Our community energy report explores consumer attitudes and understanding of low carbon technology and community energy

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Consumers not yet convinced by heat pumps or community energy

  • Less than 1 in 5 (18%) consumers consider a heat pump an affordable option for them

  • Nearly 2 in 5 (37%) consumers would replace a broken gas boiler with a like for like; just 12% would opt for an air or ground source heat pump

  • Top three reasons holding homeowners1 back from retrofitting their homes are: cost (57%), lack of knowledge (28%) and disruption (21%)

  • Just 24% of consumers feel they have a good understanding of what community energy is 

  • 60% unaware of the Heat and Building Strategy £5,000 heat pump installation grant 

  • New research report from Shakespeare Martineau outlines barriers and recommendations for increased low carbon technology adoption 

New research commissioned by law firm Shakespeare Martineau, as part of the firm’s latest white paper Community energy ‘in a box’, shows that almost two-thirds of the population do not feel they confidently understand what a heat pump is, how it works and how they go about getting one. Nor do they understand community energy, with less than a quarter of people (24%) stating they had a good understanding of what it was.

Nearly 2 in 5 (37%) consumers said that if their boiler needed replacing in the next six months they would replace it with a new gas boiler.

Despite the government pushing for heat pumps and electrification, just 12% of consumers would replace their current heating system with a heat pump (6% opted for air source and 6% said ground source heat pump) and more than a third (36%) responded with ‘don’t know’. And 60% were unaware of the government’s Heat and Building Strategy £5,000 heat pump installation grant.

“There are a number of barriers standing in the way of increased adoption of community energy projects, which will make a huge difference to the UK meeting its net zero targets,” said energy partner at Shakespeare Martineau, Sushma Maharaj.

“Consumer buy-in is crucial in order to drive innovation and we also need major landowners like housing associations and planning authorities to make demands on new developments, as well as make it much easier for housebuilders to utilise existing infrastructure in the adoption of community energy.”

The research shows that the top three reasons holding homeowners1 back from retrofitting their homes are: cost (57%), lack of knowledge (28%) and disruption (21%).

The Energy Saving Trust estimates that the cost of an air-to-water heat pump is around £7,000 to £13,000 depending on the size of heat pump, property size, whether it’s a new build or an existing property, and whether you need to change the way heat is distributed around a property.

Providing the above information, we then asked consumers if they thought heat pumps were an affordable option for them; just 18% said yes, while nearly two thirds (62%) said no, and 20% were unsure.

According to the Office for National Statistics, the median household income in the UK was £29,900 in the financial year ending 2020. Respondents closest to this national average household (those with a household income between £25,001 and £35,000) had one of the highest counts of undecided individuals; almost two thirds (65%) were neither likely nor unlikely and just 17% said it was an affordable option.

Sushma added: “With the ‘average’ household having little understanding of community energy and only a minority of this group considering low carbon technology (heat pumps) as an affordable option, more must be done to educate and financially support this group.

“The Chancellor’s announcement to scrap VAT on energy saving technology is a step in the right direction, but will still leave the public – particularly the average ‘able to pay’ household – well out of pocket.

When consumers are already combatting the rising cost of living, if they are required to fork out large sums for new technology there needs to be further incentives, such as additional grants, interest-free loans, reduced council tax or greater influence of EPC rating on the value of their home.
Energy partner, Sushma Maharaj

The research showed that 60% of all people were not aware of the Heat and Building Strategy £5,000 heat pump installation grant. Of those people not aware, more than a third (34%) said that the grant money would make them more likely to purchase a heat pump, indicating an urgent need for improved education.  

The white paper ‘Community energy in a box – how do we get there?’ from law firm Shakespeare Martineau explores public attitudes towards community energy, low carbon technology and retrofitting, as well as brings together experts across energy, academia, law and housing to provide solutions and recommendations for greater adoption of community energy projects by industries that will play a significant role in meeting the government’s net zero targets in 2050. 

When given a description of community energy some consumers changed their mind; 35% of people said they would be likely to consider a community energy project. However, 41% remained indifferent: stating they were neither likely nor unlikely. 

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Sushma is a renewable energy specialist having advised on numerous renewable energy projects and on heat networks. She works with clients as they pioneer clean energy projects and navigate the ever-changing legal and regulatory landscape.

1| Research filtered by homeowners only, provided 1596 respondents 

2| 64% - combined percentage answering ‘no’ or ‘don’t know’ 

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Net zero transition – major structural changes ahead

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Recently (April), BEIS and Ofgem announced a decision to create a new ‘future system operator’ (FSO), the culmination of a consultation which began in July 2021. Around the same time they also published a response to a separate consultation on the reform of the energy industry codes.

System operation - the case for change

This is all about the net zero transition – creating an expert and impartial body to coordinate the ever more integrated electricity and gas systems, both onshore and offshore, with an eye to the emerging hydrogen and carbon capture and storage markets.  And crucially, managing the trade-offs and synergies between net zero transition, security of supply and affordability.

The system operator roles for electricity and gas are currently undertaken within National Grid, by respectively National Grid Electricity System Operator (National Grid ESO) and National Grid Gas. As a firm we have a long relationship with both, especially National Grid ESO, for whom we have been supporting on balancing services procurement and contracting all the way back to shortly after industry privatisation in the early 1990s.

Fully supported by National Grid, the changes now announced will see the biggest structural change in electricity system operation since those early days, which is perhaps an indication of the scale of the net zero challenge the country faces.

The new FSO

The new FSO will be a public corporation, sitting within the public sector but outside of central government.  And it will be independent, of both asset ownership and commercial interests but also of government.  It will be founded on the existing roles and capabilities within National Grid, notably the system operator role within National Grid ESO but also the longer term planning, forecasting and market strategy functions of National Grid Gas.  The existing gas system operator role will remain within National Grid Gas.

New regulatory framework

Key features:

  • Two new categories of licence within legislation – an electricity system operator licence and a gas system planner licence, both to be held by the FSO, with regulation by Ofgem

  • A primary statutory duty for the FSO to undertake its functions in a way that best promotes achieving net zero, ensuring security of supply in electricity and gas, and ensuring an efficient, coordinated and economical electricity and gas system

  • An additional duty to have regard to the need to facilitate competition and innovation, the impacts on consumers and consumer behaviour, and whole system impacts

  • A statutory advisory duty for the FSO, building on National Grid’s current responsibilities such as the future energy scenarios programme

  • New statutory powers for the FSO to obtain data from other licence holders (and exemption holders)

Crucially, while operating independently, the FSO will have an additional legislative duty to have regard to government’s energy sector policy and strategic objectives set out in its Strategy and Policy Statement framework (SPS) when undertaking its functions, in much the same way as Ofgem is required to currently.

Implementation

In terms of implementation, in addition to new primary and secondary legislation, it is envisaged that there will be a statutory transfer scheme to ensure that all relevant assets and capabilities are moved to the new body. Modifications will also be required to industry codes and agreements to take account of the new arrangements. It is also planned to consult on the future ownership of Elexon, currently held by National Grid ESO. With all this in mind, the government plans to work to a timetable that will see the FSO established “by, or in, 2024”.

Energy Code Reform

In a related development, again looking to the net zero transition programme, government and Ofgem also published in April its response to a separate consultation in July 2021 on the reform of the energy industry codes. New strategic code functions are to be given to Ofgem, in an expansion of its existing code roles.

Key features:

  • Ofgem will be required to publish an annual strategic direction setting out its vision for how the codes should evolve, taking into account relevant aspects of the SPS, which the code managers will then implement

  • Ofgem will also have direct ability to change codes, albeit in limited circumstances and after consultation (and subject to government veto and appeal to the Competition and Markets Authority)

  • Ofgem will have power to select and licence code managers, including after competitive tender, and these code managers will replace existing code administrators and panels and be regulated by licence

Also within scope are the four central system delivery functions: those underpinning the gas industry undertaken by Xoserve, the electricity balancing and settlement arrangements undertaken by Elexon, the smart metering delivery rules and requirements that sit under the Smart Energy Code, and the functions underpinning the Data Transfer Service that are used in the change of supplier process. In due course, these will be supplemented by the central switching service. These functions are fundamentally important to the operation of the energy industry, including the move to net zero. Ofgem will be given powers to give directions to the relevant bodies, and the code managers will be given an obligation to cooperate with them for the purposes of delivering the strategic direction.

These changes are in some cases quite fundamental, and it is envisaged that transition will take place on a code-by-code basis, with Ofgem being granted powers to modify codes, licences and agreements for seven years and to establish transfer schemes. Further details will be published by Ofgem in an open letter to the industry later this year.

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Andrew is a specialist energy regulatory and contracts lawyer, who works with a range of utility and developer clients and funders to help them manage regulatory and legal risk in a fast moving and complex environment. Andrew is also currently our elected Senior Partner.

Energy & Water Law

We’re exceptionally proud of the deep-rooted energy and water specialisms we have here at Shakespeare Martineau. As one of our priority areas for investment and growth, much of our time and resource is focused upon these related (and converging) sectors, ensuring we are at the forefront of industry developments and are best placed to make a positive difference to our clients.

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Energy security strategy – an opportunity missed?

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A few thoughts on the government’s new energy security strategy, published on 7 April

First, it’s not really new.   The Energy White Paper back in December 2020, building on the Prime Minister’s ‘Ten Point Plan’, has already committed the UK to ambitious goals in areas such as offshore wind, nuclear power, low carbon heating and clean hydrogen. What the strategy does do, however, is raise the scale of ambition in some key areas.

Second, it’s really quite long term – so much of it is not going be deliverable for at least a decade.  And that’s notable considering this strategy was a reaction to the very immediate shock to the system in the form of sky high wholesale energy prices, exacerbated by the Ukraine crisis and the prospect of curtailment of Russian gas flows.

Third, it has a gaping hole in it, and that’s energy efficiency.  It is already being touted as an energy ‘supply’ strategy because it has so little to say about the demand side of energy.  And that’s disappointing, because helping GB consumers – domestic and business alike – to reduce their energy consumption is not only going to reduce the scale of the energy security challenge; it is also the surest way to help address the standard of living crisis which is not going to see energy prices reduce any time soon, and in a way which reduces carbon emissions.  Our homes are the worst insulated in Europe, and it is starting to feel like the government really doesn’t have any fresh ideas or appetite to sort this out.

Fourth, amidst all the fanfare of a shaky consensus at COP26 in Glasgow last year and the beginnings of a concerted global movement to tackle climate change, it does seem a backward step to be licensing more North Sea oil and gas, and giving an (admittedly) faint second chance to fracking.

That all said, there are some good things in the strategy.  Sharing centre stage are nuclear power and offshore wind.

On the first of these, the government aims to reverse the decline in UK nuclear by building 24 GW of new capacity by 2050, the equivalent of eight large nuclear power stations.   The government’s track record on delivering on new nuclear build projects has been poor, with just the eye-wateringly expensive Hinkley Point C to show for all the talk over many years, and so it therefore hashas some work to do to get private sector investment re-engaged, but of course it now has a ‘regulated asset base’ funding model designed to kick start projects, which will transfer construction risk to consumers.

However it has surely missed the boat if it wants to replace with new nuclear capacity our ageing existing nuclear power stations as they decommission over the coming years.

On offshore wind, the plan is to increase the previous target, 40GW by 2030, to 50GW, and crucially with a promise to reduce planning and consenting delays, and this will be welcomed by developers as these have been acting as a real barrier to new developments.

But both these technologies have long lead times, especially when compared with onshore wind, and are much more expensive.   So what about onshore wind and solar?

Onshore wind appeared to have suffered from a severe dose of nimbyism, with reluctance from within government to give it a real push.   This despite the fact apparently the majority of the public support it. And there were words of encouragement for solar, but no firm targets.

What is particularly good to see however is strengthened targets for production capacity of low carbon hydrogen (especially green hydrogen, from electrolysis), which surely has a pivotal role to play in the decarbonisation of both transport and heat. Crucial here will be funding models to get UK hydrogen production get to scale (for example contracts for differences, as used so effectively to support renewable energy production), and new business models for hydrogen transport and storage infrastructure.  Combined with the measures on nuclear and offshore wind, these important commitments on the ‘supply’ side reinforce the long term trajectory towards net zero.

But none of this will come cheap, and the short term issue right now is the cost of living crisis, with the average energy bills rising by 54% and set to increase again with a further rise of the energy price cap later in the year.  This strategy offers nothing in the short term beyond measures already announced.  And with so little to say on energy efficiency where there is the potential to make some of the biggest gains across energy security, decarbonisation and energy affordability - yet where so much of the heavy lifting is still needed - it is hard not to see it as an opportunity missed.

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Andrew is a specialist energy regulatory and contracts lawyer, who works with a range of utility and developer clients and funders to help them manage regulatory and legal risk in a fast moving and complex environment.

Energy & Water Law

We’re exceptionally proud of the deep-rooted energy and water specialisms we have here at Shakespeare Martineau. As one of our priority areas for investment and growth, much of our time and resource is focused upon these related (and converging) sectors, ensuring we are at the forefront of industry developments and are best placed to make a positive difference to our clients.

