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These notes refer to the Lords Amendments to the Energy Bill as brought from the House of Lords on 6th November 2008 [Bill 160]
ENERGY BILL
EXPLANATORY NOTES ON LORDS AMENDMENTS
INTRODUCTION
1. These explanatory notes relate to the Lords Amendments to the Energy Bill as brought from the House of Lords on 6th November 2008. They have been prepared by the Department of Energy and Climate Change in order to assist the reader of the Bill and the Lords Amendments and to help inform debate on the Lords amendments. They do not form part of the Bill and have not been endorsed by Parliament.
2. These notes, like the Lords Amendments themselves, refer to HL Bill 52, the Bill as first printed for the Lords.
3. These notes need to be read in conjunction with the Lords Amendments and the text of the Bill. They are not, and are not meant to be, a comprehensive description of the effect of the Lords Amendments.
4. All the Lords amendments were in the name of the Minister.
COMMENTARY ON LORDS AMENDMENTS
Lords Amendment 1
5. Clause 20 gives the licensing authority a power to grant licences for the purposes of offshore carbon dioxide storage on such terms and conditions as it sees fit. Under subsection (3)(d), a licence may include provision enabling the licensing authority to modify the terms and conditions of the licence.
6. The purpose of this amendment is to enhance the carbon dioxide storage operators’ rights to be consulted if and when modifications to their licences are being considered by the licensing authority.
7. Where, under clause 20(3)(d), a carbon dioxide storage licence includes provision enabling the licensing authority to modify the terms and conditions of the licence, this amendment ensures that the licensing authority will be under a duty to consult the licence holder before making such a modification.
Bill 160-EN 54/3
Lords Amendments 2 to 11
8. Clause 34 of the Bill enables the Secretary of State (or the Scottish Ministers as appropriate) to transfer to another authority any of the functions conferred on them by Chapter 3 of Part 1 of the Bill relating to offshore carbon dioxide storage. Transfers of functions are made by order subject to negative resolution procedure.
9. These amendments limit this power, by specifying that the transfer can only be to a public body (rather than to any “person” as is specified in the version of the Bill which left the House of Commons).
10. The limitation added by these amendments reflects the public nature of the functions that would be transferred, and is in accordance with a recommendation of the House of Lords Delegated Powers and Regulatory Reform Committee.
Lords Amendments 12 and 13
11. The purpose of these amendments is to clarify the definition of the territorial sea adjacent to Scotland, as it applies to Chapter 3 of Part 1 of the Bill, relating to the storage of carbon dioxide.
12. These are technical drafting amendments, to make it clear that geographical boundaries determined for the general or residual purposes of the Scotland Act 1998, by means of an Order in Council under section 126(2) of that Act, apply only for the purposes of Chapter 3 of Part 1 of the Bill where no such geographical boundaries have been determined for the specific purposes of that Chapter.
Lords Amendments 14 to 29, 32, 34 to 41, 73, 74 and 89
13. These are procedural amendments relating to the existing devolution settlement and the Renewables Obligation (“the RO”). The amendments transfer the functions of the Secretary of State under Clause 37 (reform of the Renewables Obligation) to the Scottish Ministers. The RO has always been executively devolved to Scottish Ministers; therefore to maintain the current devolution settlement, the new powers taken in relation to the RO need to be transferred to Scottish Ministers in so far as they apply to Scotland. This transfer of functions (on the face of the Bill) has the same effect as if the powers had been transferred to Scottish Ministers by an Order made under section 63 of the Scotland Act 1998. It will ensure that the Government can meet its proposed timetable to introduce the necessary changes to the RO, including banding, in April 2009.
14. Clause 99 includes an amendment which brings clause 37 of the Bill into force at Royal Assent solely for the purpose of enabling the exercise of any power to make a renewables obligation order (amendment 74).
Lords Amendments 30, 31 and 33
15. Clause 37 contains provisions substituting sections 32 to 32C of the Electricity Act 1989, which confer the powers the imposition of the Renewables Obligation. The provisions will introduce changes to the Renewable Obligation primarily to allow different technologies to be able to receive different numbers of Renewable Obligation Certificates.
16. The new section 32E inserted Clause 37 provides a power for the Renewables Obligation Order to include provision to enable generators in receipt of grants who use a technology which falls into a higher band to have the flexibility either to pay back their grant and move up to the higher band or to keep their grant and receive 1 ROC per MWh. This ensures that the Government maintains value for the consumer and tax payer by not over-rewarding existing plants.
17. These amendments make a minor and technical change to the new section 32E to ensure that the Government has the flexibility to choose whether or not to apply this provision to generating stations of particular descriptions or in certain circumstances. These circumstances might, for example, concern the date a grant was awarded, so that where a grant was awarded after a particular date - such as the date of the announcement of the technology bands - the generating station could move to the higher band without being required to repay the grant.
