NOTE: This article was updated on 30/10/2023 as the Bill received Royal Assent on 27/10/2023
With all the recent political prevaricating over Net Zero goals and headline-grabbers like the changing deadline for electric cars, it’s easy to lose sight of less flashy developments in legislation.
One of these is the Energy Act which passed into UK law on 26th October 2023. It hasn’t really made headlines in the national or built environment media, perhaps because it sounds like it has more to do with building power stations than designing homes or offices. But the title is deceptive because the Act contains new powers for government that will impact the design, delivery and operation of all buildings for decades to come.
The Energy Act is centred around three pillars:
* Leveraging investment in clean technologies.
* Reforming the UK’s energy system and protecting consumers.
* Maintaining the safety, security and resilience of the energy systems across the UK.
The measures covered in this SectorScope analysis mainly fall under the second of those pillars, which comprises Parts 7 to 10.
The Act is borne out of the government’s Energy Security Strategy (2022) which was developed in light of the energy price crisis, exacerbated by Russia’s invasion of Ukraine. This Strategy sets targets for wind, nuclear and hydrogen production and paves the way for the UK to expand North Sea oil and gas production and potentially restart fracking.
It prompted a mixed reaction from green groups. The consensus was that the Strategy was a missed opportunity to reduce energy bills in the short term by supporting insulation and providing more targeted financial relief.
However, the Department for Business, Energy and Industrial Strategy (BEIS) has been keen to pose the Strategy as sustainable, with a headline target to deliver an electricity mix that is 95% low-carbon by 2030. The 2030 targets for offshore wind, nuclear and hydrogen deployment have been increased, and consultations on expanding onshore wind and solar this decade are promised, too.
For the construction and property markets, the important parts of the Bill are 7 to 10. These deal with heat networks, smart appliances, load control, energy performance of buildings and the Energy Savings Opportunity Scheme. Below is a summary of the key points and aims of the Energy Acy, including new powers for the government to introduce further legislation to deliver the Act's objectives.
Part 7 - Heat network regulation Unlike gas and electricity, households that get their heat delivered through a heat network are not covered by the energy regulator Ofgem. While the supply of gas to a heat network is regulated as a commercial supply, the supply of heat from the network to homes is not.
The proposals in the Act follow a Competitions and Market Authority report in July 2018, which recommended that the market should be regulated. It said any regulator should introduce: “Consumer protection for all heat network customers so they get the same level of protection as customers in the gas and electricity sectors”.
The Act extends the role of the existing electricity and market regulators to cover heat networks. Ofgem will regulate in England, Scotland and Wales, and the Utilities Regulator will regulate in Northern Ireland. The details of the legislation will be set out in regulations.
Heat network zones Part 7 includes provisions for the creation and regulation of designated ‘heat network zones’. Here, zoning will be used to require heat network installation in new buildings as the first option for heat provision. This is to support the Government’s target set out in the Energy White Paper 2020 to designate the first heat network zone by 2025.
The Act also includes provisions for the creation of a Heat Network Authority together with zone coordinators. These will have powers to designate heat network zones, require buildings to be connected to a heat network and require waste heat to be connected to heat networks. The details of the legislation will be set out in regulations.
Part 8 - Energy smart appliances and load control
An energy smart appliance (ESA) is an internet-connected appliance that can adjust its electricity usage automatically based on signals received remotely. The act of sending a signal telling ESAs how much power they should draw is called ‘load control’.
Part 8 of the Act introduces measures designed to encourage the take-up of energy smart appliances and load control services.
It does so by:
* giving the Government powers to introduce regulations requiring energy smart appliances to meet requirements regarding cyber security, data privacy, interoperability, and grid stability; and
* requiring load controllers to hold a licence issued by Ofgem, the energy regulator.
The Government said in its policy statement on Part 8 that these measures will create a regulatory and technical framework that will give consumers the confidence to engage with ’demand-side response’ (DSR)
Organisations, including the Climate Change Committee and National Grid ESO, have predicted that DSR will be an important part of the transition to net zero. DSR is expected to help the electricity grid cope with the combination of increasing demand for electricity resulting from the electrification of heat and transport, alongside the intermittent supply of electricity provided by weather-dependent renewable energy sources.
Part 9 – Energy performance of buildings The energy performance of buildings (EPB) regime is currently governed by the Energy Performance of Buildings Regulations 2012, derived from EU law. The 2012 Regulations require Energy Performance Certificates (EPCs), which grade a building’s energy efficiency, to be produced when a property is built, let or sold. Public buildings are required to display their EPC rating.
Following the UK’s departure from the EU, the Government said it would need new powers to make changes to the existing EPB regime. Part 9 of the Energy Act gives the Secretary of State powers to make changes to the existing EPB regime.
Specifically, the Secretary of State will be able to make new regulations:
* requiring the energy usage or efficiency of premises to be assessed, certified and published;
* prohibiting the marketing, letting and leasing of properties if their energy performance has not been assessed, certified and published; and
* requiring energy performance certificates to be produced when new premises are constructed.
A non-government clause tabled by Baroness Hayman (Crossbench) was added to the Bill earlier which requires the Secretary of State to publish a “Warmer Homes and Businesses Action Plan” within six months of the Act’s passage. The Action Plan will have to set out how the Government intends to meet its energy efficiency targets for buildings, including how it will meet:
* EPC band C by 2035 for all UK homes and EPC band B by 2028 for all non-domestic properties; and
* the Future Homes Standard for all new builds in England by 2025.
Responding for the Government, the Minister for Energy Efficiency, Lord Callanan, said the proposed plans duplicated the Government’s efforts. However, the amendment was agreed on division by 227 to 194 and added to the Bill as clause 204. How this is impacted by the government’s September 2023 removal of the EPC C minimum for private rented accommodation remains to be seen.
Part 10 – Energy Savings Opportunity Scheme The Energy Savings Opportunity Scheme (ESOS) was introduced across the UK in 2014 to meet requirements set out in the EU Energy Efficiency Directive. It is an energy assessment scheme, which: “Requires large businesses in the UK to carry out an audit of the energy used by their buildings, industrial processes and transport at least every four years”.
The Energy Savings Opportunity Scheme Regulations 2014 set out the requirements for the existing scheme. When the European Communities Act 1972 was repealed, as part of the UK’s departure from the EU, so too were the primary powers to amend the 2014 ESOS regulations. Consequently, no changes to the ESOS regulations can currently be made.
Part 10 of the Act provides a power to replace the repealed regulation-making power. The replacement power will allow the Secretary of State to make regulations requiring organisations to assess their energy consumption and greenhouse gas emissions, including by amending the ESOS regulations.
Government amendments were agreed at the committee stage to introduce the new Part 10 (then Part 9A) of the then Energy Bill, which set out the new ESOS provisions. Further Government amendments were agreed at the report stage, which require ESOS regulations to provide for the right to appeal against financial penalties.
Conclusions Headline news stories can often be misleading when compared to a more detailed analysis of what’s happening behind the scenes. The Energy Act appears to be about the generation and delivery of electricity, but it also has significant implications for the future design of domestic and commercial buildings. This includes choices issues around decarbonisation, selection of heating systems and use of ‘smart’ technologies.
Useful FAQs around the Energy Bill Parts 7 to 10 https://commonslibrary.parliament.uk/research-briefings/cbp-9865/