The Act demonstrates the UK’s renewed commitment to reaching net zero and paves the way for players in key industries to achieve their targets.

By Tom Bartlett, Paul A. Davies, JP Sweny, Michael D. Green, James Bee, and Samuel Burleton

On 26 October 2023, the UK Energy Act 2023 (the Act) received Royal Assent. The Act is a landmark piece of energy legislation detailing the UK’s approach to achieving energy independence and its net zero obligations.

The provisions of the Act lay the foundation for potentially £100 billion worth of private investment in clean energy infrastructure. The government has indicated that the Act is intended to support up to 72,000 jobs in carbon capture and storage (CCS) and hydrogen by 2030.

This blog post summarises how the Act is likely to impact key industries.

Carbon Capture and Storage

The Act outlines a framework for scaling CCS in the UK, thereby seeking to encourage long-term support and investment in the sector. The framework consists of:

• a licensing regime for carbon transport and storage;
• the commercial arrangements required for CCS; and
• a regulatory regime allowing the government to assist in overseeing the decommissioning of carbon storage installations.

Apart from encouraging private investment in CCS, the government hopes the Act will provide momentum in supporting CCS projects in the UK. The Act follows additional CCS support in the UK earlier in 2023, including the announcement of a £20 billion CCS funding support package from the government, the first licensing round for the storage of captured carbon in the North Sea, and the confirmation of plans to fund Net Zero Teesside Power, the UK’s first decarbonised industrial cluster. The Act is also intended to help the government meet its target of capturing and storing 20 metric tons to 30 metric tons of carbon per year from 2023 onwards — which is seen as an important step in enabling the UK to reach net zero.

Low-Carbon Hydrogen

The Act provides mechanisms to permit funding for government-backed low-carbon hydrogen projects that will form part of the future hydrogen economy. The Act defines the term “low carbon hydrogen producer” as a person who carries on (or is to carry on) hydrogen-producing activities in the UK that — in the opinion of the Secretary of State — will contribute to a reduction of greenhouse gas emissions. The Act does not provide specific criteria by which such an assessment must be made.

The first mechanism is a levy that will be placed on gas shippers, and the second mechanism is funding through the Exchequer. Additionally, the Act introduces various business models for the transportation and storage of hydrogen. The government hopes that the business models will provide investors and producers with a framework for investments in low-carbon hydrogen production and that production levels in 2023 will meet the government’s current target of 10 gigawatt capacity.

The government also confirmed that the Act will facilitate the first large hydrogen heating trial. Existing gas network infrastructures will be tested to see if they can carry 100% hydrogen. The outcomes of the trial will help determine the extent to which technology can decarbonise heat.

Nuclear

The Act provides further commitments in the nuclear space. It confers powers directly upon the Energy Security and Net-Zero Secretary to appoint Great British Nuclear, a publicly owned company, to oversee and facilitate the government’s involvement in nuclear projects. Great British Nuclear will be required to provide an annual report to the Secretary, who must lay the report before Parliament. This annual report will foster a continuous discussion regarding the level of government support in nuclear power.

The Act also includes provisions for the UK to be the first country to legislate for fusion regulation and to develop a prototype fusion power plant by 2040.

Aviation Fuel

The Act sets out a mechanism that the government hopes will enable it to achieve its Jet Zero strategy, which aims to make all domestic flights net zero by 2040 and all international flights net zero by 2050. A mandate requiring 10% of fuel supply to be sustainable aviation fuel will be imposed by 2030, which will increase in increments to 75% in 2050. In connection with this mandate, the Department of Transport will host consultations on designing a revenue certainty scheme with sustainable aviation fuel producers to secure consistent fuel supply.

Other Notable Impacts

The Act seeks to increase competition in the UK’s offshore wind projects via a newly introduced tender process.

In addition, it establishes the Future System Operator, which will be responsible for developing the UK’s gas and electricity network and seeking to secure a decarbonised energy supply.

The Act also provides for the creation of a specific merger regime under the Competition and Markets Authority for energy networks. The government hopes that this will minimise the risk of mergers between energy network companies, saving consumers up to £420 million.

Conclusion

A number of stakeholders, including the Carbon Capture and Storage Association, the North Sea Transition Authority, and the Association for Renewable Energy and Clean Technology, have welcomed the Act.

The government hopes that the Act will provide investors with certainty that CCS and hydrogen are viewed as critical for the UK’s achievement of its net zero goal, thereby encouraging investments in such industries.