title: Energy Act 2013 type: wiki primary_source: sources/legislation/uk/2013-energy-act.md tags: [EMR, CfD, capacity-market, ONR, nuclear, SPS, decarbonisation, primary-legislation] updated: 2026-04-09

Energy Act 2013

Citation: UK Public General Acts 2013 c.32
Royal Assent: 18 December 2013
Legislation.gov.uk: https://www.legislation.gov.uk/ukpga/2013/32

The EMR statute. The most consequential piece of energy legislation since privatisation, restructuring how low-carbon electricity is financed and how adequacy of supply is secured. Four policy functions in one act: (1) Contracts for Difference (CfD) to decarbonise generation; (2) the Capacity Market (CM) to maintain reliability; (3) the Office for Nuclear Regulation (ONR); and (4) the Strategy and Policy Statement regime to align Ofgem's regulatory decisions with government energy policy.

Why It Matters

Before the Energy Act 2013, low-carbon investment relied on the Renewables Obligation (banded ROCs), Feed-in Tariffs, and the wholesale electricity price. These mechanisms exposed developers to sustained merchant price risk that made long-duration, capital-intensive projects (in particular new nuclear and offshore wind at scale) difficult to finance. The 2013 Act replaced price-risk exposure with a guaranteed strike price mechanism (CfD) and replaced energy-only markets as the sole adequacy signal with an explicit capacity payment (CM). It also created the institutional infrastructure: LCCC as CfD counterparty, and later the National Energy System Operator (NESO) replacing the ESO as allocation body.

Part 1: Decarbonisation (ss.1–4)

The Secretary of State has a duty to ensure carbon intensity of UK electricity generation does not exceed the maximum permitted level of a decarbonisation target range in each year for which a range is set. The earliest applicable year is 2030. The first decarbonisation order cannot be made before the carbon budget for the budgetary period including 2030 is set under the Climate Change Act 2008. No decarbonisation target range order has been made as of April 2026; the carbon intensity duty exists but has never been activated.

Carbon intensity is defined as grams of CO₂-equivalent per kWh generated in the UK (including the territorial sea and Renewable Energy Zones under the Energy Act 2004).

Part 2, Chapter 2: Contracts for Difference (ss.6–26)

What a CfD is

A CfD is a contract between a CFD counterparty and an eligible generator under which: - If the market reference price falls below the strike price, the counterparty pays the generator the difference. - If the market reference price exceeds the strike price, the generator pays the difference back to the counterparty.

The counterparty is funded entirely by electricity suppliers, who are required by regulations to pay levies (the "supplier obligation" under s.9). The strike price effectively provides a floor-and-ceiling revenue guarantee for low-carbon generation.

The institutional chain

1. Secretary of State sets the allocation framework (s.13), standard terms (s.11), and cost caps (s.23).
2. National system operator (NESO, designated under Energy Act 2023 s.162, replacing ESO from 1 October 2024) gives CFD notifications (s.12) following competitive allocation rounds.
3. CFD counterparty (in practice the Low Carbon Contracts Company, LCCC, designated under s.7) must, on receipt of a CFD notification, offer to contract with the specified eligible generator on standard terms (s.14).
4. Electricity suppliers pay the supplier obligation levy, enabling the counterparty to fund CfD payments.
5. Customers receive the benefit: s.17(2A) (inserted 2022) requires suppliers who receive payments from the counterparty to pass the benefit to customers.

Section-by-section: key provisions

Allocation framework and rounds

The allocation framework (made by the Secretary of State under s.13) governs competitive "allocation rounds": periodic auctions at which eligible generators bid for CfD contracts. Rounds can be technology-specific or cross-technology. NESO administers the auction process. The allocation framework can specify targets for different technologies, capacities, and geographies, and can restrict the total budget available.

Existing stations (s.6(1A))

The Energy Prices Act 2022 inserted s.6(1A) to allow CfD regulations to encourage continuation of, or an increase in, low carbon generation by existing generating stations (not just new build). This enabled a new track for established nuclear plants and established renewable stations facing revenue shortfalls.

