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Upcoming Developments in the UK Energy Industry

  • Market Insight 11 June 2020 11 June 2020
  • UK & Europe

  • Energy & Natural Resources

The Energy Industry in the UK is expecting a number of developments in 2020.

Energy White Paper

The long awaited and eagerly anticipated UK government Energy White Paper is expected to be published imminently by the Department for Business, Energy and Industrial Strategy ("BEIS"), having previously been due in the summer of 2019 and then again by the end of Q1 2020.  There has been no official update from BEIS regarding the publication date and the timescales are likely to have been affected by the government's COVID-19 response.

The White Paper will likely provide an insight into the government's plan for the UK to achieve net zero by 2050 and other targets, such as the pledge in the Paris Agreement to keep the increase in global average temperature to well below 2 °C above pre-industrial levels, and to pursue efforts to limit the increase to 1.5 °C.

Commentators argue that the wait could be seen as an opportunity for industry to reflect and prepare for the action necessary to affect change and perhaps begin to drive change itself, and 'build back better' by investing in alternative energy sources and more resilient infrastructure.

The UK is under increased pressure to reach its emissions and climate related targets, given that it will play host to the postponed COP26 summit.

For future updates, the official BEIS website can be found here.  There may be some update in the Chancellor's anticipated "mini budget" during the week commencing 6 July 2020.  This is believed to be likely to include measures on green investment.

Contracts for Difference (CfD)

The UK government, in a consultation in March 2020, is proposing changes to its Contract for Difference (CfD) scheme for low carbon electricity generation. The changes would apply to contracts awarded in future allocation rounds from 2021 onwards and relate to the UK's 2050 net zero emissions target, bioenergy, allocation round design, and the operation and capabilities of the CfD system. The Government has extended the consultation period deadline to 29 May 2020 in light of the COVID-19 pandemic and consequently any changes may also be postponed but could still come into effect sometime in 2020. The consultation paper is available here.

Regulated Asset Base (RAB) funding model for nuclear power projects

The Regulated Asset Base (RAB) model is a proposed model for future private investment in nuclear power projects. The model has been applied successfully in the UK in the Thames Tideway Tunnel (TTT) sewerage project. The BEIS's consultation on the RAB model ran from 22 July 2019 to 14 October 2019 and its full assessment is due by summer 2020.   The consultation paper is available here. BEIS have stated that the RAB model "could present a sustainable and value for money model for funding nuclear power projects". The adoption of the model in the nuclear power industry may see the development of further projects in addition to Hinkley Point C, which is being developed using a Contract for Difference (CfD) model.

Climate Change Agreements (CCAs)

Climate Change Agreements (CCAs) are voluntary agreements made between UK industry operators and the Environment Agency intended to reduce energy use and carbon dioxide (CO2) emissions in return for a discounted Climate Change Levy (CCL), a tax added to electricity and fuel bills. Implementing a CCA provides operators with the opportunity to demonstrate their commitment to cutting their carbon emissions.   This may be of particular interest in the light of the new reporting requirements and directors duties under Section 172 of the Companies Act 2006, which requires directors to consider the impact of the company's operations on the community and the environment. Following the success and uptake of CCAs, BEIS is running a consultation (available here and closing on 11 June 2020) to extend the scheme by two years and reopen it to eligible facilities which are not currently participating.

Brexit and the Energy Industry

The UK formally left the EU on 31 January 2020 and is currently in a transition period, during which it has the opportunity to conclude a deal with the EU. The UK government has given some indication as to what will change once the transition period ends on 31 December 2020 (more information is available here). It has confirmed that the Climate Change Act will continue to apply across the whole of the UK and the regulations for the monitoring, reporting and verification of greenhouse gases will remain, as will the legislative regime for hydrocarbon licensing and environmental protection. However, the future of the EU Emissions Trading Systems (EU ETS) after the end of 2020, and the terms on which the UK will be able to trade electricity with the EU, and other issues of significance, remain undecided and will depend on the substance of any agreement between the UK and the EU.     

Written by Partner Stephen Jurgenson and Trainee Solicitor Emma Turton.

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