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Biodiversity Net Gain – opportunities and obligations for developers and landowners alike

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With the ink still wet on some of the policies and agreements to come out of COP26, sustainable development is high on the political agenda.  Improving biodiversity is a major issue for landowners, developers and planning authorities and biodiversity net gain is a method utilised to improve a site's value – the higher the biodiversity net gain, the potentially higher the value, and who doesn’t want that?

What is meant by biodiversity?

The biodiversity of an area is the variety of plant and animal life in a particular habitat.  A high level of biodiversity is considered to be desirable and important.

What is biodiversity net gain?

The act requires, amongst other things, that all development schemes in England must deliver a mandatory minimum 10% biodiversity netgain which must be maintained for a period of at least 30 years.   

Biodiversity Net Gain follows a mitigation hierarchy – four steps designed to result in a win- win situation. Wins for the environment and wins for the developer. 

The four steps 

Avoidance – avoiding any impact completely such as changing the location of development 

Minimisation – reducing the time, extent, impact, intensity of the development. 

Onsite restoration – measures taken to restore the habitat involved.  This step is particularly necessary if avoidance and minimisation were not possible in the first instance. 

Offset - measures taken to compensate for the adverse impacts after the previous three have been explored in full. 

What does this mean for land developers?

Local planning authorities have required similar mitigation measures from developers via the local plan system for a number of years. However, the new Act will bring the existing requirements of the planning system into statute, giving some form of certainty in terms of what is required. The preference is for mitigation measures to be provided on-site, but where this is not possible, the developer should aim to provide and secure mitigation measures in terms of local habitats.

The key for developers with this new law is to ensure that any proposals are brought forward with BNG in mind. Measures should be factored in and accommodated from an early stage, to avoid pitfalls further down the line. Creative thinking and additional planning throughout the process will prevent pitfalls further down the line. Engaging with the local planning authority during the process will also demonstrate that the BNG process has been thoroughly engaged with.

What does this mean for landowners?

By 2028 the farm subsidy, known as the Basic Payment Scheme will be eradicated and in its place (to a degree) the new Environmental Land Management Scheme (ELMS), set under the Agriculture Act 2020, will be fully integrated. The ELMS is based on the philosophy of “public money for public goods”, and biodiversity (along with all natural capital considerations) will play a huge role within the various schemes planned.  What we don’t know at this stage is how the private sector contracts between developers and landowners will sit with the ELMS and whether there will be the ability to benefit from both. (‘Stacking’ is the issue of whether the same land can ‘stack’ one payment upon another).

It would appear that there is an opportunity for landowners and farmers to take advantage of developers offsetting their BNG requirements, by adding a new revenue stream for any farm business or landed estate, which may be more lucrative than what the ELMS have to offer. However, a word of caution. All businesses will need to consider their own carbon footprint before embarking on entering into any offset BNG contracts, to ensure they can reach their own net zero carbon target.

Furthermore, as this is still a new concept, values need to be carefully considered. With land needing to be set aside for BNG for a minimum of 30 years (with the Secretary of State having powers to increase this as it sees fit), it might have the negative effect of reducing the capital value of the land. This needs to be compensated by the offset contracts between landowners and developers. Tax planning for future generations also needs to be considered for landowners.

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Anna has 15 years’ experience advising on all aspects of planning, compulsory purchase and highways law, acting for a variety of public and private sector clients throughout her career including landowners, promoters, developers, local authorities, central government agencies, regional development agencies, and various NHS Trusts.

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Heat Network Metering and Billing Regulations – what registered providers need to be aware of

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Social Housing providers should be aware of recent changes to the Heat Network Metering and Billing Regulations.

The Heat Network (Metering and Billing) (Amendment) Regulations 2020 (SI 2020/1221) (2020 Regulations) were made on 5 November 2020 and come into force on 27 November 2020. They are accompanied by an explanatory memorandum. The Regulations amend the Heat Network (Metering and Billing) Regulations 2014 (SI 2014/3120) (2014 Regulations), which transposed the metering and billing requirements in the Energy Efficiency Directive (2012/27/EU).

Heat networks deliver space heating, process heating, hot water, and cooling from a central energy source to multiple sites and buildings (district heat networks), or multiple dwellings and non-domestic units within a building (communal heat networks). The 2014 Regulations aimed to drive energy efficiency through meter installation and billing based on consumption.

The first part of the heat regulations, launched in 2014, requires heat network operators to complete a notification of data from all qualifying heat networks to BEIS. This process must be repeated every four years from the date of the original submission.

The second part of the regulations came into effect on 27 November 2020 and requires heat network operators to determine if they must install heat meters or heat cost allocators into their buildings.

To define which networks will be required to install, BEIS has introduced three building classes:

  • Viable – Those who must install heat meters

  • Open – Those who must complete a viability exercise to determine if they are required to install meters or heat cost allocators

  • Exempt – No action required

If buildings fall into the open class, heat network operators are required to complete a tool to assess whether it is cost-effective to install heat metering devices. The deadline to determine building classes and to complete the cost-effectiveness tool was 27 November 2021.

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Sushma is a renewable energy specialist having advised on numerous renewable energy projects and on heat networks.

Energy & Water Law

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Birmingham law firm supports acquisition of pirate deterrent group

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Pirate deterrent product makers Guardian Maritime and Guardian Barriers will be acquired by cash shell Nu-Oil and Gas – following support from Shakespeare Martineau’s Birmingham office.

Nu-Oil and Gas have also confirmed it intends to re-list on the main market of the London Stock Exchange once the acquisition has been completed, which is expected in January 2022 – allowing public market investors to gain exposure to maritime security companies and the global fight against piracy.

Following admission, the company will change its name to Guardian Global Security plc.

Full service law firm Shakespeare Martineau acted on behalf of the majority shareholders of Guardian Maritime and Guardian Barriers on their sale.

Corporate partner Keith Spedding, who led the deal, said: “We are delighted to have assisted Guardian’s shareholders during this deal. Following the acquisition and subsequent admission, the newly-formed Guardian Global Security plc will have unparalleled market-leading knowledge, experience and contacts in the maritime sector and unique access to expansion opportunities.

The patent-protected Guardian system is used to visually deter pirates from maritime vessels. As far as the company is aware, no vessel fitted technology has been breached, including five that have been subjected to attempted attacks.

David Stevens, co-founder of the companies, said: “We were delighted with the support provided by Keith Spedding and Gweni Rees-Evans. With their experience, they were able to guide us through a complex process.

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Keith advises companies (both public and private), partnerships and their owners on all aspects of corporate and partnership law.

Energy & Water Law

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Nuclear Energy (Financing) Bill: A further boost for the UK Nuclear Industry

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Anyone who has downloaded the electricyMapp App which shows the carbon intensity of electricity consumption and production across Europe on an hourly basis will immediately see the impact and benefit of nuclear power. 

With the exception of Iceland with its geothermal power and those Scandinavian countries with high levels of hydro power it is the presence or absence of nuclear which determines the level of carbon intensity and the harm being done to the environment.  France, where 60% of electricity generation is from nuclear power consumes a quarter of the carbon intensity of Germany (even when the wind is blowing) following the early decommissioning of the German Konvoi fleet of nuclear reactors. 

The Energy White Paper gave a welcome if general endorsement of the role of nuclear in the quest for net zero.  The key obstacle to the renaissance needed in large scale nuclear power has been the question of finance.  Private entities simply could not raise the necessary finance for the design and construction stage of such expensive projects using the Contracts for Difference mechanism in the United Kingdom given the long gap between investment and return. Funding the risks and costs associated with development, design, planning and construction before any electricity and revenue can be generated proved too much for the proposed British nuclear projects of Toshiba, Hitachi and Kepco, particularly in the aftermath of Brexit.  

The cost of capital is known to add up to 40% to a nuclear project’s build cost.  A finance model which reduces uncertainty over revenue receipts and accelerates return would provide a better credit rating for the project and therefore reduces the cost of finance.  In addition to making the development of nuclear plants more likely, such a mechanism would save money in the long run for consumers.  The nuclear industry has advocated the use of a regulated asset base (RAB) model for some time and have cited the use of such a model on other large infrastructure projects such as Thames Tideway Tunnel and the third runway at Heathrow as precedents. 

Essentially, the RAB financing model includes part of the upfront costs of the nuclear new build plant on to the energy bills of consumers before electricity is generated. 

The Nuclear Energy (Financing) Bill which looks to introduce a RAB model into the nuclear sector received its first reading in Parliament in October 2021.  This was exactly two years following the closing of the consultation on a new RAB model instigated by BEIS.  Whilst the delay in bringing this legislation to Parliament is regrettable the content of the Bill has generally been welcomed. 

There were industry concerns at the time of the consultation that the construction and optimally the development process would be covered by the model and that the Office for Nuclear Regulation (ONR) would not be diverted from their nuclear safety role in regulating the finance model on behalf of consumers.  These two concerns have largely been met. 

The Bill is made up of the following parts: 

What is a RAB financing model?

  • Part 1: Nuclear energy generation projects: regulated asset base model 

    The Secretary of State has the power to designate a nuclear company’s eligibility to benefit from a RAB special licence.  The designation is made following consultation and is essentially premised on the project being advanced enough to merit designation and that it is likely to result in value for money.  A nuclear company’s licence will be modified, if designated, to incorporate the RAB licence conditions. 

    Ofgem, not the ONR, will regulate the nuclear company based on the modified licence. 

  • Part 2: Revenue collection contracts 

    The Secretary of State is empowered to make regulations in relation to revenue collection contracts, which includes the power to designate a revenue collection counterparty. 

    Payments made to the nuclear company are done by reference to allowed revenue based on forecasting which may be made prior to operation. 

    Following commissioning Ofgem is to determine a market revenue.  This market revenue is deducted from the allowed revenue that the nuclear company is to receive over the charging period. 

  • Part 3: Special administration regime 

    The risk of an Ofcom regulated nuclear company becoming insolvent is addressed by the Secretary of State, or Ofgem with the approval of the SoS, being able to apply to court for the appointment of a special or nuclear administrator with the objective of completing construction or operating the plant. 

  • Part 4: Funded decommissioning 

    In a move to facilitate the secured interest funding of projects the provisions of the Energy Act of 2008 are amended in relation to the decommissioning of nuclear plants by clarifying what is meant by being “associated” with a licensed site operator. Holding shares, rights or powers in relation to the enforcement of security interests does not mean the creditor is associated with the site operator for the purpose of decommissioning. 

What’s in the Bill?

COP26 showcased the utility of nuclear in achieving net zero particularly in the way the industry has demonstrated its flexibility in the future co-generation of hydrogen together with generating electricity for the grid.  Additionally, the news of funding for the Rolls Royce small modular reactor (SMR) project has given increased hope to the sector.  The Bill together with the Labour party’s support for it has given a further boost to new build nuclear and hopes for Britain hitting its net zero objectives. 

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Ian has experience in utilities and energy infrastructure, engineering and major construction projects both in senior in-house positions and in private practice.

Ian has advised on a range of energy projects including nuclear new build, nuclear decommissioning, and gasification, advanced gasification, solar, wind and biofuel.

Energy & Water Law

We’re exceptionally proud of the deep-rooted energy and water specialisms we have here at Shakespeare Martineau. As one of our priority areas for investment and growth, much of our time and resource is focused upon these related (and converging) sectors, ensuring we are at the forefront of industry developments and are best placed to make a positive difference to our clients.

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Agriculture: diversifying or leasing your land to create habitat banks

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Teachers’ Pension Scheme – strategic issues independent schools need to think about

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Biodiversity Net Gain – opportunities for landowners, obligations for developers

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With the ink still wet on some of the policies and agreements to come out of COP26, sustainable development is high on the political agenda.

Improving biodiversity is a major issue for landowners, developers and planning authorities and biodiversity net gain is a method utilised to improve a sites value – the higher the biodiversity net gain, the potentially higher the value, and who doesn’t want that?

What is meant by biodiversity?

The biodiversity of an area is the variety of plant and animal life in a particular habitat. A high level of biodiversity is considered to be desirable and important.

What is biodiversity net gain and what does this mean for Developers?

Biodiversity net gain (BNG) sits within the Environment Act 2021 which received Royal Assent in November 2021. The act requires, amongst other things, that all development schemes in England must deliver a mandatory minimum 10% biodiversity net gain which must be maintained for a period of at least 30 years. This is now a legal requirement.

Biodiversity Net Gain follows a mitigation hierarchy – four steps designed to result in a win- win situation. Wins for the environment and wins for the developer.

  1. Avoidance – avoiding any impact completely such as changing the location of development

  2. Minimisation – reducing the time, extent, impact, intensity of the development

  3. Onsite restoration – measures taken to restore the habitat involved

  4. Offset - measures taken to compensate for the adverse impacts after the previous three have been explored in full

What does this mean for landowners?

