Lords Amendments 63, 86, 87, 90, 92, and 93

58.     This clause and schedule relate to Smart Meters. They confer new powers on the Secretary of State to create new licensable activities under the Gas Act 1986 (section 41C) and the Electricity Act 1989 (section 56A). They enable the Secretary of State to create new licensable activities in connection with providing, installing or operating smart meters or related communications infrastructure, by affirmative order.

59.     These provisions are connected to the market structure for a smart meter roll out. New licensable activities may be necessary, for example, to enable some degree of centralisation of service provision in order to ensure interoperable meter technology or that a suitable communication infrastructure is put in place to support smart metering.

60.     Before making an order the Secretary of State must consult the Authority and other relevant persons (under new sections 41HB(1) and 56FB(1)).

61.     The Secretary of State will determine the standard conditions for these new licences and the order may provide for either the Secretary of State or the Gas and Electricity Markets Authority to award the licences. The clauses include power to restrict the geographic scope of the licence to enable centralisation of activities on a regional or national basis.

62.     The Government expects that the existing licensing framework and metering provisions in the Electricity and Gas Acts will be applied to the new licensable activities, for example:

• the prohibition on unlicensed activities in section 4 of the Electricity Act and section 5 of the Gas Act;

• the procedures for modification of licences in sections 11 to 15 of the Electricity Act and sections 23 to 27 of the Gas Act; and

• the enforcement powers in sections 25 to 28 of the Electricity Act and sections 28 to 32 of the Gas Act.

63.     The order-making power enables the Secretary of State to confer functions on the Secretary of State or the Authority and make consequential amendments to the Gas and Electricity Acts. These powers will enable the Secretary of State, for example, to add any new licensable activities to the list of licensable activities contained in sections 4(1) and 6(1) of the Electricity Act and 5(1) and 7 of the Gas Act; and to make other amendments necessary to ensure that the new licences fit within the existing statutory framework.

64.     The amendments also give the Secretary of State power to make regulations to award these licences via a competitive tendering process. The regulations could provide for either the Secretary of State or the Authority to carry out the competitive tender process and could provide for the Secretary of State or the Gas and Electricity Markets Authority to recover the costs of running the tender. The regulations could also authorise of require the Secretary of State or the Authority to have regard to an applicant’s suitability in relation to both gas and electricity metering activities when awarding the licence for new activities under the Gas and Electricity Acts. Amendment 73 provides that these provisions will come into force on Royal Assent. Amendments 92 and 93 amend sections 33(1) and 82(2) of the Utilities Act 2000 so that any modifications to standard conditions under Clause 81(1) are incorporated into the standard conditions for licences of the relevant type.

Lords Amendment 64

65.     This new clause amends section 16A of the Electricity Act 1989 to provide the Secretary of State with a power to make regulations specifying the circumstances when Distribution Network Operators (DNOs) are entitled to charge up front for costs incurred by them when making network connection offers under section 16A(5) of the Electricity Act 1989.

66.     The amendment allows the legislation to be brought into line with the DNOs’ connection charging methodologies which have been previously approved by the Gas and Electricity Markets Authority. It will resolve a problem which became apparent earlier this year when the Authority received a challenge to the legality of DNOs charging up front for the costs of providing network connection offers. As currently drafted, the Electricity Act 1989 only allows DNOs to charge for network connection offer costs when a network connection is provided (section 19 Electricity Act 1989). This can lead to the DNOs incurring costs for several connection offers and then not being able to recover their costs by charging for them.

67.     The power will allow for the detail of up front charging for network connection offers to be set out in the regulations following further work by the Authority to establish the most effective and equitable mechanism for recovering such costs.

Lords amendments 65, 70, 77, 94 and 105

68.     The purpose of these amendments is to give the Secretary of State power to make regulations to establish a financial support mechanism for renewable heat, a “Renewable Heat Incentive”. The mechanism that could be created under the powers contained in this amendment is akin-to a “feed-in tariff” for electricity.

69.     Subsection (1) of amendment 65 gives the Secretary of State a power to make regulations establishing the scheme and to make provision about its administration and financing.

70.     Subsection (2) sets out what may be provided for in those regulations. In particular, under subsection (2)(a), the Secretary of State or the Authority (which is defined by subsection (3) as the Gas and Electricity Markets Authority) may make, or require fossil fuel suppliers to make, in specified circumstances, payments to owners of plant used or intended to be used for the generation of renewable heat. The provision is sufficiently flexible to allow the rate of payment to be differentiated, or banded, according to the technology used for generating the heat. Subsection (2) also provides that payments may also be made to the producers of biogas or biomethane or the producers of biofuel which is used for generating heat.

71.     Subsection (2)(e) enables the Secretary of State to require the payment of a levy by suppliers of fossil fuels used for generating heat. It is intended that this levy will fund the Renewable Heat Incentive and any payments provided for under subsection (2)(a).

72.     Subsection (3) defines the terms used in the clause, in particular, the meaning of “designated fossil fuel suppliers” who may be required to pay the levy under subsection (2), “fossil fuel” and the owners of plant used for the generation of renewable heat to whom payments may be made. This is done by reference to the sources of energy and technology at subsection (4) which may be used for the generation of renewable heat. “Biogas”, “biomethane” and “biomass” are also defined in order to clarify the circumstances under which producers of these substances can benefit from support under the Renewable Heat Incentive.

73.     As mentioned above, subsection (4) sets out the sources of energy and technologies, which generate renewable heat for the purposes of reward under the Renewable Heat Incentive. The list of technologies includes heat produced from renewable energy sources such as the sun (for example through the use of solar thermal water heaters), the heat in the ground and air (for example, via heat pumps), sustainable biomass and combined heat and power systems insofar as they are powered by renewable sources.

