAER will issue NIROCs for generating stations located in Northern Ireland (including its inland waters but not UK territorial waters adjacent to Northern Ireland). GEMA will issue ROCs under the Electricity Act for all other generating stations for electricity supplied to customers in Northern Ireland.

     282.     The clause also inserts a new provision providing for arrangements to be made for the sale of NIROCs, relating to electricity supplied under the non fossil fuel regime as applicable to Northern Ireland, separately from that electricity. Without this provision, Great Britain suppliers are unlikely to participate in auctions of NIROCs with the underlying electricity since they would have no use for the electricity which currently cannot in practice be exported from Northern Ireland to Great Britain because of interconnector limitations. This provision therefore puts all UK electricity suppliers on an equal footing in respect of such NIROCs, and at the same time improves the liquidity of the market in any competitive auction or other sale process for those NIROCs.

283.     The clause also allows the Department of Enterprise, Trade and Investment in Northern Ireland (DETI) to direct the application of the proceeds of such sale.

Clause 125: GEMA's power to act on behalf of Northern Ireland regulator

284.     This clause permits GEMA and NIAER to enter into, and give effect to, arrangements for GEMA to carry out NIAER's functions under articles 52 to 55 of the Energy (Northern Ireland) Order 2003 (S.I. 2003/419)(N.I.6)) (that is, NIAER's functions in administering the Northern Ireland renewables obligation). These arrangements are expected to be negotiated subsequently between GEMA and NIAER.

Clause 126: Consultation in relation to Northern Ireland

285.     This clause enables DETI to consult on a renewables obligation order in Northern Ireland as soon as possible, and if necessary before it has made the amending order that it needs to make to the Energy (Northern Ireland) Order 2003 to reflect the changes introduced to the Electricity Act by this Bill.

Clause 127: Modification of conditions of Northern Ireland electricity licenses

286.     This clause inserts a new provision into the Energy (Northern Ireland) Order 2003 that provides DETI and NIAER with a power to modify electricity licence conditions in Northern Ireland where they consider it necessary or expedient to do so in connection with amendments made to that Order either directly by clause 124 of the Bill or by an amending order made to take account of amendments to the Electricity Act made by this Chapter of the Bill.

Clause 128: Renewable transport fuel obligation

287.     This clause enables the Secretary of State to introduce a renewable transport fuel obligation that would require specified sections of the road transport fuel industry to demonstrate that a specified proportion of their aggregate fuel sales were "renewable transport fuels".

Chapter 4: Microgeneration

Clause 129: Strategy for Microgeneration

288.     Clause 129 requires the Secretary of State to publish, and take reasonable steps to implement, a strategy for microgeneration, including micro renewables, micro CHP and ground source heat. The scale of such generation would be that used in a single or small number of units in residential or office accommodation. The strategy is to include such targets for the generation of energy by microgeneration as the Secretary of State considers to be practicable and cost effective.

PART 4: ENERGY REGULATION

SUMMARY AND BACKGROUND

Chapter 1: Electricity Trading and Transmission

289.     This Chapter provides a legal framework for a single competitive wholesale electricity market for the whole of England, Scotland and Wales. Specifically it allows for the implementation of the British Electricity Trading and Transmission Arrangements (BETTA).

290.     Proposals for this Chapter were published for pre-legislative scrutiny in January 2003 as the Draft Electricity (Trading and Transmission) Bill. The House of Commons Select Committee on Trade and Industry published a report on the proposals in April 2003 and the Government's response to its report on the BETTA proposals in July 2003. These publications can be found at:

http://www.parliament.the-stationery-office.co.uk/pa/cm/cmtrdind.htm - reports

291.     In order to deliver BETTA, arrangements are being proposed that are designed to promote the creation of a GB-wide wholesale electricity market, to create a single set of arrangements for access to and use of the transmission system and to create a single GB-wide transmission system operator. BETTA will also bring about the introduction of a GB-wide Balancing and Settlement Code (BSC), a GB Connections and Use of System Code (CUSC) and a GB Grid Code, which will mean a fully integrated and consistent set of rules in relation to connection to and use of the transmission system, and balancing and settlement, for the whole of GB. BETTA will also result in the introduction of a new code governing the interface between the system operator and transmission owners (an 'SO-TO' Code).

292.     The main statute regulating the electricity industry is the Electricity Act 1989 (c.29) (the Electricity Act). Section 4 of the Electricity Act prohibits anyone from carrying out certain activities unless licensed or exempted from the requirement to be licensed. There are four types of electricity activity that are prohibited by the Electricity Act, and therefore licensable - generation, transmission, distribution and supply. In relation to electricity transmission there are currently three licences in GB, held by the National Grid Company, covering England and Wales, Scottish Power Transmission Limited and Scottish Hydro Electric Transmission Limited.