By 2028 the farm subsidy, known as the Basic Payment Scheme will be eradicated and in its place (to a degree) the new Environmental Land Management Scheme (ELMS), set under the Agriculture Act 2020, will be fully integrated. The ELMS is based on the philosophy of “public money for public goods”, and biodiversity (along with all natural capital considerations) will play a huge role within the various schemes planned.

What we don’t know at this stage is how the private sector contracts between developers and landowners will sit with the ELMS and whether there will be the ability to benefit from both. (‘Stacking’ is the issue of whether the same land can ‘stack’ one payment upon another).

It would appear that there is opportunity for landowners and farmers to take advantage of developers offsetting their BNG requirements, by adding a new revenue stream for any farm business or landed estate, which may be more lucrative than what the ELMS have to offer. However, a word of caution. All businesses will need to consider their own carbon footprint before embarking on entering into any offset BNG contracts, to ensure they can reach their own net zero carbon target.

Furthermore, as this is still a new concept, values need to be carefully considered. With land needing to be set aside for BNG for a minimum of 30 years (with the Secretary of State having powers to increase this as it sees fit), it might have the negative effect of reducing the capital value of the land. This needs to be compensated by the offset contracts between landowners and developers. Tax planning for future generations also needs to be considered for landowners.

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Amy specialises in agricultural property law, bringing more than 16 years’ experience.

She advises on a variety of matters such as buying and selling farms and estates, agricultural tenancies, easements, bank security work, and advising landowners on diversification projects such as commercial leases and selling land for development.

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Rising energy prices force Bulb to enter Special Administration

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Bulb appoints a special administrator

Energy supplier Bulb has announced they are going into special administration, as the energy crisis looks set to continue. For their 1.7 million customers, it comes as unsurprising news as wholesale gas prices continue to rise. 

The appointment of a special administrator will be a first for Ofgem, who have been able to deal with previous insolvent suppliers through the appointment of a Supplier of Last Resort (“SoLR”). Bulb is too large for the SoLR process and so Ofgem have had to resort to the special administration process. 

Our energy specialist Tim Speed said: 

“The appointment of an energy administrator is a drastic step for Ofgem and is another indicator as to the extent that the energy market is struggling.  

What is a Supplier of Last Resort?

“A Supplier of Last Resort (SoLR), which involves another company taking over supply to the failed supplier’s customers, is the default action for the majority of collapsed energy companies. However, the size of Bulb means this isn’t viable. Although the process has existed for some time, an energy supply company administration has never been implemented before, showing how dire the current situation is. The aim is to ensure supplies are continued at the lowest possible cost, with the administrator able to split up the existing business by transferring all or part of it to other companies, when appropriate. 

“Other energy suppliers that are concerned about their future must act quickly. By identifying the problem and seeking professional advice early on, it may be possible to secure an investment or sale that guarantees a future for the business. However, this does take time, so it’s important to address any issues while there is still sufficient cashflow. 

“Ofgem and the Government need to make serious decisions about the future running of the market, because the events of recent months cannot be repeated.” 

Bulb speak out on rising energy costs

From a statement on their official blog, Bulb say “When we founded Bulb in 2015 it was because we thought energy customers deserved a better deal. We believed strongly that we should do things differently, and that by building a talented team and creating our own technology we could make energy simpler, cheaper and greener.”

“Wholesale prices have skyrocketed and continue to be extremely volatile. The gas supply shortage combined with lower exports from Russia and increased demand means they remain high and unpredictable. Prices have hit close to £4.00 per therm recently, compared with 50p per therm a year ago”

Are you a struggling energy supplier?

We have acted for insolvent suppliers who have been able to sell their assets to other suppliers.  We have also acted for suppliers who have entered the SoLR process.  

If you are an energy supplier or are advising an energy supplier we would be more than happy to talk to you in order to discuss available options. 

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Tim is a litigator who adopts a robust and practical approach to claims and is valued as a trusted advisor to his clients.

Energy

Our 50+ energy and water team is made up of lawyers from multiple disciplines across the firm, all of whom act for clients active, or with an interest, in the sectors. These include our specialists in utility regulation and industry codes, as well as experts across real estate, corporate finance, commercial contracts, retail and consumer debt, litigation and, uniquely for a law firm, our in house planning consultants.

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Teachers’ Pension Scheme – strategic issues independent schools need to think about

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Eat or Heat? Net Zero Carbon Britain needs plans, not bans

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Net Zero Carbon Britain

There is currently a great deal of speculation and chatter circulating in the media regarding Net Zero Carbon Britain and the potential problems the country could encounter between now and  2050. 2050 is the proposed deadline for the UK to reduce its carbon emissions to net zero, and at present there are considerable technological, economic and social obstacles to enable us to achieve this. Equally, while the UK should be applauded for being amongst the leading agents for change, it is important that both industry and consumers alike can afford such change. 

One big issue is whether or not the journey to net zero carbon emissions, together with the current shortages of both power and fuel, will  leave many people facing a throwback to the darkness of the 70s’ three-day working week and “lights out” rules. Could we really be heading towards an “eat or heat” way of living? 

What would cause such a dilemma? 

To accelerate and facilitate change, the government has made it clear that carbon levies will be imposed. Certain commentators are convinced that carbon levies hurt industries in transition, and those costs are passed on to consumers and it is the most needy that feel this increase acutely. 

A net zero carbon economy

Right now, there isn’t much clarity on how this will work. Threats of poverty are starting to emerge in the media and people are panicking at shortages, so what will happen when heating and light become more expensive? 

According to the Financial Times, “Britain has arrived at this spectrum of different carbon prices as a result of history, politics and very little economics. Many governments since the second world war, for example, have seen motorists as an easy target for revenue raising, which is why fuel duties still bring in £28bn a year — almost 3.5 per cent of government receipts — even though they have been frozen for a decade” (Financial Times).   

EVs are becoming more common but they are still expensive to most private consumers. For those who cannot afford an electric or relatively new vehicle, will carbon levies be imposed on their old vehicles or on the public transport systems they use?  

To frack, or not to frack?

Britain’s green activists have made the case that fracking could cause issues such as earthquakes or other disasters. But fracking would enable Britain to source its own gas rather than rely on imports. The impact on the earth could be too much of a risk and could be socially and politically unacceptable. 

Only last week, it was reported in iNews that UK Onshore Oil and Gas has said the energy crisis we currently face is “a bizarre state of affairs” when in fact, the gas lying beneath Northern England and the Midlands would be enough to “meet the UK’s gas demands for 50 years” (iNews).   

Should we therefore use the fossil fuels available whilst the transition is made affordable? There is much to ponder.     

The EV conundrum

Recently, there has been talk of the government withdrawing its grants for electric vehicle manufacturing and purchasing. This would not only cause an indirect carbon levy, but could create a confusing landscape for those investing in R&D in these areas.  

Every driver is expected to have an electric, hybrid, hydrogen or bio-fuelled vehicle by 2030. But what hasn’t been explained, is how this can be brought about on an affordable basis. How will residents of apartment blocks charge their cars? And how will residents of terraced streets with little to no parking arrangements charge theirs?  

There are those seeking to provide such services, but they must be legally enabled to do so. Equally legislation must protect consumers who purchase such goods or services. Furthermore the safety of those working with such goods should be trained and protected by regulatory measures.  

A leading voice in this debate is that of the Society of Motor Manufacturers and traders, the SMMT. They have voiced their view that rather than bans which can create innovative panic, there should be plans formed between government and industries that will lead to targeted innovation and implementation. This is a time when meaningful change can be made to the environment of the country’s citizens, but not at the cost of those consumers who will be adversely affected by carbon levies. 

Contact Us

To discuss any of the issues covered here contact Edward Flanagan or another member of the green energy team.  

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Eddie works with a highly skilled team to deliver industry-specific advice to the asset finance and leasing sector.

Eddie and his team advise clients on a wide range of issues concerning leasing, hire, consumer credit, the FCA source book and the regulatory landscape affecting the UK finance and leasing sector.

Energy

We’re exceptionally proud of the deep-rooted energy and water specialisms we have here at Shakespeare Martineau. As one of our priority areas for investment and growth, much of our time and resource is focused upon these related (and converging) sectors, ensuring we are at the forefront of industry developments and are best placed to make a positive difference to our clients.

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Agriculture: diversifying or leasing your land to create habitat banks

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Teachers’ Pension Scheme – strategic issues independent schools need to think about

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COP26 - Round up of week 1

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A few reflections on COP26 after week 1 in Glasgow, by head of energy Andrew Whitehead

First, you don’t have to be in the blue or green zones to find some great events going on around the city, and beyond.  And Glasgow has plenty of venues to meet up for breakfast, lunch, dinner, or just a coffee, which is just as well as there are plenty of clients and contacts coming and going.

So, what are people talking about?

Well, beyond the big headline announcements around methane emissions, deforestation and carbon reporting, and looking to the energy sector, there are some recurring themes.

First, hydrogen surely has an important role to play, not just for heating homes and cooking, but as a substitute for natural gas in industrial processes and as a transport fuel.   In fact, some say the hydrogen economy in 2050 could be the size of the oil and gas industry now. Our gas network companies are doing some vital work in this area, to develop demonstration projects to prove the concept and ensure our existing pipeline system is up to the job of safely conveying hydrogen at high pressure.

We are proud to be working for clients in this area on the cutting edge of research and development, a great example being the Birmingham Centre for Railway Research and Education (BCRRE), at the University of Birmingham, which is showcasing at COP next week its HydroFLEX hydrogen-ready passenger train, an exciting collaboration with Porterbrook.

What will be interesting is how hydrogen networks supplying homes will play out against the government’s drive to install electric heat pumps.  It feels like a VHS/Betamax technology battle, but actually there must be a place for both; heat pumps on their own are not going to be sufficient.  What seems clear is that developing hydrogen, at least initially, around industrial clusters, is a good start.  These can bring together production and demand, and utilise carbon capture and storage, allowing a transitional space to deploy so-called ‘blue’ hydrogen as a kick start to the eventual sustainable development of green hydrogen production.

This holistic approach to creating a circular carbon economy has also been a theme in discussions around how we can decarbonise the “hard to abate” energy intensive industries such as cement, steel and chemicals.  This is a vital nut to crack, as emissions from the industrial sector account for over 35% of overall emissions.  And the challenge is not just one of decarbonising energy usage, but also to address the emissions associated with the industrial processes themselves.

At COP26 we heard from many businesses who are doing the right thing and leading from the front, and we have also heard from our own government on its plans to ramp up carbon reporting to improve transparency.   Critical here will be how each of us as individuals embrace making the right consumer choices – which will often not be the cheapest – in order to stimulate demand for low or zero carbon products and services.

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There is also plenty of talk at COP26 on the role of nuclear.   Large scale nuclear has been given a boost recently with the new finance bill which will allow developers to share construction risk by guaranteeing a pre-build revenue stream.  For smaller “modular” reactors, constructed offsite in purpose-build factories, Rolls Royce reckon that, from the early 2030s, they can turn out two a year on current projections, in time more.  These could be a game changer for nuclear – at 430MW each, one is enough to power a city the size of Leeds.

The electrification of heat and transport is of course going to involve a seismic shift in how our power system works, and indeed that transition is well underway.  In its role as system operator, National Grid is already using a host of new balancing tools to “keep the lights on”, and in due course to keep many of our homes warm and our cars on the road.  And those tools are deployed alongside sophisticated weather forecast modelling and digital optimisation technology. This is no straightforward task; the UK government has committed to a zero carbon power sector by 2035, consistent with the 6th carbon budget, and National Grid is working ahead of the curve to ensure that, over the next four years, it will be able to operate the system without fossil fuels whenever there are sufficient renewables running.   The company has been innovative in this space, and one of the themes of COP26 has been to find opportunities to share best practice and ideas with other system operators around the world.

And this theme of collaboration has been a recurring one.   Look no further than the North Sea, where the UK expects to meet the bulk of its 40GW offshore wind ambitions, but these ambitions sit alongside those of countries like Norway, Denmark and Belgium.   Brexit and politics is not getting in the way of genuine international collaboration where we have shared objectives with our neighbours, the most recent example being the subsea electricity interconnector between the UK and Norway, the world’s longest.  This and the other interconnectors need to be optimised alongside planned offshore wind and other energy projects to create an integrated whole which delivers secure and efficiently delivered energy where it’s needed.

And this is where, once again, it comes right back to the individual.  These big projects need local buy in; they typically involve new cables, convertor stations, substations and other onshore infrastructure, and so the benefits and the bigger picture need to be clearly explained and understood.

But isn’t that the case also for the climate change challenge itself? If we are to keep global temperature rise to within 1.5 degrees, we each of us need to make some hard and difficult choices about how we live our lives. People don’t take kindly to being told what to do; far better to explain and win hearts and minds.

For me, that’s been the recurring question over the course of this opening week at COP26; are the world’s politicians brave and bold enough to commit to what’s needed and back themselves to make the case for change when they go back home next week?

