Page type: primary-anchored (mirrors Energy Act 2023)

Energy Act 2023

The Energy Act 2023 is the largest piece of UK energy legislation since the Energy Act 2004. It received Royal Assent on 26 October 2023 and runs to 335 sections and 19 Schedules. It restructures GB energy governance by creating the Independent System Operator and Planner (ISOP, now operationalised as NESO), introducing licensed code managers for industry codes, and establishing new regulatory frameworks for CCUS, hydrogen, heat networks, energy smart appliances, and nuclear.

Source file: 2023-energy-act.md

Part 1: Licensing of Carbon Dioxide Transport and Storage (ss.1-55)

Creates an entirely new licensing regime for CO2 transport and geological storage, modelled on the existing gas and electricity licensing frameworks. GEMA (referred to in Part 1 as "the economic regulator") may grant licences for operating storage sites (s.2(2)(a)) and providing CO2 transport services (s.2(2)(b)). It is a criminal offence to carry on either activity without a licence (s.2(1)).

The principal objectives for this regime are: protecting network users, protecting consumers, and promoting efficient and economic network development, with explicit regard to Climate Change Act 2008 duties (s.1). This mirrors the principal objective structure in the Electricity Act 1989 and Gas Act 1986 but is tailored to CO2 infrastructure.

Licences may include standard and bespoke conditions (s.11). GEMA may modify conditions subject to a 28-day consultation and Secretary of State veto (s.13). Licence holders and transport users may appeal GEMA modifications to the CMA (s.20). A special administration regime (ss.42-49) ensures CO2 transport/storage infrastructure continues operating if a licensee fails.

Cross-references: The regime sits alongside the Energy Act 2008 (offshore CO2 storage) and the Petroleum Act 1998 (well consents). Part 2 of this Act creates the revenue support contracts that make the economic case for CO2 infrastructure.

Part 2: Revenue Support Contracts for CCUS and Hydrogen (ss.56-129)

Creates a framework of revenue support contracts for five new low-carbon technologies: CO2 transport/storage, hydrogen transport, hydrogen storage, hydrogen production, and carbon capture (s.57). This mirrors the CfD framework under the Energy Act 2013 but extends it beyond electricity generation.

The Secretary of State designates counterparties for each contract type (ss.59, 61, 63, 65, 67) and may direct them to offer contracts to eligible persons on specified terms (ss.60, 62, 64, 66, 68). After allocation by a designated allocation body, counterparties must offer contracts on standard terms (s.77). Only minor, necessary modifications are permitted (s.78).

A hydrogen levy on GB and NI gas shippers (s.70) funds the hydrogen production and carbon capture contracts. The gas shipper base is the chosen cost-recovery route, not electricity bills.

Consultation with devolved administrations is required before making regulations (s.85). The Secretary of State is protected from shadow director liability when exercising these powers (s.88).

Part 3: Licensing of Hydrogen Pipeline Projects (ss.130-142)

A time-limited framework (subject to review from 31 December 2040, s.142) allowing the Secretary of State to designate hydrogen pipeline projects and grant gas transporter licences specifically for hydrogen conveyance (s.134). "Hydrogen" means any gas consisting wholly or mainly of hydrogen (s.130).

The Secretary of State may modify licence conditions for financing purposes (s.136) and direct GEMA on value-for-money matters (s.141). This gives the Secretary of State a more direct role in hydrogen pipeline licensing than in the mature gas/electricity regimes.

Part 4: New Technology (ss.143-160)

A collection of enabling powers: - Low-carbon heat schemes (ss.143-152): Targets for heating appliance suppliers, analogous to the Renewable Transport Fuel Obligation but for heat. - Hydrogen grid conversion trials (ss.153-154): Modifies the Gas Act 1986 to allow trial conversions of gas networks to hydrogen. - Fusion energy exemption (s.156): Exempts fusion facilities from nuclear site licensing. A significant regulatory signal that fusion is not treated as fission. - SAF revenue certainty (s.158): Mandates consultation on a sustainable aviation fuel support scheme. - UK removals broadened (s.160): Amends the Climate Change Act 2008 so any greenhouse gas removal process counts, not just land-use changes.