293.     The Gas and Electricity Markets Authority (GEMA), supported by Ofgem (the Office of Gas and Electricity Markets), regulates the gas and electricity industries in Great Britain. Its powers are provided for under the Gas Act 1986 (c.44) (the Gas Act), the Electricity Act and, most recently, the Utilities Act 2000 (c.27) (the utilities Act). The Electricity Act (section 6) provides for the Authority to grant licences for each of the four prohibited activities. Each licence has an accompanying set of Standard Conditions that set out the obligations and duties that each licensee must adhere to. In addition each licence may include specific or special conditions applicable to a particular licensee. It is also the Authority's role to enforce any breach of these obligations.

England and Wales

294.     England and Wales currently operates as a single wholesale electricity market. The New Electricity Trading Arrangements (NETA) came into effect in March 2001, replacing the Electricity Pool. The Pool was a relatively centralised market that determined the wholesale price of electricity. The trading arrangements under NETA, in contrast, are based on the bilateral trading of electricity contracts between generators, suppliers, traders and customers. They operate as far as possible like other commodity markets with a forward and futures market that allows contracts for electricity to be struck well in advance and for short-term power exchanges which give participants the opportunity to 'fine tune' their contract positions. The Government, and Ofgem in particular, have continued to work closely with industry, through consultations and other means, to improve the mechanisms in place under NETA to ensure it works as effectively and competitively as possible. A brief overview of NETA is also available on the Ofgem web site.

Scotland

295.     The arrangements put in place under NETA did not encompass Scotland. At the time of privatisation, the wholesale trading arrangements that were put in place in Scotland were significantly different to those in England and Wales. As a result the Scottish market has only two main players. The key features of this structure are:

  • Two vertically integrated groups, ScottishPower and Scottish & Southern Energy, who retain interests in generation, transmission, distribution and supply;

  • The allocation of virtually all Scottish generating capacity, through ownership or contracts, between ScottishPower and Scottish and Southern Energy;

  • Duopoly control over the bulk of interconnector capacity with England & Wales.

296.     The result of this structure is:

  • In Scotland GEMA administers prices because competition is underdeveloped and the market offers much less choice for both industrial and domestic consumers;

  • Current market arrangements make it difficult for independent Scottish generators to connect to the grid and sell to the wider GB market. This hinders competition and is a barrier to achieving the Government's renewables target of 10% by 2010.

Europe

297.     The Lisbon European Council in March 2000 agreed to accelerate energy liberalisation with the ultimate objective of a fully open internal electricity and gas market. This was followed in March 2001 by proposals from the European Commission for new Electricity and Gas Directives and a Regulation on cross-border trade in electricity. Political agreement on these proposals was reached at the Energy Council on 25 November 2002.

298.     The new Directives require, among other things, independent regulation, transparent, non-discriminatory access to infrastructure, the unbundling of vertically integrated monopolies and for all consumers to choose their electricity and gas suppliers by July 2007. The Regulation establishes a mechanism for developing cross-border trading arrangements.

299.     The Government strongly endorses these measures, which it believes are essential prerequisites for a properly functioning internal energy market. BETTA will allow us to apply even greater pressure on our European partners to implement the changes agreed in the Directive in terms of opening their markets and increasing competition.

Main provisions

300.     In summary, this Chapter provides for:

  • A power for the Secretary of State to amend electricity licences; to enable the implementation of a single British transmission system and a single system operator; and to allow for a single set of trading arrangements and a single set of arrangements for access to and use of the transmission system, modelled on those currently operating in England and Wales, to be extended to the whole of Britain;

  • Changes to the prohibition on transmitting electricity. In simple terms this will re-define what the prohibition covers. Section 4 of the Electricity Act defined what was meant by transmitting electricity and made it illegal to undertake such activity without an appropriate licence. As a result of the proposal to introduce a single system operator for Great Britain, the Bill will amend section 4 in order to ensure that the licensable transmission activity covers separate components:

    a) the co-ordination and direction of the flow of electricity across the whole transmission system i.e. an activity of the transmission system operator, and

    b) the making available for use for the purposes of such a transmission system of anything which forms part of it.

    This reflects the fact that both the system operator and the transmission asset owners will have an important role to play in the process of transmission under the new arrangements;

  • A power for the Secretary of State to instruct GEMA to award a transmission licence;

  • Changes to the licensing powers contained in the Electricity Act to reflect the two transmission functions as outlined above;

  • Other changes to the Electricity Act consequent upon a single trading market and revised transmission arrangements;

  • A licensing scheme so that existing transmission licences will become transmission licences under the amended prohibition on transmission;

  • A scheme to enable the transfer of certain assets to the transmission system operator in order to enable it to carry out its activities effectively in the event that the transmission licence holders concerned cannot agree the need for, or aspects of, the transfer amongst themselves.

Chapter 2: Interconnectors for Electricity and Gas

301.     Chapter 2 extends the licensing regimes under the Electricity Act and the Gas Act 1986 to electricity and gas interconnectors respectively. An interconnector is a connection between the electricity or gas system in Great Britain and such a system in another country.

302.     These provisions partially implement the following European Community Legislation:

  • Articles 20 and 23 of Directive 2003/54/EC of the European Parliament and the Council, concerning common rules for the internal market in electricity;

  • Articles 18, 22 and 25 of Directive 2003/55/EC of the European Parliament and the Council, concerning common rules for the internal market in natural gas.