Andrew Whitehead, Senior Partner & Head of Energy

A lot rests on the shoulders of our politicians, who must start thinking and acting long term.  And we need to reverse the recent trend of isolationism because the climate change threat will only be solved by collective action in a spirit of generosity, trust and compromise. We have heard during COP26 that we don’t lack availability of global finance which can be raised and deployed in developing and implementing the necessary solutions.  What we risk seeing is a failure of governance, and at this late hour, with the stakes so high, that cannot be allowed to happen.

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Andrew is a specialist energy regulatory and contracts lawyer, who works with a range of utility and developer clients and funders to help them manage regulatory and legal risk in a fast-moving and complex environment.

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Energy & Water Law

We’re exceptionally proud of the deep-rooted energy and water specialisms we have here at Shakespeare Martineau. As one of our priority areas for investment and growth, much of our time and resource is focused upon these related (and converging) sectors, ensuring we are at the forefront of industry developments and are best placed to make a positive difference to our clients.

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NFT’s as legacy gifts

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NFT’s as legacy gifts

NFTs or non-fungible assets have become the latest buzzword in the new age of […]

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Agriculture: diversifying or leasing your land to create habitat banks

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Teachers’ Pension Scheme – strategic issues independent schools need to think about

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What are the options for the consolidation of special purpose vehicles (SPV’s) for a university?

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Special Purpose Vehicles and consolidation

When it comes to corporate restructuring and insolvency, there are various options for universities wanting to consolidate.

Many universities will have incorporated separate companies to carry out certain operations, such as the provision of catering supplies or nursery services, with many operating profitably and providing a service to students, staff, and the local community.

Similar special purpose vehicles (SPVs) may also have been set up to deal with a particular piece of research work or to work alongside external bodies in a joint venture arrangement.

Some of these SPVs may be lying dormant after a research project or specific initiative has fulfilled its objective or come to a close. Keeping these companies on the books can increase administration costs for accounts and compliance teams unnecessarily, or the SPV could be sitting on valuable cash or assets that could be reinvested into new projects.

Taking the time to tidy up the corporate structure of a university can have many benefits and there are three options;

  • strike the company off from Companies House
  • a members’ voluntary liquidation
  • creditors’ voluntary liquidation.

Strike off

If a company has been inactive for at a period of least three months and satisfies certain other criteria, it can simply be removed from the register of companies and dissolved by a simple application accompanied by a small fee payable directly to Companies House.

This procedure is quick and inexpensive but may not be the right option, particularly if the company in question has outstanding liabilities to third party creditors.

Any application to strike off must be given to all creditors of the company and will also be advertised in the London Gazette. As a result, any creditor could object to the striking off process.

If the company has valuable assets, striking off is not advisable either as any assets will vest in the Crown bona vacantia following the dissolution. Striking off will not, therefore, benefit shareholders where assets remain within the company or creditors if the company has significant liabilities.

If the company has a combination of both assets and liabilities, the more appropriate route is likely to be a formal insolvency process led by an insolvency practitioner as liquidator.

There are two alternative routes for a voluntary liquidation process. Both are initiated by the directors of the company (as opposed to compulsory liquidation, which is commenced with a winding up petition).

Members’ voluntary liquidation (MVL)

A members’ voluntary liquidation (MVL) is a “solvent liquidation”. It can only take place if the directors of the company are able to swear a statutory declaration of solvency whereby they must confirm that all liabilities of the company (including employee claims, debts to suppliers, HMRC, or joint venture partners), together with interest if applicable, will be paid off within 12 months of the declaration of solvency.

An MVL may help simplify corporate structures or have the advantage of allowing a tax efficient distribution of assets as part of a reorganisation process. Once any creditors’ claims have been settled, any surplus in terms of assets can be distributed by the liquidator to the university or individual shareholders and at the end of the liquidation process, the company will be dissolved.

Directors must exercise caution when swearing a declaration of solvency as making a false declaration can lead to criminal proceedings against the director(s).

Creditors’ voluntary liquidation (CVL)

If the directors are aware the company is not able to pay its liabilities from the realisation of its available assets, it is effectively insolvent and the process to place the company into creditors’ voluntary liquidation should be followed.

This is a procedure where the company’s creditors have an active involvement, including the choice of the liquidator and participation in decisions regarding the liquidator’s remuneration and strategy.

How can we help?

We are able to advise you on the most appropriate route in any restructuring exercise and can provide you with the relevant legal advice covering real estate, corporate and taxation issues that frequently arise.

We work regularly with the leading insolvency practitioners with expertise in the sector and can assist you in making the right choice of the most suitable liquidator, dovetailing with them to ensure any corporate reorganisation is ultimately successful.

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Sean’s practice is focused on restructuring and insolvency, covering complex investigatory work as well as transactional and advisory assignments.

Education

Working with higher and further education institutions, independent providers, academies, and schools, our full-service team can advise on any legal issue that an education institution may have. This includes regulatory and policy work, employment issues,  student matters, governance and constitutional questions, partnerships and collaboration, disputes, large-scale capital projects, and estates master planning.

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NFT’s as legacy gifts

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NFT’s as legacy gifts

NFTs or non-fungible assets have become the latest buzzword in the new age of […]

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Long COVID and disability discrimination

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Long COVID and disability discrimination

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Agriculture: diversifying or leasing your land to create habitat banks

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Agriculture: diversifying or leasing your land to create habitat banks

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Teachers’ Pension Scheme – strategic issues independent schools need to think about

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Budget Announcement: Clear action towards net zero needed as COP26 draws closer

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The Budget Announcement and the UK net zero target

The budget announcement was delivered yesterday by Rishi Sunak, and here in the energy sector we queried whether some bold action around climate change was going to be taken. As we look forward to COP26 in Glasgow next week, expectations have been low that the Chancellor was going to have much more to offer on the climate agenda.

The Treasury’s spending promises were largely stuffed into last week’s net zero strategy.  This included around £26bn of commitments, including £14bn of new money in areas such as green technology and flood defences as well as measures for building retrofits including the much publicised £5,000 grants for households to replace their gas boilers.

Mixed messaging ahead of COP26

But the government needs to be taking every opportunity to put some clear actions and policies behind its multiple net zero strategies and targets, which so far are generally considered to be laudably ambitious but lacking in substance and detail in too many areas.   And on a global stage, our government is being increasingly called out over its “mixed messaging”, the clearest example being the new Cumbrian coalmine.

At such a critical time, with COP26 only days away, it’s therefore ‘inconvenient’, putting it mildly, to see two of our principal green taxes getting ‘cut’, namely fuel duty and air passenger duty.

That’s not an easy message for the world to hear next week, despite all the government rhetoric in this budget about investing in innovation and R&D and the UK as a ‘science superpower’.

Faced with some admittedly difficult short term challenges, the Chancellor clearly judges that consumers are already getting hit in the pocket by high fuel prices, both at the pump but also at home.  The energy sector continues to be rocked by the surge in gas prices which are having such a traumatic effect on the country’s retail energy suppliers.  They are faced with a domestic price cap sitting way below the cost of supply, and industrial users unprotected by the cap are in many cases unhedged and exposed to massively increased energy costs.

Hard decisions needed to tackle climate change

The cut in air passenger duty is aimed at domestic flights, and is no doubt aimed at improving the fortunes of our airlines and getting people moving again, against the backdrop of the levelling up agenda.  But is it really right to be encouraging me to be taking the plane from Birmingham to Glasgow next week, rather than using the train?

In isolation and out of context, these decisions are understandable, and there is as always a balancing act to perform.  However, this tension between ‘doing the right thing’, and cost, is one that is going to be played out around the world in coming months and years, as governments grapple with the unpalatable truth that taking real action to combat climate change requires hard decisions, in many cases involving increased costs and inconvenience for consumers and tax payers.  And the UK has an opportunity to help ram home that message next week.

At the end of the day, there is an even bigger cost – and not just financial, but human – to adapting to unmitigated climate change, and this is a case that needs to be made much more loudly and frequently.

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Andrew is a specialist energy regulatory and contracts lawyer, who works with a range of utility and developer clients and funders to help them manage regulatory and legal risk in a fast moving and complex environment. Andrew is also currently our elected Senior Partner.

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Demand for EV chargepoints means smart charging essential for construction industry

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Demand for EV chargepoints rises in the UK

As the UK continues to phase out petrol vehicles and encourage the mass uptake of electric vehicles, considerations have to be taken on new build homes and offices for EV charge point installers. Speaking in Parliament on 9 September, transport minister Rachel Maclean said the government will publish its response to a two-year-old consultation on mandating EV charge points later this year.

Expected to be included in the response is legislation requiring all new residential and non-residential buildings to have an EV charging station, news that will surely be welcomed by the hundreds of thousands of EV owners in the UK.

If passed, this legislation would make the UK the first country to mandate chargepoints in all new-build developments, and would be the latest in a string of indications that Westminster sees the future of personal transport as electric.

With the government recently confirming it will legislate to require all new-build homes and offices with parking spaces to have electric vehicle (EV) chargepoints, Shakespeare Martineau’s Neil Gosling, partner and head of residential development, and Isaac Murdy, trainee solicitor in the energy team, discuss the possible risks and available solutions.

As retrofitting charging stations is a lot more expensive than implementing the infrastructure during the construction stage of a new development (on average, £2,040 compared to £976 per space), it is positive to see the government looking to introduce legislation to combat one of the major barriers to drivers switching to electric.

However, while this would be a game changer in the shift to net zero transportation, the chargepoints pose huge potential challenges to the electricity distribution networks that will bring power to the points.

There are risks associated with multiple chargepoints being used at once, such as overloading their connections, and currently, the nominal load attributed to a development does not take EV charging stations into account.

With this in mind, it is vital the construction industry – whether developers or builders subcontracting the installation of a chargepoint – is aware of the potential hazards and the solutions currently available to avoid compromising its reputation.

The future of EV charging stations in the UK

The RAC estimates that, as of April 2021, there are around 239,000 zero-emission battery EVs on UK roads – with more than 100,000 registered in 2020 alone – along with 259,000 plug-in hybrids and 629,000 conventional hybrids.

With a plan to phase out petrol and diesel cars by 2030, the National Grid projects an EV stock of more than 11 million in Britain by that point and 30 million a decade later.

While this will help to meet decarbonisation commitments, new ways of thinking are needed to decrease the load demand created by EVs on an energy system that could face a 30% rise in peak electricity consumption in 10 years’ time.

Demand spikes for EV chargepoint installations

Chargepoints on all homes with a parking space would give the most utility to residents. However, it also places the greatest burden on the cables and wires distributing power to the estate – especially if EVs become as common as petrol and diesel vehicles, as they are projected to.

An analogy of why this would be a problem would be to compare the electricity to water. If we think about water pipes and all residents on a housing estate turn on their taps and flush their toilets at the same time, there will be a massive draw of water and either the taps will trickle or the pipes may even implode.

The same issue goes for electricity. Chargepoints can draw a lot of power from the grid and without control, there is the potential for huge spikes in demand, which could lead to brownouts (as insufficient electricity is shared around) or potentially the failure of distribution equipment that cannot handle the currents running through them.

Currently, many distribution network operators (DNOs) discount the possibility that everyone will be charging their cars while running the tumble dryer and boiling the kettle as too unlikely. This means that when calculating the additional reinforcement their networks will need when an estate is connecting in, they do not require any additional capacity to account for EV chargepoints.

This allows the network operator to give a more competitive price, but creates a problem for developers and drivers alike in the long run. We hope that as EVs become more ubiquitous, the real burden on the networks will be realised, and the Distribution Code that guides DNOs’ activities will be updated.

Smart charging shares data via the cloud

The solution is clear – smart charging and good communication with networks, and the government has acknowledged the importance of the former.

Smart charging refers to a system where an EV charging station can share its usage data via the cloud. This should help connect EV charging into the wider energy system, and could allow peak demand to be reduced, which would help prevent them becoming a burden on the power grid.

This is like the smart meter in your house being able to turn down the thermostat though, and will surely require commercial agreements to compensate people who will not get their vehicles charged as fast as they wanted.

We have started to see these put in place between high-profile housebuilders and installers to ensure the chargepoint will be controlled and what technology is needed to be put in place.

These early adopters are already showing how spikes can be smoothed by shutting down chargers when power is at a premium and turning them back on when demand is lessened. This can reduce the need for expensive reinforcement of the electricity network.

The solution is clear – smart charging and good communication with networks, and the government has acknowledged the importance of the former.

Smart charging refers to a system where an EV charging station can share its usage data via the cloud. This should help connect EV charging into the wider energy system, and could allow peak demand to be reduced, which would help prevent them becoming a burden on the power grid.

This is like the smart meter in your house being able to turn down the thermostat though, and will surely require commercial agreements to compensate people who will not get their vehicles charged as fast as they wanted.

We have started to see these put in place between high-profile housebuilders and installers to ensure the chargepoint will be controlled and what technology is needed to be put in place.

These early adopters are already showing how spikes can be smoothed by shutting down chargers when power is at a premium and turning them back on when demand is lessened. This can reduce the need for expensive reinforcement of the electricity network.

Looking ahead

To reach the UK’s ambitious target of becoming net zero by 2050, it is clear that renewables must become an integral part of housebuilding efforts.