Lords Amendments 42 to 44, 69, 71, 75, 88, 91, 94 and 103
18. The purpose of these amendments is to enable the introduction of a feed-in tariff mechanism, by giving the Secretary of State the power to modify electricity supply and distribution licences to establish a system of financial incentives to encourage the small-scale low-carbon generation of electricity.
19. Subsection (1) specifies the licences, conditions and underlying documents that the Secretary of State will be able to modify and subsection (2) sets out the purposes for which modifications are to be made under the power.
20. Subsection (3) sets out what may be provided for in the licence modifications. In particular, under subsection (3)(a), holders of electricity supply licences can be required to make a payment to small-scale low-carbon generators or to the Authority to be passed onto such a generator. Subsection (3)(b) provides for the calculation of these payments and is sufficiently broad to enable the payments, for example to be varied according to the technology used for generation or calculated “up front”. These provisions would enable potential generators to make the necessary capital investment in small-scale low-carbon electricity generation technologies because they would have increased certainty on the payback that such investment would achieve. Subsection (3)(f) enables the Secretary of State to require the holder of a supply licence or distribution licence to pay a levy to the Authority, subsection(3)(g) allows the provision to be made as to how this levy may be calculated and subsection 3(h) allows the holder of an electricity supply or distribution licence to receive a payment from the Authority. The levy provisions, as well as providing a source of funding for the scheme, enable the Authority to re-balance payments to suppliers if necessary.
21. Subsection (4) provides definitions of the main terms used in the clause. In particular, “the Authority” is defined as the Gas and Electricity Markets Authority and “small-scale low-carbon generator” is defined as the owner of plant used or intended to be used for small-scale low carbon generation. In turn, “small-scale low-carbon generation” is defined as the use, for the generation of electricity, of any plant which relies on the sources and technologies listed at subsection (5) and which does not exceed the maximum capacity (to be specified by order). Subsection (4) also puts a cap of 3 mega watts on the level which can be specified as the maximum capacity for small-scale low-carbon generation plant under the Order.
22. Subsection (6) provides that the list of sources of energy and technologies provided by subsection (5) can be modified by order, thus enabling the Secretary of State to modify the list in the future.
23. The amendments insert a new provision establishing the procedure for the making of any modifications to supply and distribution licences. Under this procedure the Secretary of State is required to consult with licence holders, the Gas and Electricity Markets Authority and other such persons as Secretary of State considers appropriate before modifications may be made. The modifications are subjected to Parliamentary scrutiny by the requirement that the Secretary of State must lay a draft modification before both Houses of Parliament for a period of 40 days (not including any time when Parliament is dissolved or prorogued, or when both Houses are adjourned for more than four days). During this time, should either House resolve not to approve the draft modification, then the Secretary of State may not proceed with the modification.
24. The amendments also insert a new supplemental provision requiring the Authority, where the Secretary of State modifies the standard conditions of any licences (under the clause inserted by Amendment 42), to make and publish equivalent modifications to the standard conditions of any future licences. Subsection (3) of the supplemental provision gives the Secretary of State power to confer, by order, functions on the Authority in connection with the administration of any scheme created under the clause inserted by amendment 42.
25. The other amendments in this group are supplemental and make required changes to existing legislation subsequent to these clauses, in particular, bringing small-scale low-carbon electricity generation within the scope of the duties of the Authority under section 47 of the Electricity Act 1989.
Lords Amendments 45 and 99
26. Clause 41 (combined with Schedule 2), which relates to offshore electricity transmission, amends the Electricity Act 1989 so as to confer new powers on the Gas and Electricity Markets Authority to:
- recover costs related to competitive tenders for determining to whom offshore electricity transmission licences will be granted; and
- make property schemes to transfer property, rights and liabilities from the existing owner to the successful bidder for an offshore transmission licence.
27. The purpose of these amendments is to clarify the scope of the regulatory regime for offshore transmission as set out in the Electricity Act 1989. The amendments aim to make clear that the regime encompasses all offshore lines of 132 kilovolts and above which are:
- built wholly or mainly for the purpose of conveying electricity generated by an offshore generating station, and
- wholly or partly in an area of GB internal waters, an area of the territorial sea adjacent to the United Kingdom or an area designated under section 1(7) of the Continental Shelf Act 1964.
28. Amendment 45 seeks to amend the definition of “relevant offshore line”, which is currently set out in section 180(2) of the Energy Act 2004 (which has not yet been commenced)and will be inserted into section 64 of the Electricity Act 1989. Section 64 of the Electricity Act contains the definition of “high voltage line” which is used to determine which electricity lines are considered, and regulated, as transmission lines.