74.     Subsection (5)(a) allows for the list of technologies in subsection (4) to be modified by Regulation. Subsection (5)(b) gives the Secretary of State the power to amend the definitions of biogas and biomass by regulations.

75.     Subsection (6) allows for regulations to specify those activities which do or do not constitute the generation of heat for the purposes of subsection (2)(a)(iii) (that is determining whether a person is a producer of biofuel for generating heat) and for the purpose of the definition of “fossil fuel supplier” in subsection (3).

76.     Amendment 70 provides that regulations made to introduce a Renewable Heat Incentive will be subject to the affirmative resolution procedure.

Lords Amendments 66 and 78

77.     These amendments ensure that in exercising any of the powers to amend licences granted under the Electricity Act 1989 and Gas Act 1986, the Secretary of State is bound by the general duties set out in Part 1 of each of those Acts. The relevant licence modification powers in the Bill are:

• Under amendment 42, powers to introduce a feed-in tariff for small-scale renewable electricity;

• Under clause 81, powers to require the introduction of smart meters;

• Under amendment 55, the time-limited power to allow the Secretary of State to direct changes to electricity transmission system licences and codes with the aim of helping to ensure timely and efficient access for electricity generation projects, including renewables; and

• Under clauses 86 and 89, powers for the Secretary of State to recover from licensees the costs of meter accuracy services for which he is taking over responsibility from the Gas and Electricity Markets Authority.

78.     This amendment ensures consistency with the existing statutory framework for the energy sector, by ensuring the Secretary of State is bound by the general duties set out in the Electricity and Gas Acts. The amendment is analogous to section 190 of Energy Act 2004, which has a similar effect for the licence modification powers contained in that Act.

Lords Amendment 67

79.     Clause 94 provides that Orders in Council, orders and regulations made under this Bill are generally subject to negative resolution procedure. Subsection (2) of the clause sets out the exceptions to this. This amendment provides that the regulation-making as well as the order-making powers set out in subsection 2(a) are subject to the affirmative resolution procedure.

Lords Amendment 68

80.     Clause 13 gives the Secretary of State the power to make regulations setting out the powers and duties of inspectors or other persons acting on the directions of the Secretary of State in connection with a function under Chapter 2 of Part 1 of the Bill relating to the importation and storage of combustible gas. Clause 27 gives a similar power to the Secretary of State (or to the Scottish Ministers as appropriate) in connection with a function under Chapter 3 of Part 1 of the Bill relating to the offshore storage of carbon dioxide.

81.     The amendment changes the applicable Parliamentary procedure from negative to affirmative resolution. This reflects the broad nature of the regulation-making power in clauses 13 and 27, giving Parliament a greater level of scrutiny of the use of these powers. This was a recommendation of the House of Lords Delegated Powers and Regulatory Reform Committee.

Lords Amendments 79 to 81

82.     The purpose of these amendments is to clarify the definition of the territorial sea adjacent to Wales, as it applies to Part 2 of the Food and Environment Protection Act 1985 (FEPA). The Energy Bill amends FEPA in connection with the provisions of Chapters 2 and 3 of Part 1 of the Bill, relating to the importation and storage of combustible gas and offshore carbon dioxide storage respectively.

83.     These are technical drafting amendments proposed in relation to the new subsection (2A) of section 24 of the Food and Environment Protection Act 1985 (inserted by Schedule 1 to the Energy Bill). They would ensure that:

• the new subsection refers consistently to both “orders” and “Orders in Council” made under the Government of Wales Act 2006; and

• geographical boundaries determined for the general or residual purposes of the Government of Wales Act 2006 (by means of an order or Order in Council under, or by virtue of, section 158(3) or (4) of that Act) only apply for the purposes of the Food and Environment Protection Act 1985 where no such boundaries have been determined for the specific purposes of Part 2 of the 1985 Act.

Lords Amendments 82 to 83

84.     The purpose of these amendments is to clarify the definition of the Scottish territorial waters, as it applies to Part 2 of the Petroleum Act 1998. The Bill amends the Petroleum Act in connection with the provisions of Chapter 2 (Offshore gas) and Chapter 3 (Carbon dioxide storage) of Part 1 of the Bill.

85.     These are technical drafting amendments proposed in relation to the new subsection (2) inserted in section 13 of the Petroleum Act 1998 (inserted by Schedule 1 to the Energy Bill). They make it clear that 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 for the purposes of Part 2 of the Petroleum Act 1998 only where no such geographical boundaries have been determined for the specific purposes of Part 2 of that Act.

Lords Amendments 84 and 85

86.     The purpose of these amendments is to make a minor and technical change to the provisions in the Bill relating to the proposed offshore electricity transmission regime which the Government and the Gas and Electricity Markets Authority are developing. Under this regime, the Authority will be running competitive tenders to help it determine to whom it will grant offshore transmission licences authorising the conveyance of electricity from offshore generators to the GB onshore grid.

87.     In order for this process to be effective, the Government has sought powers under Schedule 2 of the Energy Bill to enable the Authority to make a scheme for the transfer of property, rights and liabilities from offshore generators or developers to offshore transmission licence holders. The purpose of the provision is to give those parties an avenue for expediting the transfer of property in situations where commercial agreement has not been reached.

88.     The amendments change references in paragraph 26 of Schedule 2 to “asset owner” to clarify that the provisions refer to the person who owns the asset before the transfer scheme takes place rather than after. This is consistent with the existing wording in paragraph 29 of Schedule 2.