Queen’s speech: New Shale Gas Bill: New super-regulator for Oil and Gas, and update on EMR and climate-change

queens speech 2014

The queen’s speech outlining the legislative programme – and political intentions – of the final 12 months of the UK coalition government contained either new or policy updates which will impact on the energy and environment areas as follows:

  • Energy market reforms
  • Environment/ climate change
  • A new UK ‘super-regulator’ for the oil and gas industry, and
  • A new Infrastructure Bill to simplify and speed up planning/ consenting issues relating to underground drilling for shale oil

 The main points of interest for the energy sector in the Queen’s speech are:

The Infrastructure Bill: shale gas 

The government will introduce a Bill to bolster investment in infrastructure and reform planning law to improve economic competitiveness. The Bill will enhance the United Kingdom’s energy independence and security by opening up access to shale and geothermal sites and maximising North Sea resources.

Subject to consultation this Bill would support the development of gas and oil from shale and geothermal energy by clarifying and streamlining the underground access regime.

The Government is currently running a full consultation on this policy and the legislation is entirely dependent on the outcome of that consultation.

 (See the full story in Scottish Energy News before submitting your views on unconventional oil drilling at:  http://goo.gl/gBCxaR

In response to an inquiry from Scottish Energy News, the Scottish government said: “There are no proposals which involve the use of fracking techniques in Scotland at this time and the Scottish Government will follow a rigorous evidence based approach in the development and deployment of this technology.”

 “We believe strongly that any unconventional oil and gas developments can only be undertaken in line with environmental objectives.  We are also clear that local communities must be fully involved and informed.”

 “We are aware of this consultation on underground access rights for shale gas and geothermal companies. These are important matters and we look forward to understanding the views of different stakeholders.”

 

Conventional Oil and Gas: industry levy to pay for new ‘super-regulator’

Sir Ian Wood’s independent report estimates that full and rapid implementation will deliver at least 3-4 billion barrels of oil equivalent more than would otherwise be recovered over the next 20 years, bringing over £200 billion additional value to the UK economy.

The Government accepted Wood’s recommendations in full in February 2014, and is introducing measures in this Bill to put the principle of Maximising Economic Recovery of petroleum in the UK into statute.

Consequently, the Government will also introduce a levy, making power so that the costs of funding a larger, better resourced regulator can be paid for by industry rather than by the taxpayer as is currently the case.

Clauses will be introduced later in the session to set up a new super agency for the North Sea, with a duty to support the government and industry in maximising economic recovery from this important resource.

Oil & Gas UK, a London-based trade association for major North Sea oil exploration companies, does not agree that the whole cost of the new regulator should be borne by industry. Malcolm Webb, Chief Executive, said:

“We must disagree with the government seeking to absolve itself from all financial involvement or responsibility for the new Regulator. This is not a question of the size of the bill.

Production taxes paid by this industry each year run into many billions of pounds and the total cost of the new regulator will be a very tiny fraction of that. It is rather a question of good governance, transparency and fairness that at least a part of the cost of the Regulator should continue to be borne by the Department of Energy.”

 

Electricity Market Reform

“The government will continue to implement major reforms to the electricity market.”

 Reforms to the electricity market are being implemented to enable the UK to develop a clean, diverse and competitive mix of electricity generation, which will deliver security of supply and ensure that the lights can stay on.

The government is implementing two new mechanisms to ensure these outcomes are achieved:

  1. Contracts for Difference (CfDs) to enable investment in low carbon generation – these new contracts provide long-term revenue stabilisation, allowing investment to come forward at a lower cost of capital and therefore at a lower cost to consumers.
  2. The Capacity Market – a regular retainer payment to reliable forms of capacity (both demand and supply side) to provide an insurance policy against future blackouts – for example, during cold, windless periods – and help to ensure that consumers continue to receive reliable electricity supplies at an affordable cost. In addition, the Government, Ofgem and National Grid are working together to supplement the Capacity Market with additional balancing services to maintain security of supply in the middle of the decade.

 We have, through the Energy Act 2013, put in place the primary legislation to enable these reforms to be implemented. We intend to lay secondary legislation to enable implementation of its reforms shortly – enabling allocation of Contracts for Difference, and the first Capacity Market auction, to take place later this year.

 The government claims its are already driving billions of pounds of investment – for example:

Eight projects have been allocated early Contracts for Difference. By 2020, these projects will provide up to £12 billion of private sector investment, supporting 8,500 jobs, and they could add a further 4.5GW of low-carbon electricity to Britain’s energy mix (or around 4% of capacity), generating enough clean electricity to power over three million homes.

In October 2013 the key terms of an investment contract were agreed for Hinkley Point C, paving the way for construction of the first new UK nuclear power station in a generation.

 

 Environment: UN Climate-change Convention, Paris 2015

“The government will also champion efforts to secure a global agreement on climate change.”

 The Government is seeking to address dangerous climate change through ambitious action at home and at the international level. The agreed global goal is to limit the average global temperature rise to below 2 degrees above pre-industrial levels.

The most cost effective and competitive way to achieve this is an international, legally binding, rules based agreement covering every country.

The government is negotiating this under the UN Framework Convention on Climate Change (UNFCCC), which covers over 190 countries. All these countries agreed in 2011 to this new global deal. It will be agreed in 2015 and take effect from 2020.

The next major UNFCCC talks take place in Lima, in December 2014. The new global deal will be agreed at the conference after that, in Paris in December 2015.

The government is also pushing for an ambitious EU energy and climate change package to 2030 that would mean at least a 40% reduction in greenhouse gas emissions by 2030 and improvements to the EU’s long-term energy security.

The UK has adopted ambitious climate change targets, committing to an 80% reduction in emissions by 2050 from 1990 levels (the Climate Change Act). Emissions are already down by 18% on 1990 levels.

Renewables now comprise 15% of Britain’s electricity and 35% of UK electricity is low-carbon – a record level for the UK. The sector has attracted £37 billion worth of private sector investment in renewables since 2010 – creating over 37,000 green jobs across the UK.

UK green business has already carved out a £128 billion share of the global market – employing close to 1 million people. The CBI estimates that one third of the UK’s economic growth in 2011-12 is likely to have come from green business.

The UK currently has a trade surplus of more than £5 billion in green goods and services with exports growing by 3.7% to £12.2 billion in 2011/12. The CBI believes that green business could halve the UK trade deficit by 2014-15.

Pixie Energy

Pixie logo Pixie Energy is an incubator and a facilitator of strategic research and project work, focusing on energy regulation, policy and markets at the local and national level. Find out more about Pixie Energy here.

Local Energy Matters: Scotland

Local Energy Matters: Scotland is a free-to-download brochure with a focus on energy tariffs in the two Scottish electricity distribution regions, as well news on local energy and low-carbon schemes.

Previous editions can be download here.

Scottish energy market overview

You can read an overview of the Scottish energy market here.

Scottish Government energy feed