29. The amendment provides that any line built for the purpose of transmitting electricity from an offshore generating station is a “relevant offshore line”, even if only a small proportion of the line is situated offshore. Amendment 99 repeals the definition in section 180(2) of the Energy Act 2004.
30. Without such an amendment, the definition of “high voltage line” in section 64 of the Electricity Act 1989 (once amended by the Energy Act 2004) would not cover a line of 132 kilovolts connecting an offshore generating station to the onshore grid in England and Wales if the majority of the electric line were onshore. This is because such lines would not fall within the existing definition of “relevant offshore line” as set out in the Energy Act 2004. Such a line would therefore not be regulated as transmission.
31. The amendment will prevent the unintended situation where the connections for similar offshore projects could be subject to different regulatory regimes depending on what proportion of the electric line is offshore.
Lords Amendments 46 and 47
32. In relation to the decommissioning of, and management of waste from, new nuclear power stations, clause 51 provides a power to make regulations and guidance about the preparation, content, implementation and modification of funded decommissioning programmes, and the factors that the Secretary of State may take
into account when deciding to approve, reject or modify a programme subject to conditions.
33. The purpose of amendment 46 is to create a duty on the Secretary of State to publish guidance on factors which it may be appropriate to consider when approving a programme or subsequent modification to a programme in Clause 51(5). Amendment 47 creates a duty to have regard to all guidance issued under Clause 51.
Lords Amendments 48, 50 and 53
34. Part 3 of the Energy Bill relates to the regulatory regimes for the decommissioning of new nuclear power stations, oil and gas installations and offshore renewable electricity generating installations. These amendments seek to ensure that, across the three regimes, when interpreting the definition of security for the purposes of ensuring adequate funds are provided for decommissioning, a court would take a wider economic definition rather than the more restricted legal definition of security. These amendments ensure consistent definitions across all the regulatory regimes.
35. Amendment 48 relates to clause 53 which disapplies insolvency legislation to funds set aside to pay for nuclear waste and decommissioning. Subsection (3) provides that the term “security” has a wider interpretation for the purpose of funds which will be protected from creditors in the event of insolvency. The list, which is non-exhaustive, provides examples of the security. Without such an amendment, a court could take a more restrictive view. This in turn could mean that an instrument that was intended to be used to meet some or all of the decommissioning, waste management and waste disposal costs could then be accessed by creditors in the event of the operator’s insolvency, reducing protection for the taxpayer.
36. Amendment 50 relates to clause 67 which disapplies insolvency legislation to funds set aside to pay for decommissioning of offshore renewable energy installations. The Energy Act 2004 defines security in relation to decommissioning programmes for renewable energy installations. The amendment widens the interpretation of security for the purposes of funds which will be protected from creditors in the event of insolvency to include insurance.
37. Amendment 53 relates to clause 71 which disapplies insolvency legislation to funds set aside to pay for oil and gas decommissioning. It mirrors Amendment 48. Together, the amendments in this group provide a consistent definition of security across the three regulatory regimes: new nuclear power stations, oil and gas installations and offshore renewable energy installations.
Lords Amendment 49
38. Again in relation to the provisions of the Bill on nuclear waste and decommissioning, clause 57 makes it an offence, knowingly or recklessly, to supply false or misleading information in relation to a funded decommissioning programme
to Ministers. As originally drafted the offence was not qualified by a materiality threshold.
39. The purpose of amendment 49 is to create a materiality threshold so that only information that is false or misleading in a material respect falls within scope of the clause. This makes Clause 57 consistent with equivalent provisions in other areas of legislation, for example sections 117 and 201 of the Enterprise Act 2002.
Lords Amendments 51 and 52
40. Clause 69 of the Bill defines the powers of the Secretary of State to ensure that the right persons bear the responsibilities for decommissioning an oil and gas installation. The clause will in certain limited circumstances extend, and in other circumstances narrow, the categories of persons who may be required to provide a decommissioning programme in response to a notice served under section 29 of the Petroleum Act 1998.
41. The purpose of the amendments is to include wording in subsection (7) of clause 69 to make clear that liability will apply only to licensees who are entitled to benefit or have benefited from the principal purpose for which the installation is maintained or is intended to be established. It creates a link between the benefit and specified activities on the relevant oil and gas field. The liability will not extend to licensees on a different field even if they receive a secondary service from the installation, such as processing the production from a separate field. The amendments also extend to the gas unloading and storage, and carbon dioxide storage regulatory regimes established under the Energy Bill.
Lords Amendments 54, 95-96 and 104
42. These amendments alter the duties of the Secretary of State and the Gas and Electricity Markets Authority (“the Authority”) in section 4AA of the Gas Act 1986 (c.44) and section 3A of the Electricity Act 1989 (c.29) in two ways.