And given that tens of millions of EVs could one day be on the UK’s roads as they replace petrol and diesel vehicles in a long-term strategy to decarbonise personal transport, domestic charging could soon become the norm.

To support this ambition, it is vital there is minimal impact on the grid and to deliver this, smart charging, delivered by commercial agreements, should be a priority.

To ensure they do not fall foul of the laws regulating electricity supply, generation and distribution, it is important developers take advice.

So, when specifying chargepoints to be installed on a new housing estate, taking a preventative approach by investing in the right technology and ensuring suitable agreements are in place will bear many benefits for residents and nearby locals, electricity suppliers and our planet in the long-term.

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Neil builds long standing working relationships with our clients by becoming an extension of their business. He is forward thinking and progressive in his approach.

As head of our residential development team, Neil has acted for the majority of the country’s top 10 national housebuilders as well as for significant institutional landowners, private builders and developers.

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Our construction lawyers know what it is to be in your boots – some literally, after previous careers in building surveying – so we don’t sit on the fence. Our advice is direct, perceptive and commercial, adding efficiency to any stage of a construction project.

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The Green Gas Support Scheme Regulations

New Legislation

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What is the Green Gas Support Scheme (GGSS)?

As part of the UK Government’s target to reduce greenhouse emissions to net zero by 2050, it is introducing the GGSS this November.  The draft Green Gas Support Scheme Regulations 2021 (“the Draft Regulations”), which establishes the GGSS in Great Britain, were laid before Parliament on 9 September 2021. 

The GGSS will be administered by Ofgem and will replace the Non-Domestic Renewable Heat Incentive scheme which makes regular payments, for 20 years, to individuals and organisations that inject biomethane (which is gas derived from organic matter such as agricultural materials and waste, food waste, manure, sewerage etc.) into the gas grid and which, subject to prescribed extensions, closed to new applicants on 31 March 2021. 

The GGSS aims to provide financial incentives to producers of biomethane from anaerobic digestion (AD), encouraging the deployment of new AD biomethane plants to increase the proportion of green gas in the gas grid.   

The GGSS is specifically targeted to producers of biomethane from anaerobic digestion for injection into the gas grid.  It will not support other technologies – eg process heating, biogas combustion, solar thermal, hybrid heat pumps, heat networks and production of hydrogen. 

Biomethane producers must produce a minimum of 50% of biomethane (by energy content) using waste or residue feedstocks (which have higher carbon savings and a lower environmental impact on soil and quality than bioenergy crops). Gas produced from landfill will not qualify for support under the GGSS. 

Prospective applicants will need to submit a detailed application to Ofgem, along with supporting information including, amongst other things, details of their organisation, the date on which injection of biomethane will commence, the location of the AD plant and grid injection point, a description of the equipment used to produce biomethane, details of feedstock and the volume (in cubic metres) which the biomethane producer intends to inject into the gas grid each year.  

How long will the GGSS last?

The draft regulations provide for the GGSS to run until 31 March 2040.  However, the final date on which biomethane producers can be registered under the GGSS is 30 November 2025. 

How will the GGSS be funded?

It will be funded by a levy on all licensed gas suppliers which will be administered by Ofgem.  

The levy will be calculated on the basis of a pence per meter point per day basis and will be set in advance by Ofgem in January of each year (taking into consideration the GGSS budget cap for the upcoming year plus headroom and the associated administration costs for the GGSS and Green Gas Levy and any underspend from the previous year).  Gas suppliers will be charged quarterly levy payments according to the number of meter points they serve.  However, the Government intends, in due course, to move to a volumetric levy design. 

It is expected that gas suppliers will pass through the costs of the levy to domestic and non-domestic end users.  However, it is estimated that increases in gas bills for consumers will be minimal.  

The first levy payment (based on the prescribed tariffs) is due by gas suppliers in April 2022 with subsequent levy payments being collected quarterly. 

Gas suppliers will be exempt from paying the levy in any year if Ofgem determines that at least 95% of their gas portfolio comes from biomethane that is certified by a certification scheme approved by the Secretary of State.  If Ofgem subsequently determines that a biomethane producer is not exempt, Ofgem can require that it makes a backdated levy payment for that year.  

Gas suppliers must arrange credit cover as specified by Ofgem for each of their quarterly levy payments. The amount of the credit cover may differ from supplier to supplier. Ofgem will make an assessment based on, amongst other things, the number of meter points such gas supplier is serving or is due to supply the following year. 

Gas suppliers must comply with certain obligations including obligations to provide Ofgem with information.  If a gas supplier does not pay its levy payments and there is insufficient credit cover from such defaulting gas supplier, Ofgem can carry out a mutualisation process whereby the outstanding amount is recovered from non-defaulting gas suppliers participating in the GGSS.  The draft regulations also provide for Ofgem to serve penalty notices where a gas supplier is in breach of its obligations under them, for financial penalties of up to 10% of a gas supplier’s annual turnover to be imposed, and for unpaid amounts to be recovered as a civil debt. 

The costs of the GGSS will be managed by introducing an annual overall scheme expenditure budget cap, an annual tariff guarantee budget cap (beyond which the scheme closes until the next financial year) and a quarterly degression mechanism to reduce tariffs as costs reduce.  Tariffs will not degress in the first six months of the GGSS.  After the first six months, a 10% degression on the tariff will happen if forecast expenditure thresholds are breached.  Degression thresholds will be published before the GGSS launches. 

Tariff guarantees for biomethane producers

Upon being successfully registered for the GGSS, biomethane producers will be entitled to receive tariff payments for 15 years.  

There will be three tiers of tariffs to reflect the cost of producing biomethane at different scales: 

Tariff  Limit (megawatt hours (MWh)  Level p/kilowatt hour (kWh) 
Tier 1  The first 60,000 MWh of eligible biomethane  5.51 
Tier 2  The next 40,000 MWh of eligible biomethane  3.53 
Tier 3  The remaining eligible biomethane  1.56 

The tariffs will only be made for biomethane injected into the gas grid.   

The tariffs will be subject to an annual review, following which, they can be lowered, raised or maintained. One month’s notice will be given of any changes to tariffs.  

Biomethane producers must comply with certain obligations eg keeping records on the type of feedstock used, provision of information, complying with registration provisions, providing access rights for Ofgem to inspect equipment, and obligations to submit independent sustainability audit reports to Ofgem.  Biomethane producers must also notify and keep Ofgem informed of any change in its circumstances (eg if it is no longer able to comply with any of its requirements or where there is a change of producer). 

Biomethane producers’ sustainability requirements

Upon being successfully registered for the GGSS, biomethane producers will be entitled to receive tariff payments for 15 years.  

There will be three tiers of tariffs to reflect the cost of producing biomethane at different scales: 

Tariff  Limit (megawatt hours (MWh)  Level p/kilowatt hour (kWh) 
Tier 1  The first 60,000 MWh of eligible biomethane  5.51 
Tier 2  The next 40,000 MWh of eligible biomethane  3.53 
Tier 3  The remaining eligible biomethane  1.56 

The tariffs will only be made for biomethane injected into the gas grid.   

The tariffs will be subject to an annual review, following which, they can be lowered, raised or maintained. One month’s notice will be given of any changes to tariffs.  

Biomethane producers must comply with certain obligations eg keeping records on the type of feedstock used, provision of information, complying with registration provisions, providing access rights for Ofgem to inspect equipment, and obligations to submit independent sustainability audit reports to Ofgem.  Biomethane producers must also notify and keep Ofgem informed of any change in its circumstances (eg if it is no longer able to comply with any of its requirements or where there is a change of producer). 

Additional Capacity

Existing participating biomethane producers will be able to add additional capacity if such additional capacity is in operation by Autumn 2025.

Transfer of biomethane production plants and GGSS payments

The Government proposes to implement a mechanism to allow the transfer of registration of biomethane production between parties – enabling biogas production plants to be bought and sold and GGSS payments to be transferred. 

Sanctions against biomethane producers for non-compliance

The draft regulations provide for Ofgem to take action if a biomethane producer fails to comply with an ongoing obligation or was registered as a participant on the basis of information which is incorrect.  Ofgem will be entitled to conduct investigations, withhold or reduce a biomethane producer’s support payments, revoke its registration, correct the level of tariff being paid to it and recover any overpayment of periodic support payments.  

Guarantees of Origin

Biomethane producers will not need to surrender gas Guarantees of Origin (GOOs).  This means that the GGSS will not be compliant with the sustainability criteria in the EU Renewable Energy Directive 2018 (RED2) and so UK biomethane plants will not be able to sell green gas certificates to EU buyers. 

Interaction with the Renewable Transport Fuel Obligation (RTFO)

Biomethane producers will not need to surrender gas Guarantees of Origin (GOOs).  This means that the GGSS will not be compliant with the sustainability criteria in the EU Renewable Energy Directive 2018 (RED2) and so UK biomethane plants will not be able to sell green gas certificates to EU buyers. 

GGSS and the future

The Government said there may be scope in the future to open up the scheme to supporting other green gases such as hydrogen. 

James Wood, Director of energy consultancy, Optimised Group, advises businesses, property developers, energy project developers etc on how they can reduce their carbon footprint and manage their energy needs more efficiently said: 

“It is excellent to see a further 45 new biomethane projects in the UK being supported through the new Green Gas Support Scheme (GGSS). In addition to supporting the decarbonisation of the gas grid and reduced dependence on imported natural gas, new projects developed under the scheme will offer a green supply of CO2 to an already fragile and fossil fuel dependent UK industrial market.” 

 

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Sushma is a renewable energy specialist having advised on numerous renewable energy,  projects and on heat networks. She has specific expertise in green gas.

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The Energy Supplier Crisis and Special Administration

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COP 26

With COP26 very nearly upon us - we’ve taken the opportunity to republish some of the content we produced earlier this year.

Climate change and the UK, and the world’s response to it, is one of the most pressing issues of our time. Bringing together global powerhouses to agree to collaborate on the four main goals of COP26 has never been more important.

Our content provides food for thought, challenges the government’s rhetoric and provides opportunities for practical action.

Members of our energy team will be at COP26 and we look forward to catching up with clients and contacts who also plan to be there. Drop us a line and let’s see if we can connect.

The Energy Supplier Crisis continues

The ongoing wholesale gas market crisis continues to cripple suppliers. Igloo and Symbio Energy, supplying nearly 250,000 customers across the UK, became the latest casualties to cease trading over the last week, taking the total UK customers needing new suppliers to 2.2 million.   The crisis is fast moving and the outlook changes on a daily basis.  

Over the last couple of weeks the Government and Ofgem seemed content to allow the smaller suppliers to cease trading, pointing to the process in place to deal with this scenario.  That process is the appointment of a Supplier of Last Resort (“SoLR”) to take over supply to the customers of the failed supplier.  This has happened 10 times in the last two months.  However, this process has its limits, particularly due to the strain it places on the SoLR and the potentially adverse effect it will have on its existing customers.   

According to The Guardian newspaper, a leading supplier could be the next victim of the crisis [1].  If this were to occur, the appointment of a SoLR is unlikely to be appropriate.  The Guardian has reported that Ofgem is in talks with a leading firm of accountants to act as a special administrator as part of an emergency contingency measure where appointing a SoLR is not possible.  This would be an unprecedented step but one that may be necessary in the current crisis. 

So what is a special administration, and what prospects does this regime offer to ensure compliance with suppliers’ duties to treat consumers fairly?

The process of the appointment of a SoLR is the tried and tested method that has worked in the past.  It results in all of the customers of the supplier being transferred to the SoLR.  Historically it has been seen as an opportunity for a SoLR to increase their market share of customers.  While this is still the case now, it is not as attractive where these customers are loss making due to the imposition of the price cap, which is lower than the wholesale cost of gas.   

On the other hand, the objective of an energy administration is either to rescue the business as a going concern or to transfer different parts of the business to other companies.  This means, unlike a SoLR, the business can be broken up and transferred to different entities, which is more appropriate for larger suppliers and can be done in a timely manner without the pressure of the SoLR appointment.    

The role and duties of a special energy administrator differ from those of the usual company administrator appointed under Schedule B1 Insolvency Act 1986. Unlike an administrator appointed under the Insolvency Act - whose role is to act in the interest of the creditors as a collective - a special administrator over an energy supplier has an obligation to consider customers’ interests, as well as creditors.   

The collapse of so many suppliers and the appointment of the SoLRs in such a short period of time has put a strain on the market, has adversely affected the employees of these businesses and has raised questions as to Ofgem’s handling of this crisis.  

Following the numerous SoLR appointments this year, it is  expected there to be numerous claims over the next year by SoLRs on the industry levy, and while this will be covered by the industry, ultimately it will be the customer that pays.   

If a large supplier is next then the appointment of a special administrator seems likely.  With the benefit of hindsight, could Ofgem and the Government looked to have appointed a special administrator earlier on in the crisis?  Arguably, this may have resulted in a more orderly transfer of customers and less of a perceived panic within the market.  However, we will never know. 