303.     A Transposition Note setting out how the Government will transpose into UK law the main elements of these Directives applicable to interconnectors is available from the Energy Markets Unit, Department of Trade and Industry, 1 Victoria Street, London SW1.

Chapter 3: Special Administration Regime for Energy licensees

304.     Chapter 3 provides for a special administration regime for the holders of electricity transmission or distribution licences or gas transportation licences. These provisions are designed to ensure the uninterrupted operation of gas and electricity networks essential to security of supply in the event of actual or threatened insolvency of such a licence holder. There are similar provisions in the water and rail sectors.

Chapter 4: Further Provisions about Regulation

Appeals from GEMA decisions

305.     Clauses 169-173 provide for an appeals mechanism to the Competition Commission against GEMA decisions on modifications to the Gas and Electricity Network Codes. The measure is designed to improve the accountability of the process by which the detailed rules that govern activities in the gas and electricity markets as set out in various industry codes are amended. The codes are designed to allow ongoing amendment. Modifications can currently be proposed by a party to the code. Such proposals are then considered in accordance with the modification procedure set out in the code which results in a recommendation to GEMA. GEMA makes the final decision whether the proposed modification should be accepted or rejected. The regulator is not bound to accept the recommendation, although it must issue a decision letter explaining its choice. In the absence of an appeals mechanism, market participants' only means of redress at present is to initiate a judicial review of GEMA's decision.

Meaning of electricity supply

     306.     Clause 175 provides for electricity conveyed by a transmission system to a substation, and then supplied from there to premises, to be brought within the definition of supply in the Electricity Act 1989(c.29).

Meaning of "high voltage line"

     307.     Clause 176 defines "high voltage line" in respect of offshore electric lines as such lines which are of a nominal voltage of 132 kilovolts or more.

Prepayment meters

     308.     Clause 177 provides GEMA with the power, with the consent of the Secretary of State, to make regulations to extend the range of sums that could be collected from a prepayment meter.

Inquiries under ss.36 and 37 of the 1989 Act

     309.     Clause 178 fulfils the Government's commitment set out in paragraph 4.33 of the Energy White Paper, "Our energy future - creating a low carbon economy" (Cm 5761), to apply proposals by Government for major infrastructure projects handled in the planning process in England to major energy projects in England and Wales where consents are awarded by the Secretary of State for Trade and Industry.

Exclusion of confidential information from the Register

310.     Clause 179 inserts new sub-sections into the Electricity Act 1989 and the Gas Act 1986 which allow GEMA, when entering information on the registers it is required to maintain under section 49 of the Electricity Act 1989 and section 36 of the Gas Act 1986, to exclude details in certain circumstances.

Assistance for areas with high distribution costs

311.     Clause 180 gives the Secretary of State the power to make an order to establish a scheme requiring authorised transmitters (in practice the Great Britain System Operator) to make a payment to a distributor when that distributor faces costs that are significantly higher than other areas of Britain.

Payments into the Scottish Consolidated Fund

     312.     Clause 183 provides a power for Scottish Ministers to direct GEMA to pay into the Scottish Consolidated Fund monies from funds paid to GEMA and arising from the auctioning of electricity generated under Scottish Renewables Obligation (SRO) contracts. There is also a corresponding duty on Scottish Ministers to include provision in budget proposals to the Scottish Parliament that monies thus raised shall be used to promote the use of energy from renewable sources.

COMMENTARY ON CLAUSES

CHAPTER 1: ELECTRICITY TRADING AND TRANSMISSION

Clause 130: "New trading and transmission arrangements"

313.     Clause 130 sets out what is meant by "new trading and transmission arrangements". This phrase is used principally in clauses 131, 134 and 136 of the Bill in order to limit the powers given to the Secretary of State.

Clause 131: Power to modify licence conditions

314.     Clause 131 gives the Secretary of State the ability to modify the conditions of electricity licences in GB in order to implement the new trading and transmission arrangements. The new arrangements will have most impact on transmission licensees but there will also be necessary changes to other types of electricity licences.

315.     It is expected that the licence conditions relating to the BSC, the CUSC, the Grid Code, the SO-TO Code (as mentioned above), the Settlement Agreement for Scotland and the Trading Code (among others) will need to be modified pursuant to this power and the power set out in clause 132 as these documents will be replaced or amended or made redundant as a result of BETTA. Consultation documents relating to these modifications can be seen on the Ofgem web-site at:

http://www.ofgem.gov.uk/ofgem/index.jsp

Clause 132: Alteration of transmission activities requiring licence

316.     Clause 132 amends section 4 of the Electricity Act by replacing the prohibition on unlicensed transmission with a prohibition on unlicensed participation in transmission. Participation in transmission is described as either of two separate transmission activities. These activities are: (1) co-ordinating and directing the flow of electricity onto the transmission system e.g. balancing the demand and supply of electricity close to real time (done under the new arrangements by a system operator); or (2) making available for use for the purposes of such a transmission system anything that forms part of it. This is to reflect the separation of roles between the transmission system operator and the transmission asset owners under BETTA.

 
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Prepared: 23 April 2004