Part 5: Independent System Operator and Planner (ss.161-181), HIGHEST PRIORITY

This Part creates the ISOP and gives it statutory functions. NESO was designated as the ISOP in 2024 using the s.167 transmission licence direction mechanism.

The ISOP's functions (s.161)

The ISOP's statutory functions cover five areas (s.161(3)): 1. Co-ordinating and directing electricity flows on the transmission system 2. Arranging balancing and ancillary services for electricity 3. Strategic planning and forecasting for electricity transmission development 4. Strategic planning and forecasting for gas pipeline development 5. Providing advice, analysis, and information to Ministers and GEMA

This dual-fuel mandate (electricity + gas) is structurally embedded: the ISOP must hold both an electricity system operator licence (EA 1989 s.6(1)(da), created by s.166) and a gas system planner licence (GA 1986 s.7AA, created by s.168). Losing either licence means losing the other (s.166(9), s.168(4)).

The three objectives (s.163)

The ISOP must carry out its functions to promote: - Net zero objective: Enabling the Secretary of State to meet Climate Change Act 2008 duties (2050 target and carbon budgets) (s.163(2)) - Security of supply objective: Ensuring security of supply of electricity and gas to consumers (s.163(3)) - Efficiency and economy objective: Promoting efficient, co-ordinated, economical systems (s.163(4))

These are not ranked. The ISOP exercises judgment on how best to balance them.

Secondary duties (s.164)

The ISOP must also have regard to: promoting competition, consumer impact, whole-system impact, and innovation (s.164(1)). "Whole-system impact" means the impact of one activity on the carrying out of other relevant activities (s.164(3)). This is the statutory basis for cross-vector thinking.

Strategy and policy statement (s.165)

The ISOP must have regard to the strategic priorities in the current strategy and policy statement issued under the Energy Act 2013. If the ISOP concludes a policy outcome is "not realistically achievable," it must notify the Secretary of State with grounds and proposed actions (s.165(2)).

Network connections (s.165A)

Added in 2025, this requires the ISOP to have regard to designated strategic plans when managing transmission connections. This is the statutory hook for the connections reform agenda.

Licence modifications for ISOP establishment (ss.169-170)

The Secretary of State and GEMA have a time-limited power (3 years from first ISOP designation, s.169(6)) to modify licences and code documents in connection with the ISOP transition. Full notice-and-comment procedure required (s.170).

Information and advice (ss.171-172)

The ISOP must comply with requests from Ministers and GEMA for advice, analysis, or information (s.171). It may require information from any person carrying out a relevant activity (s.172), enforceable by GEMA.

Cross-sectoral funding (s.177)

Amends the EA 1989 and GA 1986 to allow licence conditions requiring electricity licensees to have regard to gas consumers and vice versa, enabling cross-fuel cost recovery.

Part 6: Governance of Gas and Electricity Industry Codes (ss.182-201), HIGHEST PRIORITY

This Part replaces the self-governance model for GB energy industry codes with an Ofgem-directed model using licensed code managers. All provisions commenced on 10 September 2024.

Designated documents (s.182)

A "designated document" is a code maintained under licence conditions and designated by Secretary of State notice on GEMA recommendation (s.182(1), (5)). The existing codes (BSC, Grid Code, CUSC, SQSS, STC, UNC, iGT UNC, DCUSA, SEC, REC, DCode) transition via Schedule 12.

Code manager licensing (ss.183, 185-186)

Code managers are licensed under new provisions in the Gas Act 1986 (s.7AC) and Electricity Act 1989 (s.6(1)(g)). Where a code is designated under both gas and electricity regimes, the code manager must hold both licences (dual licensing). This replaces the existing model where code administrators operate under contractual arrangements with code panels.

Code manager selection (ss.187-189)

GEMA determines whether each code manager is selected competitively or non-competitively (s.187(1)). In both cases, GEMA must be satisfied the candidate has no prejudicial financial interest (ss.188(3), 189(4)). Competitive selection regulations require Secretary of State approval (s.189(5)).