What we do know is that this crisis is far from over and the effects of so many SoLRs being appointed will be felt for some time yet. 

If you are an energy supplier or are advising an energy supplier, get in touch to discuss available options. Contact Tim Speed or Joseph Beat or a member of the energy team in your local office.
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Do employees still need to go to work if there’s a fuel shortage?

Guides and Advice

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Fuel shortage in the UK

There has been a perceived fuel shortage across the country, leading to panic at the petrol stations. Long queues have been building outside petrol stations across the UK over the past week amid fears that fuel supplies could run out – leaving many motorists unable to fill up their vehicles.

Matt McDonald, partner and expert employment solicitor, explains how employers can best support their employees during the fuel crisis.

Can I ask my staff to use alternative transport, even if it costs more?

“If it’s feasible for employees to commute using alternative transport, you can ask them to do so.

“If this fuel shortage results in the employee incurring additional costs or having to travel for longer, technically, this isn’t an employer’s problem as it is up to staff how they commute to and from work. That said, some employers may choose to cover any extra costs incurred by employees.

“It is also worth bearing in mind that those employees who can work from home – and presumably have done to a large extent over the past 18 months – will probably expect to be allowed to do so, at least in the short-term, if the alternative is a more difficult or expensive commute.

“Employers should consider taking a pragmatic approach in this regard to ensure harmonious employee relations.”

Can my employees raise a complaint if they have to find alternative modes of getting to work?

“They might well do so, but it is ultimately up to the employee how they get to and from work.

“As such, where an alternative mode of transport is feasible, employees who complain are unlikely to be in a strong position.

“Employers who choose to cover extra travel costs will largely be doing so to maintain goodwill rather than because of any legal obligation because of the fuel shortage.

“The position is different for those employees driving for work, for example visiting customers or clients.

“For travel of this nature, the employer is much more involved and can’t simply ask an employee to use alternative forms of transport and expect them to accept any extra cost.

“At the very least, the employer would be expected to cover the costs of trains or taxis, for example, and it’s important to communicate with employees clearly on this front so they understand what is required of them.”

What action should I take if I think my employee is using the fuel shortage as an excuse not to come into work?

“If an employee fails to attend work without good reason, this will generally be a disciplinary matter. However, it’s important not to jump to conclusions and to investigate any incident thoroughly.

“Many employees simply won’t be able to attend work other than by car and it may be viewed as harsh to expect employees in this situation to pay for taxis, particularly if there are feasible alternatives, such as working from home in the short-term.

“Hopefully, the fuel shortage will only be a temporary problem. However, there are suggestions it could become a longer-term issue, so employers would be wise to think through the impact this will have on their various different employees and to plan and communicate with staff accordingly.”

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COP26 and The UK’s Drive to Net Zero Transportation

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COP26: Net Zero Transportation

The UK hosts the UN Climate change conference this November in Glasgow. The decarbonisation of transport is key if the UK wishes to achieve the net carbon target date of 2050. The roadmap in regard to transportation has two key dates of 2030 and 2035. New petrol and diesel vehicles cannot be sold after 2030 and after 2035 all new vehicles must be net zero. Hence one of the key points for discussion and scrutiny in November will be the Government’s plan for the decarbonisation of transport. Published in July following months of delays, the Transport Decarbonisation Plan outlines the Government’s approach, in terms of timings and technologies, to decarbonising the UK’s highest-emitting sector. It covers all domestic forms of transport including road, rail, shipping and flights. 

The plan has been met with encouragement by many within the green economy, meaning those involved with the manufacture, sale and leasing of cars, light commercial and heavy goods vehicles.  Added to this is the new and emerging support network, such as charging networks and battery factories, known as Gigafactories such as BritishVolt. With COP26 on the horizon and the recent IPCC climate report detailing the effect of greenhouse cases on the world’s temperatures, this plan could not come soon enough in many peoples’ view. 

UK citizens are demanding that their cities towns and transportation systems create a cleaner, safer and indeed quieter environment to live in. Hence the plan seeks to deliver a rapid improvement in terms of the reduction of air and noise pollution. 

In essence the weighty plan fleshes out the high level ‘White Paper’ published in 2020.  Transport Secretary Grant Shapps has heralded the new Plan as “just the start”, and each mode of transportation can be expected to decarbonise in different way. 

What needs to happen?

Government has a vital role to play in setting the regulatory and governance frameworks needed to ensure the country meets its targets and obligations but it is up to the markets to innovate and drive technology to meet those. 

In terms of transportation 55% of emissions are caused by cars, 16% by light commercial vehicles such as delivery vans and 16% by heavy goods vehicles 

Plans not bans! 

The Society of Motor Manufacturers and Traders (SMMT) has repeatedly called for increased consultation and dialogue with government. They have a valid point, consultation around charging structures, access to the grid and most importantly, which the paper does not address is the ability of power stations to supply the electricity needed. 

With the electrification of buses we can see that one bus can reduce up to 75 cars accessing the city and now bus fleets are also being powered by low carbon hydrogen which is an excellent source of clean energy helping combat climate change and poor air quality. Fleets of hydrogen buses have been running on lengthy trials in many of the UK busiest cities.   Other technologies are being developed too, at great speed such as reengineering internal combustion engines to run on biofuels.  The Tees Valley Hydrogen Transport team, for example, is making great advances in regard to the expanded use of hydrogen. 

However the SMMT believes that 46% of all UK vehicles will in any event, be net zero by 2035 without the need for bans.   

The three steps envisaged in the plan are;  

  • A modal shift to public transport that will be net zero in our towns and cities.  
  • The decarbonisation of road transport as a priority and the changes in the delivery of goods, with more use of rail powered by electricity and hydrogen.  
  • An increase in EV vehicle and last mile delivery methods. 

Now, more than ever, is the time for active collaboration between transport, green technologies and energy professionals to drive the decarbonisation of our transport systems which account for 27% of all UK emissions. 

What are the legal requirements?

There are a raft of legal considerations that require immediate attention from planning, policy changes, construction and use regulations, protection and training of employees in a high voltage environment, consumer protection, sufficient and appropriate research and development, safeguarding of consumers in relation to the sale of imported goods, fair contract terms and our legal relationships with the EU and the rest of the world. 

Our teams are working with some of the most innovative players in the market and the future narrative is in the development of a greener environment – contact Eddie Flanagan or Mark Bartholomew in our green transport team.   

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REMIT and 6th Edition ACER Guidance

New Legislation

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ACER guidance

The Agency for the Cooperation of Energy Regulators (ACER) released the 6th edition of its REMIT Guidance on 22 July 2021, covering the application in the EU of EU Regulation No 1227/2011 on wholesale market integrity and transparency (REMIT). 

By virtue of the European Union (Withdrawal Agreement) Act 2020, the provisions of REMIT (and its accompanying implementing regulation) became part of EU retained law at the end of the Brexit implementation period, with a few amendments to ensure its operability in GB and with the suspension of trade and fundamental data reporting obligations pending establishment by Ofgem of a GB reporting system. 

This latest guidance update from ACER is important however to those actively involved in the GB wholesale energy markets, because the key definitions in REMIT – “inside information”, “market manipulation” and “attempt to manipulate the market” - remain the same in both the GB and EU REMIT regimes, and Ofgem has stated that in carrying out its GB monitoring and enforcement responsibilities it intends to continue to interpret REMIT having regard to ACER’s guidance.

Who is affected by this latest ACER Guidance?

It follows that this latest guidance from ACER will be of interest to any company trading in wholesale energy products, whether for delivery in the EU or in the UK, including electricity generators, trading companies, gas shippers, transmission system operators, and operators of gas storage and LNG import terminals. But the REMIT prohibitions and obligations extend beyond those termed “market participants”, and can apply to any person coming into possession of inside information, or engaging in market manipulation (which can include disseminating false or misleading information). 

What are the changes in the 6th edition?

This latest 6th edition of the guidance differs from the previous updates, in that it incorporates a restructuring of the guidance document, with the aim of making the guidance more intuitive. 

As such, there are sections which are moved around but have not changed in substance, notably the sections dealing with registration (Article 9 REMIT), the obligation to disclose inside information (Article 4 REMIT) and PPATs (persons professionally arranging transactions) (Article 15 REMIT). 

In other areas, ACER has taken the opportunity to add new content, to take account of expected market developments resulting from implementation of the European Green Deal as well as the experience gained to date, including feedback from national regulators and market participants and other stakeholders. 

The key areas which have changed are outlined below. 

Scope of REMIT 

There is a new chapter entitled “Scope of REMIT”, which is a merger of the previous chapters two and three.   

Now included is more detail on the scope of wholesale energy products, including clarification that biogas will be treated as natural gas and hence contracts for supply/transportation of biogas, if the biogas can technically and safely be injected into, and transported through, the natural gas transportation system.  And it is made explicit that redispatching and countertrading mechanisms, and local flexibility markets, will be treated as wholesale energy markets insofar as wholesale energy products are traded there.   

There is also text describing the geographical scope of REMIT, which obviously has some relevance to GB market participants, who whilst governed by the GB REMIT regime will also be caught by the EU regime insofar as involved in wholesale energy products which are produced, traded, delivered, consumed or related to transportation in the EU. 

Also new is clearer analysis of the interaction between REMIT and the financial services legislation. 

Prohibition on insider trading 

This is a new section, dealing with the key market abuse prohibitions in Article 3 REMIT – using inside information to trade, disclosing inside information, and recommending/inducing a third party to trade based on inside information.  Whilst some content is taken from the previous guidance, there is a lot of new content including examples, and some useful explanation of several of the underlying concepts.  For example, in relation to the inside information disclosure prohibition, ACER makes clear that the carve out for disclosure made “in the normal course of the exercise of employment relationship, profession or duties” should be interpreted strictly, with a suggestion that national regulators should look for disclosures which follow a pre-defined workflow based on the “need to know” principles, or disclosures which are included in the contract governing the person’s duties. 

There is also detailed analysis of the categories of natural and legal persons possessing inside information who will be treated as “insiders” for REMIT purposes, which provides some insight on how, for example, “members of the administrative, management or supervisory bodies of an undertaking” will be construed.    

Prohibition on market manipulation  

Similarly, there is a new section of the market manipulation prohibition in Article 5 REMIT, which builds on and replaces content from the previous guidance.  As with the section on insider trading, the notion of “on-market” and “off-market” activities is introduced, and there is substantial new content, including useful examples, covering the key underlying concepts of giving false/misleading signals, securing an artificial price, using fictitious devices/deception/contrivance and disseminating false or misleading information.  

Again, there is also analysis of the scope of the market manipulation prohibition, which like the insider trading prohibition is not limited to market participants, and this is particularly relevant to the “off-market” activity of disseminating false or misleading information which can apply to a wide range of persons operating through media and internet channels for example. 

In conclusion

This latest 6th edition is certainly an improvement on previous editions, and the new examples and case studies in particular are welcome.  Companies affected by REMIT should review their compliance policies and training materials in light of this new guidance. 

It is worth noting the guidance does not touch on enforcement since that is a matter which REMIT devolves to member states and national regulators.  In Great Britain, REMIT enforcement is the responsibility of Ofgem, which derives its enforcement powers from the Electricity and Gas (Market Integrity and Transparency) (Enforcement etc) Regulations 2013, and pursuant to which it publishes REMIT Procedural Guidelines and the REMIT Penalties Statement. 

Ofgem is currently consulting on changes to those documents, which is summarised here.

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REMIT Ofgem consultation

New Legislation

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Ofgem REMIT guidance

In June 2021 energy regulator Ofgem consulted on changes to its principal documents underpinning the enforcement framework, these being the Enforcement Guidelines and Sectoral Statement of Policy with respect to Financial Penalties and Consumer Redress. That consultation closed on 4 August 2021. Ofgem carried out the consultation in order to update these documents in response to changes in the energy market and the enforcement landscape.  

On 17 August 2021 Ofgem published a separate consultation on its two REMIT enforcement documents namely REMIT Procedural Guidelines and the REMIT Penalties Statement which are not part of the general enforcement framework described above. Ofgem’s three objectives for undertaking this consultation are to maintain alignment with its proposed updated general enforcement framework, to reflect the fact that the United Kingdom has left the European Union and to make REMIT processes clearer and more efficient. 

The two documents updated for the proposed changes have been provided in Annex One and Annex Two to the main consultation document. This latest consultation closes on 28 September 2021.  

Background to REMIT

REMIT is the energy sector market abuse regime.  REMIT in fact derives from EU law - EU Regulation No 1227/2011 on wholesale market integrity and transparency – which by virtue of the European Union (Withdrawal Agreement) Act 2020 is now (alongside its accompanying implementing regulation) a part of EU retained law in Great Britain.    

Ofgem is tasked with enforcing REMIT, and its REMIT enforcement powers derive from the Electricity and Gas (Market Integrity and Transparency) (Enforcement etc.) Regulations 2013 (2013 Regulations). The Procedural Guidelines set out how Ofgem will use these powers, whilst the Penalties Statement discharges Ofgem’s obligation in the 2013 Regulations to publish a statement of its policy on imposing penalties and determining their amount. 

