The Energy Act 2023: The Role of Primary Legislation in the Race to Net Zero

On 26th October, The Energy Act 2023 became law, over 14 months after the Bill was introduced for First Reading in the House of Lords. In that time, we’ve had four Energy Secretaries, three Prime Ministers, and hundreds of amendments.

The final product was the largest and most important piece of energy legislation for decades. The Energy Act essentially provides the building blocks for the UK’s net zero and energy security ambitions, putting in place schemes and regulatory frameworks to support the decarbonisation of the power sector, and the broader economy. Madano worked closely on the Bill, helping our clients to shape and inform the work of Government and Parliament in passing this landmark piece of legislation.

So, what is the Act, what will it achieve, and why does it matter to business across the UK?

The Energy Act is based around three pillars:

1. Leveraging investment into emerging clean technologies, such as a Carbon Capture Utilisation and Storage (CCUS), and low-carbon hydrogen. Essentially, the Act creates the licensing and regulatory regimes needed for these technologies, including the transport and storage of CO2, business models for hydrogen and carbon capture, a market-based mechanism for low-carbon heat and licensing requirements for future nuclear fusion sites.
2. Reforming the energy system. The Act will establish the Future System Operator (FSO), a new type of system operator, which will bring together the planning of gas and electricity systems, as well as new technologies such as hydrogen and CCUS. Crucially, net zero will be at the heart of its mandate. The Act also provides Ofgem with a statutory duty to support net zero ambitions and supports interconnectors and electricity storage through changes to their respective licensing regimes, amongst reams of other technical changes.
3. Ensuring the safety, security, and resilience of the energy system. This will be done by reducing the risk of fuel supply disruption, amending some of the regulations behind the oil and gas sectors and updating rules for nuclear decommissioning.

On the ground, we heard stories of billions of pounds of investments being put on hold, or transferred to other geographies, in response to the delay of the Act. Its passage will begin to provide more confidence to these industries, in the face of enticing subsidy offers for low-carbon technologies from overseas.

But the Act also became a focal point for divisions within Parliament on net zero, with political horse trading and concessions across several issues. This included on Sustainable Aviation Fuels (SAFs), where an amendment on a “revenue certainty mechanism” for SAFs was added to the Act by former Transport Secretary Chris Grayling at the last minute. Another amendment, which saw significant media attention, was the hydrogen funding mechanism, or the hydrogen levy. This posed the question of “who pays” for net zero, and the suggestion that hydrogen could add £120 per annum to household energy bills was politically difficult, given that many consumers are feeling the pinch of soaring energy bills.

An in-depth understanding of the legislative process allowed us to work with Government, and with the Opposition, to help both come to a consensus position on client critical issues in the Act. By facilitating discussions with high-profile Ministers, as well as Parliament, and industry, we were able to find a political middle ground, progressing solutions to high-stakes clauses within the Energy Act. We simultaneously worked with the press, which supported our work with government and industry. This was essential in the context of divides within Parliament over “who pays” for net zero.

What now?

We had to wait 10 years for the last Energy Act, but we certainly won’t have to wait as long for the next major piece of energy-focussed legislation. Both major parties have hinted at plans for an Energy Infrastructure Bill shortly after a general election, and Labour have even suggested that this could be put forward within their first 100 days, were they to win the next general election. This will have major implications for businesses in the UK’s low-carbon energy sectors.

In recent months, the Prime Minister’s shift towards a “proportionate and pragmatic” approach to net zero has seen U-turns on the roll-out of electric vehicles, energy efficiency measures, and the licensing of new oil and gas extraction in the North Sea. This change in narrative, and the difficulties which faced the Energy Act, demonstrate the growing divide around net zero policy, which will likely be a significant issue at the next election.

However, with a strong understanding of how to shape the legislative process, companies can leverage cross-party support to ensure essential net zero policy is taken away from the political battleground and is carried forward through legislation.

Madano’s Net-Zero Transition Team are prepared to help clients communicate their expertise and guidance to Government throughout this process.