Strategic direction statement (s.190)

GEMA must publish an annual strategic direction statement assessing government policies and energy sector developments that may require code modifications (s.190(1)). GEMA must have regard to ISOP advice when preparing it (s.190(4)). The Secretary of State may transfer this function to the ISOP by regulations (s.191). This is a significant future option that would shift strategic code direction from regulator to system operator.

GEMA's direct modification power (s.192)

GEMA may modify designated documents directly, bypassing normal code change processes, on five grounds: 1. Urgency with adverse effects on consumers or code parties (s.192(2)) 2. Code manager prejudicial interest in the matter (s.192(3)) 3. Implementing strategic direction where the modification is too complex for normal processes (s.192(4)) 4. Consolidation, incorporating provisions into another document (s.192(5)) 5. Consequential to Schedule 12 transitional provisions (s.192(6))

This is a fundamental change. Under the previous model, Ofgem could only approve or reject modifications raised by industry. Now Ofgem can initiate and make modifications itself, subject to notice-and-comment procedure (s.193).

Secretary of State veto (s.193(4))

The Secretary of State may direct GEMA not to make a proposed modification during the consultation period. This gives ministers a direct say over industry code content for the first time.

Central system directions (ss.194-195)

GEMA may direct the responsible body operating a designated central system (e.g. Elexon's settlement systems) to comply with code obligations or take steps for efficient system operation. The responsible body must comply (s.194(3)).

Part 7: Market Reform and Consumer Protection (ss.202-215)

Net zero in principal objectives (s.202)

Rewrites the principal objectives of the Secretary of State and GEMA in the Gas Act 1986 and Electricity Act 1989 to reference "the Secretary of State's compliance with the duties in sections 1 and 4(1)(b) of the Climate Change Act 2008." This embeds net zero directly into the statutory mandate for energy regulation, replacing the previous formulation which referred only to "reducing emissions."

Multi-purpose interconnectors (ss.205-210)

Creates a new licence type for infrastructure that both conveys electricity across borders and connects offshore wind. MPI operators must be certified as independent by GEMA (s.207). Several provisions are prospective (not yet commenced).

Energy-intensive industries (ss.211-212)

Enables electricity support payments to energy-intensive industries, funded by a levy on electricity suppliers. Both require affirmative procedure regulations.

Electricity storage (s.213)

Resolves the longstanding regulatory ambiguity by explicitly including "generation from stored energy" within the EA 1989 generation licensing framework. Stored energy means energy "converted from electricity, and stored for the purpose of its future reconversion into electricity."

Other provisions

• Competitive tenders for electricity transmission/distribution (s.203, Schedule 15)
• Energy network merger review duty within 5 years (s.204)
• Buy-out payment alternative for energy company obligations (s.214)
• Smart meter powers extended to November 2028 (s.215)

Part 8: Heat Networks (ss.216-237)

Designates GEMA as the heat network regulator for England, Wales, and Scotland (s.217). Enables regulation of heat networks and creation of heat network zones with building connection requirements (s.232). Gas and electricity licence holders may be required to fund heat network regulation costs (s.222).

Part 9: Energy Smart Appliances and Load Control (ss.238-249)

Defines "energy smart appliance" as one capable of adjusting electricity flow in response to a load control signal (s.238). The Secretary of State may regulate these appliances (s.239) and has a 10-year power to modify licence conditions for load control (s.245). Creates a framework for licensing load control activities (s.249, Schedule 19).

Part 14: Civil Nuclear Sector (ss.302-329)

Key provisions: - Territorial sea licensing (s.302): Nuclear site licensing extended to installations in the territorial sea - Fusion exemption (s.156, Part 4): Fusion energy facilities exempt from nuclear site licensing - Great British Nuclear (ss.317-329): Established as a statutory body (but not a Crown body, s.318) to support nuclear energy generation projects. GBN must comply with Secretary of State directions (s.321) and produce annual reports/accounts (ss.322-323).

Commencement status (as of April 2026)

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