The Energy Act 2023, a landmark piece of legislation, has been enacted following a rigorous 16-month review in Parliament. This Act, hailed by both the public and private energy sectors, aims to address the energy trilemma: transitioning to net zero emissions affordably and securely.
We caught up with Sarah Daun and Peter Snaith, partners in our manufacturing sector team, to find out what they think about the Energy Act and what it might mean for manufacturing and for the Teesside region.
Sarah and Peter, what is your initial reaction to the Energy Act from your perspective as manufacturing lawyers?
Sarah: I'm thrilled about the Energy Act's potential to unlock £100 billion in private investment. This could be transformative for the Teesside region, creating jobs and driving energy transition through effective legislation.
Peter: Teesside, recognised as a global hub for net zero initiatives, stands to greatly benefit from the Energy Act. This legislation has the potential to unlock Teesside's full capacity, further solidifying its position in the global net zero landscape. This is important to me since I started my career working at ICI, and more latterly Ineos, and I have spent large portions of my career in the Tees Valley. WBD works closely with manufacturers in Teesside and has provided legal support for large infrastructure projects, often involving global investors.
Sarah, Richard Cockburn who leads WBD's energy group, has written a detailed analysis piece about the impact of the Energy Act on the carbon capture, utilisation and storage (CCUS) regime in the UK. Can you share your thoughts about what this means for manufacturing?
Sarah: As we know, the Energy Act 2023 has put in place more building blocks for the CCUS regime in the UK. The UK government is now well advanced in developing a statutory framework for CCUS and the first four industrial clusters have been identified for hosting transportation and storage networks. Teesside has been recognised as an important decarbonisation cluster as part of this process with several projects selected through the cluster sequencing process.
This is indeed a positive development for the manufacturing sector and for Teesside. The implementation of CCUS technologies necessitates the development of supply chains, including facilities, pipeline components, and new opportunities for manufacturers. The manufacturing industry will be closely monitoring the detailed mechanics of the UK's CCUS regime, as well as the speed at which the necessary secondary legislation is produced.
Peter, Richard Cockburn has also written about the impact of the Energy Act on the regulatory framework for hydrogen production, transport and storage in the UK. Do you have any thoughts about what this means for the Teesside region?
Peter: The Energy Act 2023 has significantly advanced the regulatory framework for hydrogen production, transport, and storage in the UK. It introduced the overarching framework which will apply to the hydrogen industry going forwards. This progress is crucial for attracting the investment needed to achieve the UK government's target of up to 10GW of low carbon hydrogen production capacity by 2030. The UK government has agreed to support hydrogen through hydrogen business models (HPBM) and a hydrogen levy. The recently concluded Hydrogen Allocation Round (HAR) 1, will provide £2 billion of revenue support to 125 MW of hydrogen projects through HPBM. With an extra 875 MW of project capacity lined up in the announced HAR2, the UK is full steam ahead in terms of developing the hydrogen sector.
The expansion and development of existing hydrogen technologies, similar to the CCUS regime, will necessitate the construction of pipelines and infrastructure. This will generate new opportunities and establish fresh supply chains. Given its industrial legacy and ongoing hydrogen production projects, Teesside is ideally positioned to take a leading role in the UK's hydrogen production, transport, and storage sectors.
The specifics of the hydrogen levy and the licensing process for hydrogen pipelines are anticipated to be outlined in subsequent secondary legislation. Businesses currently operating in the UK's hydrogen sector, as well as those considering further investment, will be keen to review this secondary legislation. They will want to fully comprehend the details of the regulatory framework governing the hydrogen sector.
Sarah, what about the fact that some industries are simply very energy intensive. Does the Energy Act provide any support for them?
Sarah: The Energy Act has introduced three different types of subsidy for energy intensive industries (EIIS) such as steel, glass, cement, metals, chemicals, and paper. The measures include the Network Charging Compensation scheme, which will reimburse a portion of the network costs to EIIS. This measure will be financed through a levy imposed on all licensed electricity suppliers, known as the EII Support Levy. This gives the government the ability to offset some of the network charging costs for energy-intensive industries. These subsidies reflect the fact that EIIS in the UK have been hit by very steep industrial electricity prices and that the Government must act to ensure that these businesses can remain profitable despite the high cost of electricity.
Peter, I've heard that the Energy Act will regulate heat networks and allow for the creation of markets for low carbon heating appliances such as heat pumps. Do you see this as an opportunity for growth for manufacturers?
Peter: Most definitely. I see heat network schemes as a real growth opportunity for manufacturers. Many heat networks, some over 40 years old, suffer from inefficiency due to outdated equipment and poor maintenance. The heat network schemes will assist operators in replacing this equipment with more energy-efficient alternatives. There will opportunities for manufacturers and component suppliers to develop, manufacture and supply that equipment and to upskill their workforce with the necessary skills to install, operate and maintain it.
Sarah and Peter, do you have any final thoughts on what the Energy Act will mean for manufacturers?
Sarah: I think this is an exciting time for manufacturers, whether they're directly involved in the UK's hydrogen sector, connected to decarbonisation technologies, or supplying components or labour to these industries. The surge in investment for new decarbonisation technologies, coupled with the establishment of new funds and levies, presents a highly positive landscape for the manufacturing sector.
Peter: It also seems very timely that we are talking about decarbonisation, net zero and the Energy Act as COP28 wrapped up in December 2023. At COP28, over 100 global leaders committed to tripling the world's renewable energy capacity by 2030. To reach this ambitious target, substantial investment from the UK Government will be necessary, along with the specialised skills and expertise of the manufacturing sector.
Thank you to Sarah and Peter for their insightful perspective on the Energy Act 2023. Undoubtedly, the Energy Act 2023 marks a significant milestone in the UK's decarbonisation journey. We know though that its success hinges on the adoption of substantial secondary legislation, which may influence the speed at which the Act's objectives are achieved. Regardless of the pace, one thing is certain: the Act has already set the wheels in motion, accelerating our journey towards net zero.