Part 2, Chapter 3: Capacity Market (ss.27–43)

What the CM is

The Capacity Market provides payments to generators (and demand-side response providers) in exchange for a commitment to provide capacity at times of system stress. It addresses the "missing money" problem: in energy-only markets, the value of security of supply is captured only in infrequent scarcity events, making it difficult to recover fixed costs of reliable thermal plant. The CM creates a predictable revenue stream that enables investment in, and retention of, reliability assets.

The mechanism

1. Secretary of State sets the amount of capacity to be procured (in consultation with, and based on analysis by, NESO) and makes electricity capacity regulations.
2. NESO runs the capacity auction (s.29), in which eligible capacity providers bid on price to secure capacity agreements. Auctions are typically run four years ahead (T-4) and one year ahead (T-1) of the delivery year.
3. Capacity providers who clear the auction receive a capacity agreement (s.28): they are paid capacity payments by electricity suppliers in exchange for an obligation to provide capacity when instructed, subject to penalties (capacity incentives) for non-delivery.
4. Settlement body (in practice EMRS, Electricity Market Reform Settlement Ltd, administered by Elexon) administers payment flows under s.28(4)(g) and s.30.
5. Electricity suppliers fund the system through capacity payments, socialised across their customer bases.

Section-by-section: key provisions

Capacity market rules

Section 34 gives the Secretary of State the power to make capacity market rules: a form of delegated legislation that sits below regulations and can be amended more readily. The Capacity Market Rules (made under s.34) contain the detailed operational framework: pre-qualification requirements, auction mechanics, de-rating factors, credit cover, penalty mechanics, and settlement processes.

Part 2, Chapter 4: Investment Contracts (s.44 + Schedule 2)

Investment contracts were a transitional mechanism for projects that could not wait for the CfD infrastructure to be in place, notably Hinkley Point C. An investment contract is a contract entered into by the Secretary of State directly (not via LCCC) on or before 31 December 2015, structured as a difference payment on a strike/reference price, and laid before Parliament. Once CfD infrastructure became operational, investment contracts were to be transferred to CFDs within a reasonable period.

The Hinkley Point C CfD is the only instrument made under Schedule 2. It was subsequently treated as a CfD under the contract transfer mechanism.

Part 2, Chapter 5: Contingency Arrangements (ss.45–48)

Section 45 (omitted 1 October 2024): Made provision about business separation modifications to the national system operator's licence. Became redundant following the creation of the Independent System Operator and Planner (ISOP/NESO) under the Energy Act 2023, which separated the system operator from National Grid.

Section 46: The Secretary of State may by order transfer EMR functions from NESO to an alternative delivery body where NESO requests it, has failed to carry out EMR functions effectively (with 6-month notice period), has changed control, or where transfer is otherwise necessary to further CfD or CM purposes.

Section 48: Extended the energy administration objective (Energy Act 2004 ss.154–155) to include continuity of EMR functions.

Part 2, Chapter 6: Access to Markets (ss.49–54)

Sections 49 and 50 gave the Secretary of State licence modification powers to improve wholesale market liquidity (s.49) and to enable power purchase agreements (PPAs) for smaller generators unable to access the wholesale market directly (s.50). The PPA scheme was established to provide a mandated route to market for independent renewable generators, but was never activated in practice; the combination of CfD allocation and the evolution of merchant markets removed the urgency.

Part 3: Nuclear Regulation (ONR) (ss.67–118)

The ONR's purposes

The Office for Nuclear Regulation (ONR) was established as a body corporate (s.77) with five statutory purposes:

1. Nuclear safety (s.68): protecting persons against ionising radiation risks from GB nuclear sites, covering design, construction, operation, decommissioning, and storage.
2. Nuclear site health and safety (s.69): health, safety and welfare of workers on GB nuclear sites; protection of others from related hazards; control of dangerous substances.
3. Nuclear security (s.70): security of civil nuclear premises, materials, equipment, enrichment facilities, and sensitive nuclear information.
4. Nuclear safeguards (s.72): ensuring compliance with nuclear safeguards regulations (post-Brexit framework under s.76A) and relevant international agreements. [Redefined by the Nuclear Safeguards Act 2018 following EU exit.]
5. Transport (s.73): safety and security of civil transport of radioactive material by road, rail, or inland waterway in Great Britain.