REMIT Procedural Guidelines Changes

Recent enforcement case

This REMIT consultation is timely as Ofgem announced on 24 August 2021 that it had taken an action against ESB Independent Generation Trading Limited (IGT) and Carrington Power Limited (Carrington) for breaching REMITBetween March 2019 and September 2020, IGT and Carrington submitted misleading data to National Grid Electricity System Operator (NGESO) about the minimum amount of energy the Carrington gas power plant could supply. This caused NGESO to purchase more energy from the plant than needed when the plant was called on to generate in the Balancing Mechanism. 

As result, Ofgem found IGT and Carrington to be in breach of Article 5 of REMIT which prohibits market participants from engaging in or attempting to engage in market manipulationIGT and Carrington have agreed to make a collective payment of £6m to Ofgem’s voluntary redress fund. 

The proposed changes are: 

  • consistent with the wider enforcement regime changes, to reduce the three settlement windows to one, giving a 30% discount; 
  • consistent with the wider enforcement regime changes, power for the settlement decision to be made by Ofgem’s Director of Enforcement rather than a full settlement committee, in “appropriate” cases, which Ofgem says will be “less complex and serious” cases; and 
  • structural and clarificatory changes to the document, for example making the settlement process more efficient by giving flexibility for Ofgem to seek an indication in writing from the person under investigation that they are interested in settlement before Ofgem goes down that route.  Also, incorporation of reference to “alternative action”, which has been used but not currently mentioned. 

REMIT Penalties Statement Changes

The proposed changes are: 

  • consistent with the wider enforcement regime changes, a significant reduction in the number of the stated factors that Ofgem may consider when determining the seriousness of a breach (and clarification that this is a non-exhaustive list); 
  • consistent with the wider enforcement regime changes, Ofgem will calculate detriment and gain only where proportionate, reasonable and practicable to do so, so that it does not need to engage in resource intensive analysis where, for example, a breach was only attempted or financial impact was not material;
  • and changes in approach to calculating financial gain. 
Conclusion

These proposed changes to the REMIT enforcement regime will bring it into alignment with Ofgem’s broader regulatory enforcement framework. 

As for REMIT compliance more generally, we can expect to see Ofgem maintain its focus on monitoring and enforcement. Those caught by the REMIT prohibitions and obligations should ensure they are familiar with the most recent guidance published by the Agency for the Cooperation of Energy Regulators (ACER) in July, which is summarised here. (link) 

Notwithstanding Brexit, ACER guidance remains useful and relevant compliance material for those involved in the Great Britain whole energy markets.  The key definitions in REMIT – “inside information”, “market manipulation” and “attempt to manipulate the market” - are the same in both Great Britain and EU REMIT regimes, and Ofgem has stated that in carrying out its monitoring and enforcement responsibilities it intends to continue to interpret REMIT having regard to ACER’s guidance. 

For further information on changes to Ofgem’s enforcement framework, contact Andrew Whitehead or another member of the energy team. 

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Our 50+ energy and water team is made up of lawyers from multiple disciplines across the firm, all of whom act for clients active, or with an interest, in the sectors.

These include our specialists in utility regulation and industry codes, as well as experts across real estate, corporate finance, commercial contracts, retail and consumer debt, litigation and, uniquely for a law firm, our in house planning consultants.

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Making sense of deemed contracts

Commercial Landlord Guides & Advice

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Making sense of a deemed contract as a commercial landlord

During the pandemic, many thousands of tenants have chosen to delay payments of their rent. This is adversely effecting cash flow for landlords, who still have outgoings to pay.

As tenants vacate premises in the future, either through choice at the end of the lease, or being forced due to insolvency, the predicament of landlords will worsen as they are faced with vacant premises.

One of the many considerations for the landlord is the cost of the utilities being supplied to the vacant premises.

If there is no contract for supply in place, gas and electricity will be supplied by way of a deemed contract.

What is a deemed contract?

In the context of electricity, a deemed contract is created by the Electricity Act 1989, which states that “where electricity is supplied otherwise than in pursuance of a contract, the supplier shall be deemed to have contacted with the occupier (or the owner if the premises are unoccupied) for the supply of electricity.”

There are similar provisions in relation to gas in the Gas Act 1986.

It follows that where a property is vacant there is a deemed contract between the supplier and the landlord.

A landlord may try to argue that the lease has not been disclaimed and as it is still in place, the deemed contract is with the tenant.

However, as can be seen from above, the legislation imposes a liability on the occupier of the premises and if the premises are unoccupied, the owner.  It does not on the face of it impose a liability upon a tenant who no longer occupies a premises, irrespective of whether the lease remains in place.

Why are deemed contracts important?

They’re important because deemed contracts are legal and enforceable by energy suppliers in many cases.

And even though the premises are vacant, it is still likely that some electricity will be being consumed, by the alarm system or the security system.  Such charges on a deemed contract basis are likely to be higher than on a fixed term contract basis.

There will also be standing charges and other charges which could potentially be substantial. These may include a capacity charge, which is a fee to ensure that there is enough electricity in the system.  Such a charge may be based upon historic consumption and not reflect the current requirements.

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What can landlords do?

The best advice for landlords is therefore, as soon as a property becomes vacant or looks like it is becoming vacant, find out who is supplying the utilities to the property and contact them as soon as possible. It may be possible to agree a fixed term contract with the supplier on significantly lower rates than deemed contract rates.

The landlord may also wish to reduce the capacity available to the property helping to reduce the overall cost. The key point is that this should be done as soon as possible. The longer it takes to reach an agreement with the supplier, the higher the overall likely liability under the deemed contract will be.

How can Shakespeare Martineau help?

We can help landlords review their situation and provide advice in relation to vacant properties.  We can also help energy supply companies review their portfolio and take appropriate recovery action.  Contact Tim Speed or another member of our energy sector team in your local office.

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Guides & Advice

Understanding the UK’s new emissions trading scheme

At the end of the Brexit transition period, the UK exited the EU’s emissions trading scheme (EU ETS). Given the importance of such a scheme for combatting climate change, the UK has designed and implemented its own scheme (UK ETS), on the recommendation of the Climate Change Committee.

The recently published Energy White Paper stated that the UK ETS would have a significant role to play in ensuring that the 2050 net zero target is achieved, but this is just one tool available to help meet this challenging target, and it cannot work in isolation.

The EU’s emissions trading scheme

The EU ETS was established in 2005 and uses a ‘cap and trade’ approach. Emissions limits are placed on certain industries within each member state to lower overall emissions. There have been various phases of the EU ETS, with new sectors being added over time; it now covers:

  • Electricity generation and heavy industry
  • Steel production and oil refinement
  • Air travel

The cap and trade system forces those industries covered by the scheme to reduce emissions overall below current levels, with progressively lower caps introduced over time.

Initially, companies purchase emissions permits (and in some cases receive some free allowances) to cover the emissions they produce. The number of permits available is not enough to cover current activities, forcing a reduction. To lower the overall cost of reducing emissions, parties able to reduce emissions at lower cost are encouraged to do so in order to sell excess allowances to others.

Developing the UK emissions trading scheme

As the UK was instrumental in developing the EU ETS, it is perhaps unsurprising that the UK ETS has been modelled on the EU scheme. Mirroring the scope of the EU ETS, the UK’s model covers energy-intensive industries, fossil-fuelled power stations and the aviation sector.

One important difference with the UK ETS is that it has opted for a cap that is five per cent lower than that of the EU ETS, and future changes in the cap will be linked to the UK’s carbon budgets.

Claiming allowances

To purchase allowances to cover their emissions, operators of static facilities and aircraft operators will need to open accounts in the new UK emissions registry. Using a platform launched by ICE Futures Europe, these can be purchased either in an auction of new allowances issued by the government or in a secondary market.

Industries, where there is a risk of carbon ‘leakage’ through off-shoring production, will be entitled to claim some free allowances.

Creating liquidity in the marketplace

To guard against the risk of instability in a relatively small market, the UK ETS features both an auction reserve price and a cost containment mechanism. There is also the potential to introduce a supply adjustment mechanism in the future if needed.

Concerns have been expressed that insufficient liquidity in the secondary market could lead to higher prices for allowances, potentially making the UK industry less competitive internationally. Although this is yet to be tackled, one way to do so could be to link with other schemes internationally.

Could the UK ETS get us to net zero?

Although the new UK ETS should prove to be an important tool in lowering emissions, it will need to be part of a range of policy initiatives across the different sectors of the economy.

In order to achieve the 2050 net zero target, work also needs to be done in the domestic heating and road transport sectors, which, together, account for a large proportion of UK carbon emissions. The UK ETS is not currently planned to cover these (and this may not be possible in any event), so other measures will be needed to work alongside the new scheme.

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For further information please contact Mark Bartholomew in our dedicated energy team.

We recently hosted this year's AEEC Spring Conference, where energy experts from across Europe joined our own specialists to discuss some of the legal, policy and technological issues driving the responses to net zero, both here in the UK and the EU.

Catch up on all the conferences session and blogs here.

Our energy team is ranked as a Leading Firm in the Legal 500 2021 edition.

Our updated guide to recovery and resilience covers everything you need to navigate your way out of lockdown, unlock your potential and make way for a brighter future. Further advice in relation to COVID-19 can be found on our dedicated coronavirus resource hub.

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How is the UK government going to achieve its net zero carbon targets?

COP 26

With COP26 very nearly upon us - we’ve taken the opportunity to republish some of the content we produced earlier this year.

Climate change and the UK, and the world’s response to it, is one of the most pressing issues of our time. Bringing together global powerhouses to agree to collaborate on the four main goals of COP26 has never been more important.

Our content provides food for thought, challenges the government’s rhetoric and provides opportunities for practical action.

Members of our energy team will be at COP26 and we look forward to catching up with clients and contacts who also plan to be there. Drop us a line and let’s see if we can connect.

 

How is the UK government going to achieve its net zero carbon targets?

That was the question we posed to Laura Sandys CBE at our recent AEEC conference concentrating on decarbonising the heat we use in our homes and businesses and transportation. Laura a non-executive director of SGN, a former Member of Parliament and a policy and business advisor.  Laura provided real food for thought on this critical topic.

Time for Real Change

What is very clear is that governments, including our own, have been very keen to publish ambitious targets to help us achieve net zero carbon emissions by 2050 but we are now at a tipping point where the focus has to switch from publishing targets to actually delivering change.

It is increasingly apparent that the future needs to look very different from the past – the future has to be consumer focussed and the substantial costs to achieve those ambitious targets are likely to be system costs rather than energy costs.  It could be that we even end up with a situation where the energy we all consume is virtually free – but the system will not be.

However, to move us to a position where we have a system fit for purpose with the stability to meet our ever greater demands, there needs to be a radical overhaul of the energy generation and distribution sector for the UK – one which is likely to take us from 400 key players to in excess of 100m actions and assets – a fully integrated and digitised sector and much of that delivered at a local level.

But what does Net Zero actually mean?  What needs to be done?

The energy system needs to change fundamentally from a consumption model to an optimisation model where the best possible solution is found to meet the problems and challenges faced by the sector.

We need to concentrate on the 5 Cs:

  • Drive out Carbon
  • Reward Customers
  • Unlock Capital
  • Maximise Capacity
  • Reduce whole systems Costs

All of which need to be designed around a fully costed system.

But how will government change policy?   

A complex question and as a collective of energy and policy advisors we have pulled together what we believe are the key policy challenges and what needs to happen.

Everyone will be aware that there is a lot of unconscious bias towards fossil fuels and there will need to be a massive amount of investment to help us move away from these.  The first steps here are to audit its use (and there is a lot of it), recognise it and clean it up.  With regard to heat and transportation in particular this is going to be a complex job.

Another huge challenge for the government will be the deployment of these assets and actions, which we, as a nation we need to enable us to decarbonise, particularly in heating and transport.  We are talking about a significant amount of money that consumers are going to have to pay to participate in these initiatives.  Perhaps the government will pay?

A significant and fundamental system change is needed - at the moment we are trying to squeeze a new capital intensive system into a fossil fuel shaped hole/system.

And of course, there are massive governance changes that are required.  With a system potentially consisting of over 100 million assets and actions, if the government tries to regulate through process, as it currently does, it will undoubtedly fall over.

Making a difference

One of the biggest hurdles to achieving net zero is getting these assets into people’s homes and businesses and a huge constraint to this happening is the lack of liquidity in the market. For the UK to decarbonise successfully the whole market needs to have access to these assets and actions and if this does not happen then the market could fragment into those that have the funds to access and those that don’t.  This needs to be a future for all.

But even with all of the above, it won’t deliver assets into people’s homes. It’s important that the market moves away from a commodity market to a services market which will bring huge benefits to the energy system we all need.  None of this is ground breaking however and there are similar models that successfully deliver benefits to other sectors of the economy that can easily be seen.

And finally - there needs to be an energy design authority – but this will need to sit alongside and defer to political policy makers because there will be trade-offs that need to happen. Much cleaner system operation will be achieved with an independent system operator and with governance and regulation being much clearer around the risk assessor.

