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Landmark energy legislation receives Royal Assent

Author: ICAEW Insights

Published: 16 Nov 2023

The Energy Act 2023 aims to future-proof the UK's energy system by prioritising affordability, consumer protection and innovation. But will it facilitate the transition to net zero?

The Energy Act 2023 became law on Thursday 26 October and is touted to future-proof the UK’s energy system by strengthening energy security, delivering net zero and ensuring affordability for households and businesses.

The Act is the largest piece of energy legislation to date and its passing into law marks a pivotal moment in the sustainable energy transformation.

It incorporates for the first time the UK’s net zero target in Ofgem’s remit, following a recommendation by Chris Skidmore MP in his independent review. In doing so, the Act ensures that the regulator’s principal objective now includes protecting the interests of current and future consumers, including their interests to reduce greenhouse gas emissions in line with the government’s net zero targets.

In a statement, Ofgem CEO Jonathan Brearley explains: “It gives Ofgem the powers to drive through the energy transition – unlocking investment, accelerating planning and building the infrastructure the economy needs. This will give us security from volatile world gas markets and end our dependency on fossil fuels.”

The Act also follows through on government pledges to take a “pragmatic approach” to decarbonising that would ease the burden on working people. Its focus on consumer protection includes the expansion of Ofgem’s remit to include setting rules on excessive pricing and improving quality of service. The regulator is now also the UK’s official heat networks regulator, which in theory should enhance customer protections.

The Act also sets out plans for more advanced heat network zoning to allow better coordination between councils and businesses to deliver key energy infrastructure. Additionally, the Act details how the government intends to meet the annual target of 600,000 heat pump installations from 2028. This includes a mandate for manufacturers of fossil-fuel heating appliances to ensure heat pumps account for an increasing proportion of their total appliance sales.

However, some of the key announcements contained within the Act focus on riskier, currently unproven technologies. In particular, the Act will facilitate the first large village hydrogen heating trial, despite the National Infrastructure Commission’s report published in October completely ruling out hydrogen for domestic heating. The report says that converting natural gas networks to hydrogen could be up to five times more expensive than electrification. It also warns that green hydrogen is highly inefficient and uses six times more electricity than a heat pump to create one unit of heat.

ICAEW Climate Change Manager Sarah Reay says: “What is clear from the Act is the direction of travel for hydrogen as an alternative heating source to natural gas. The government is setting a target of 10gw of domestic hydrogen production that is low carbon by 2030 and is establishing a business model to incentivise investment into hydrogen transport and storage.”

While the Energy Act provides businesses with a sense of direction and a level of certainty around the government’s investment in a net zero-aligned energy market, the appropriate policy mechanisms and detailed plans are yet to fall into place.

At the same time, challenges to meeting net zero targets remain. A Centrica report published in October warns that current grid infrastructure is ill equipped to handle the surge in renewable energy projects. It also says that a substantial portion of these projects lack land rights and planning consent, and warns that the queue to connect with the grid is now four times oversubscribed.

“The success of the Act impinges on future secondary legislation to provide details on how the new measures will operate in practice and therefore there will be a time lapse in seeing the Act embedded across key policy areas,” Reay says.

“There are many levers the government needs to pull to ensure a stable transition to net zero, but the emphasis should be on directing funds into solutions that are unequivocally sustainable, scalable and have a proven track record.”

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