Nuclear regulations vs nuclear safeguards regulations

Nuclear regulations (s.74): Made by the Secretary of State for nuclear safety, security, and transport purposes. May confer functions on the ONR, create inspector powers, create offences, and modify the Nuclear Installations Act 1965 and Nuclear Safeguards Act 2000. Schedule 6 gives examples of permissible content.

Nuclear safeguards regulations (s.76A, inserted by Nuclear Safeguards Act 2018): A separate power created to replace the EU's EURATOM safeguards regime following the UK's exit from the EU. The Secretary of State may make regulations to ensure qualifying nuclear material, facilities, and equipment are only used for civil activities, or to give effect to relevant international agreements (including the UK's IAEA agreements). The same offence and civil liability framework applies as for nuclear regulations.

ONR governance and functions

• Principal function (s.78): The ONR must do whatever it considers appropriate for the ONR's purposes, including assisting and encouraging others.
• Codes of practice (ss.79–80): ONR issues codes; they are admissible evidence but non-compliance is not per se an offence.
• Enforcement (s.82): ONR must make adequate arrangements for enforcement of the relevant statutory provisions.
• Inspectors (s.83, Schedule 8): Appointment and powers, including rights of entry and powers to take samples.
• Information power (s.97): ONR may by notice require any person to provide information; failure without reasonable excuse is a criminal offence.
• Secretary of State directions (s.92): The Secretary of State may direct the ONR on its functions; national security directions may modify or confer functions; directions regarding particular cases require exceptional circumstances.
• HSE co-operation (s.96): ONR and HSE must maintain co-operation and information-sharing arrangements.
• Fees (s.101): Secretary of State may by regulations set fees for ONR and inspector functions.
• Review (s.118): 7-year review after the ONR's establishment.

Part 5: Strategy and Policy Statement (ss.131–138)

What the SPS does

The SPS is the mechanism by which the Secretary of State publishes government energy policy priorities and requires both the Secretary of State and Ofgem to carry out their functions in a manner best calculated to deliver those policy outcomes. Unlike the existing principal objective (protection of consumer interests) and general duties, the SPS creates a forward-looking policy alignment mechanism.

The statutory chain

• Secretary of State designates the SPS (s.131) after following the procedural requirements in s.135 (draft, consultation, revision, further consultation, Parliamentary approval by both Houses).
• Ofgem must have regard to strategic priorities (s.132(1)) and must carry out its regulatory functions in the manner best calculated to further delivery of policy outcomes (s.132(2)), subject to the principal objective duty in EA 1989.
• Ofgem must notify the Secretary of State if a policy outcome becomes not realistically achievable (s.132(7)).
• Secretary of State must review the SPS at least every five years (s.134(1)), and may review it after a general election, following an Ofgem notification, or following significant policy change.

Exceptions (s.133)

The s.132 duties do not apply to Ofgem's dispute determination functions or to other matters where the duties would conflict with other legal obligations.

Status as of April 2026

The first Strategy and Policy Statement was designated by the Secretary of State for Energy Security and Net Zero in July 2023. The Energy Act 2023 added the newly designated Independent System Operator and Planner (NESO) as a consultee for SPS review and revision purposes.

Key Relationships with Other Legislation

Practical Operation (as of April 2026)

CfD: Six main allocation rounds (AR1–AR6) have been run since 2014. AR6 (2024) cleared at record low strike prices for offshore wind (~£52–£63/MWh). The LCCC manages approximately 300 live CfD contracts. The supplier obligation levy is collected quarterly from all licensed electricity suppliers. NESO runs the allocation process under the allocation framework published by DESNZ.

Capacity Market: Annual auctions since 2014. T-4 auctions clear the majority of capacity; T-1 fills gaps. The Capacity Market was suspended and reinstated following a 2018 State Aid ruling (Tempus Energy case); legislative amendments were made before reinstatement in 2019. Settlement is administered by EMRS (Electricity Market Reform Settlement Ltd, operated by Elexon) in its role as the designated CM settlement body.

ONR: The ONR is the independent nuclear regulator with approximately 900 staff. It regulates civil nuclear safety and security in the UK, including Hinkley Point C construction, existing operating stations (EDF fleet), and new entrant technologies. It works closely with the HSE on overlapping industrial safety issues.

SPS: The 2023 SPS set strategic priorities around the government's net zero commitments, energy security, and affordability. Ofgem's forward work programmes since 2023 reflect the SPS framework.