What does the future look like?

To summarise - what is clear is that we now need to see a serious commitment from the government to accelerate the process of decarbonisation and the outcomes we want and need to see are:

  • A carbon busting review: driving out carbon in policy and regulation
  • Whole System review – an acceptance that commodity price can no longer be proxy for whole system cost
  • Demand equal to generation: equally rewarded, supported and fairly accessible
  • New Service Agreements: Retail services, flexibility purchase agreements, capacity services, energy on demand services and commodity as generated
  • Energy Design Authority: Knitting all the silos together into an integrated system.

The UK government last month enshrined in law new targets to reduce carbon emissions by 78% by 2035.  To do this we need to accelerate change. As a sector, there is lots to push forward with and our vision on how we could and should meet our obligations for decarbonisation and energy demand in the future will require creative thinking, new policies and laws and additional players in the market. A challenge to us all but one that simply must happen.

Contact us

For further information please contact Mark Bartholomew in our dedicated energy team.

Our energy team is ranked as a Leading Firm in the Legal 500 2021 edition.

Our updated guide to recovery and resilience covers everything you need to navigate your way out of lockdown, unlock your potential and make way for a brighter future. Further advice in relation to COVID-19 can be found on our dedicated coronavirus resource hub.  

From inspirational SHMA Talks to informative webinars, we also have lots of educational and entertaining content for life and business. Visit SHMA® ON DEMAND.

Guest author

Catch up on the session below

Laura Sandys CBE
Non Executive Director, SGN & Energy Systems Catapult

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Euratom and Brexit: The impact of Brexit on the nuclear industry

COP 26

With COP26 very nearly upon us - we’ve taken the opportunity to republish some of the content we produced earlier this year.

Climate change and the UK, and the world’s response to it, is one of the most pressing issues of our time. Bringing together global powerhouses to agree to collaborate on the four main goals of COP26 has never been more important.

Our content provides food for thought, challenges the government’s rhetoric and provides opportunities for practical action.

Members of our energy team will be at COP26 and we look forward to catching up with clients and contacts who also plan to be there. Drop us a line and let’s see if we can connect.

The UK withdrew from the Euratom (European Atomic Energy Community) at the same time it left the EU on 31 December 2020, meaning new nuclear cooperation agreements needed to be put in place to permit the future supply of nuclear materials and equipment to the UK.

The decision to leave Euratom came as a surprise to many as the body is separate from the European Union. However, Euratom is governed by the EU Commission and is under the jurisdiction of the European Court of Justice. This, together with the fact that Euratom creates a single market in the movement of nuclear experts, meant that it crossed the negotiating red lines of Theresa May’s government.

Brexit, Euratom, and concerns for the UK nuclear industry

The key aspects of the single market created by Euratom are the free movement of capital and experts for the development of nuclear power infrastructure and the facilitation of the movement of nuclear goods in a highly regulated sector.

As well as research into nuclear technologies, Euratom is also responsible for setting standards and regulations for the safe handling and use of nuclear materials and the supply of isotopes used in nuclear medicine.

Therefore, after leaving the Euratom alongside Brexit, there were a number of concerns around the implications of the gap left in the UK nuclear industry:

 

  1. Continuing the supply of isotopes for medical use - The UK does not have a reactor capable of producing the half-life isotopes. As these decay within hours (or at most, days), a continuous supply is therefore required from reactors on the continent.  Over the last decade, the Euratom Supply Agency has done a good job in overseeing this supply.

 

  1. Access to nuclear fuel - The UK has no domestic sources of nuclear fuel. As a member of Euratom, the UK did have the benefit of the co-operation agreements signed by Euratom with eight other countries (including Canada, Kazakhstan and Australia), who together account for 71% of the world’s uranium production.

 

  1. Participation in nuclear research - The UK had been a net beneficiary of the Euratom Research and Development Program and, due to the impetus for new nuclear development in Britain, was a leading member of the programme.

Has the UK addressed concerns regarding Brexit and the nuclear industry?

The Government’s response to the challenges facing the UK nuclear industry was more advanced and faster-paced following the triggering of Article 50 than almost any other sector, which highlights the significance of the risks. However, some gaps still remain.

 

Nuclear Safeguards Act 2018

The Nuclear Safeguards Act 2018 allows the government to regulate and implement agreements with regard to nuclear safeguarding.  The Act beefs up the role of the UK nuclear regulator, the Office for Nuclear Regulation, to oversee the new regulatory responsibilities.

 

Nuclear Co-operation Agreement

Britain and Euratom have signed a 21 page Nuclear Co-operation Agreement (NCA), which became applicable from 1 January 2021.  This NCA closely tracks the Euratom treaty and reflects the usual provisions Euratom agrees with third countries, although with more ambitious provisions with regard to co-operation on safety issues and on the transfer of nuclear technologies (albeit the issue of IP in such transfers has to be addressed on a case by case basis).

The NCA specifically covers coordination in the supply of radioisotopes, and the UK and EU Trade and Cooperation Agreement provides for air freight of isotopes if required.

The UK has put in place new bilateral nuclear cooperation agreements with Canada, the US and Australia and two safeguards agreements with the IAEA (International Atomic Energy Agency) to address the gap in arrangements for nuclear fuel supply.

 

Brexit and Nuclear Research

In terms of research, following a deal made in March 2019, the UK will remain a part of the Joint European Torus (JET) project researching nuclear fusion, which is based in Culham in Oxfordshire, until at least 2024.

Additionally, and a little unexpectedly, just prior to Christmas 2020 it was announced that the UK will remain a member of Fusion4Energy’s research at the International Thermonuclear Experimental Reactor in the South of France.  This was unexpected, as the programme is under the auspices of the European Research and Development Programme which had required free movement of people from the EU as a condition of membership.  This reflects the investment already made by the UK and the potential importance of fusion technology in the challenge of net zero emissions.

These are important areas of research but not the only ones.  Time will tell whether the UK will lose out on the knowledge developed in other areas such as the experience of Germany in decommissioning its Konvoi fleet of nuclear reactors.

 

Brexit and the future of the UK nuclear industry

Efforts have been made to minimise the gaps but even the broadest and most comprehensive nuclear cooperation agreement is unlikely to replicate the benefits of a nuclear common market.

The analysis of the agreements put in place to avert the risks of leaving Euratom is still ongoing. However, the efforts of the department for Business, Energy & Industrial Strategy, together with the Office for Nuclear Regulation (ONR), in addressing the Brexit crisis (in addition to the COVID pandemic) has meant that much-needed attention in developing strategies for nuclear new build, nuclear funding and nuclear research has been put on hold for the time being.

This means opportunities have already been missed, with shovel ready sites for gigawatt capacity reactors being mothballed due to lack of government action.

Britain’s new-build nuclear ‘renaissance’ has been delayed further and is reliant on overseas technology and expertise. This is due to the abandonment of new-build nuclear for a generation, following the construction of Sizewell B in the early nineties and the consequent loss of home-grown development expertise.

How the UK’s new approach to immigration and travel requirements will hinder the dissemination of expertise and knowledge is also a question that cannot be wholly answered yet.

It is unlikely that the UK will strike out with a differing approach to nuclear law or regulation any time soon from that of Euratom, given that a large proportion of the Euratom treaty is based on requirements of international law and best practice which still remains applicable to the UK.

Additionally, the ONR is stretched with its new responsibilities and is unlikely to find the bandwidth for strategising a new approach in such a highly regulated and complex field.

Contact us

For further information please contact Ian Griffiths in our dedicated energy team.

Our energy team is ranked as a Leading Firm in the Legal 500 2021 edition.

Our updated guide to recovery and resilience covers everything you need to navigate your way out of lockdown, unlock your potential and make way for a brighter future. Further advice in relation to COVID-19 can be found on our dedicated coronavirus resource hub.  

From inspirational SHMA Talks to informative webinars, we also have lots of educational and entertaining content for life and business. Visit SHMA® ON DEMAND.

Catch up on the session below

How can we help?

Our expert lawyers are ready to help you with a wide range of legal services, use the search below or call us on: 0330 024 0333

SHMA® ON DEMAND

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Achieving a low carbon future for road freight transport

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Climate change and the UK, and the world’s response to it, is one of the most pressing issues of our time. Bringing together global powerhouses to agree to collaborate on the four main goals of COP26 has never been more important.

Our content provides food for thought, challenges the government’s rhetoric and provides opportunities for practical action.

Members of our energy team will be at COP26 and we look forward to catching up with clients and contacts who also plan to be there. Drop us a line and let’s see if we can connect.

 

Achieving a low carbon future for road freight transport

The drive to decarbonise is now at the top of the political agenda in many countries around the world and the transport sector, which is responsible for a substantial proportion of emissions, is only at the beginning of the decarbonisation journey.  This is particularly challenging to road freight transport which still relies on the diesel-fueled internal combustion engine. Electric vehicles may not be the answer for heavy goods vehicles and innovation is required to develop workable solutions in this important segment.

Mark Bartholomew spoke to Simon Brewster and Nick Owen from Dolphin N2 about the alternatives to electric vehicles, including the recuperated split cycle engine being developed by their company and the potential contribution that such technology has to make in driving down carbon levels.

What are the existing challenges with electrification?

Although batteries and electrified roads have been demonstrated in use with heavy-duty goods vehicles, they are not without their challenges.

Simon explained that, for vehicles making long haul journeys, batteries can be inconvenient and result in the loss of load capacity. In order to accommodate the batteries, vehicles have to compromise payload, resulting in more vehicles being needed to shift the same amount of goods. For this reason, batteries typically work better for urban deliveries over shorter distances. Battery-powered trucks would also require a network of heavy-duty charging stations.

An alternative might be electrified roads involving either overhead lines to which the truck connects via a pantograph or a series of electric cables and electromagnetic transmitters buried underneath the road surface, which generate electromagnetic fields and in turn charge a vehicle’s battery as it travels. Although this would reduce the size of batteries required and offer a solution to the large charging ports that would otherwise be needed for charging trucks, it would still require expensive infrastructure to be built on all main roads.

What are the alternatives to battery-powered vehicles?
Hydrogen fuel cell

One of the existing alternatives that is seen as viable for the freight industry, is the hydrogen fuel-cell. Hydrogen refueling is a more familiar process (it is closer to petrol or diesel in terms of time taken) and therefore it could use existing forecourts, although new and widespread infrastructure would be needed to dispense it.

Hydrogen and fuel cells remain costly and economic viability on a larger scale faces a ‘chicken-and-egg’ type challenge. Accordingly, it may be some time before fuel-cells are in widespread usage and accelerating near term decarbonisation whilst enabling additional demand for hydrogen is a priority.

Recuperated split cycle engine

Dolphin N2 is developing another solution for the sector, in the form of a recuperated split cycle engine. This is a form of internal combustion engine designed specifically for use in long haul trucks and achieves very high efficiency by recycling waste exhaust heat.

One of the big advantages of this technology is that it can operate using diesel and therefore has the potential to achieve a substantial reduction in emissions in a very short timeframe through widespread adoption.

The Dolphin engine can also operate on hydrogen, which might help to accelerate infrastructure investment, or biofuels. By running on biomethane produced from wastes that would otherwise rot and release methane into the atmosphere, the Dolphin engines would help to reduce not only carbon but also methane - a much more damaging greenhouse gas. As a result, it would provide an overall ‘carbon negative’ effect.

Are there any barriers to rolling out this technology?

Dolphin N2 is confident that there is little to prevent the roll-out of their technology, however, they do perceive a tendency for policy-makers to try to pick winners, rather than leaving it to the market and the engineers to come up with the most effective solutions.

The promotion of battery-powered electric vehicles and the ban on the use of the internal combustion engine in passenger cars is potentially quite unhelpful; in reality it is the non-sustainable fuel and deviation from existing regulations, not the device used to propel the vehicle, which is the problem.

It would also be helpful if policy-makers and regulators looked at full life-cycle costs rather than focusing on ‘tail-pipe’ emissions. Too often the carbon impact of supposed low emission technologies is ignored or exported.

The importance of innovation

Given the scale of change required to achieve decarbonisation in the transport sector, it seems likely that a range of solutions will be required.  Road freight transport has its own particular challenges and there is not one specific technology that will achieve the policy goals across the sector. It will therefore be important for policy-makers and those regulating the sector maintain a level playing field and an open mind, to avoid the risk of stifling innovation.

Contact us

For further details or advice please contact Mark Bartholomew in our energy team.

Our energy team is ranked in the Legal 500 2021 edition.

Our updated guide to recovery and resilience covers everything you need to navigate your business out of lockdown, unlock your potential and make way for a brighter future. Further advice in relation to COVID-19 can be found on our dedicated coronavirus resource hub.

From inspirational SHMA Talks to informative webinars, we also have lots of educational and entertaining content for life and business. Visit SHMA® ON DEMAND.

Guest authors

Simon Brewster
Dolphin N2
Nick Owen
Dolphin N2

Catch up on the session below