43. The first relates to the definition of consumers and adds the wording “existing and future consumers” in the principal obligation set out in sections 4AA(1) of the Gas Act 1986 and 3A(1) of the Electricity Act 1989. Although consumers are already defined in sections 4AA(6) and 3A(6) as including both existing and future consumers, placing “future and existing” in sections 4AA(1) and 3A(1) emphasises the need for the Secretary of State and the Authority to take the needs of tomorrow’s consumers into account when making decisions today. This amendment was brought forward in response to concerns raised during the Bill’s passage through the Lords.
44. The amendments also move the duty to contribute to the achievement of sustainable development from sections 4AA(5)(ba) of the Gas Act 1986 and 3A(5)(ba) of the Electricity Act 1989 in to sections 4AA(2) and 3A(2). The current position of the sustainable development duty means that it is expressly subject to the
duties set out in sections 4AA(2) and 3A(2) on security of supply and ensuring licence holders are able to finance their activities.
45. This amendment has the effect of moving it up the “hierarchy” of secondary duties and means that the Authority and the Secretary of State will need to have regard to the need to contribute to the achievement of sustainable development, as well as to considerations of security of energy supply and licensees’ abilities to finance activities, when considering how to carry out their functions in the manner best calculated to further the principal objective (to protect consumers through competition where appropriate).
46. Amendments 95 and 96 are consequential repeals; and amendment 104 amends the Title of the Bill in light of the amendments to the general duties.
Lords Amendments 55 to 57, 69, 73, 91 and 102
47. Amendment 55 gives the Secretary of State the power to modify electricity generation, transmission, distribution and supply licences, together with any industry codes deriving from these licences for the purposes of facilitating access to or efficient use of the electricity transmission system in Great Britain or offshore waters.
48. This clause could, for example, be used to make changes to the Connection and Use of System Code and the Security and Quality of Supply Standard, which together regulate access to and the planning and operation of the transmission system. The objective of having this power is to enable the Secretary of State to intervene to improve the granting of access rights to, and use of, the electricity transmission system. For example, changes in the codes could allow better usage by facilitating shared access between wind and fossil fuel generation so that wind has access whenever the weather conditions are suitable.
49. Subsection (3 of this clause confers a power to make incidental, supplementary, consequential or transitional modifications to these licences and codes. It also enables the Secretary of State to make different provisions for different cases or circumstances, for example, in relation to generation under development and generation that is already connected to the network and consequential amendments, for example, to the Transmission Charging Methodology, the Grid Code, the Balancing and Settlement Code and the System Operator Transmission Code. The licence modification power proposed in this amendment is limited to two years from the date of commencement.
50. Amendment 56 sets out the procedure the Secretary of State must comply with in order to exercise the modification powers. It obliges the Secretary of State, before making modifications, to consult the holders of licences being modified, the Authority and others as appropriate and to publish details of any modifications he makes.
51. Amendment 57 proposes a new clause making three supplemental provisions in relation to the modification power. Subsection (1) ensures that if the Secretary of State used this power to modify part of a standard licence condition, it would not affect the remainder of that standard licence condition. This means that the remainder of the standard condition will be subject to the rules relating to standard conditions under the Electricity Act.
52. Subsection (2) ensures that where modifications are made to standard licence conditions the Authority must make the same modifications for the purposes of future licences and must publish those modifications.
53. Subsection (3) is an order making power for the Secretary of State to make such consequential amendments to provisions made by or under an Act (including Acts of the Scottish Parliament) as he considers appropriate. This power is necessary because the power under clause 96 to make consequential amendments extends only to statutory instruments and therefore would not apply to the modification power conferred by amendment 55. Amendment 77 provides that such orders will be subject to affirmative resolution if it modifies an Act or an Act of the Scottish Parliament.
54. Amendment 91 amends section 33(1) of the Utilities Act 2000 so that any modifications to standard conditions under amendment 55 are incorporated into the standard conditions for licences of the relevant type. Amendment 102 is a consequential amendment to the Title of the Bill.
Lords Amendments 58 to 62, 97 to 98 and 100 to 101
55. These amendments relate to the Government’s reporting requirements proposals set out in clause 80 of the Energy Bill which seeks to amend section 1 of the Sustainable Energy Act 2003. The purpose of these amendments is to reflect the Government’s commitment to annual and consistent reporting of progress against its energy policy goals, while maintaining the aim of seeking to streamlining reporting requirements where appropriate through the proposals in the Bill.
56. The amendments reinstate a reporting period for the annual sustainable energy report but introduce a period different from the one currently in section 1. Instead of running for twelve months from 24 February, the period will be 1 January to 31 December. The amendments also require the annual sustainable energy report to be published before 31 October in the year following the reporting period to which it relates.
57. The amendments also reinstate the requirement for the Secretary of State to report annually on security of energy supplies under Section 172 of the Energy Act 2004.
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