Energy and Utilities regulation: what’s coming up in the next 12 months

Energy and Utilities businesses operate in a highly regulated sector. Below are regulatory developments to watch, taken from Osborne Clarke’s UK Regulatory Timeline, which also covers upcoming developments across a wide range of other sectors and regulatory regimes.  Please click here for the full Timeline.

Q2 2016: tightening of renewables incentives

• On 1 April 2016 the Renewables Obligation closed to new small-scale solar PV projects (5MW or less) and on-shore wind projects, subject in each case to certain grace periods.
• The government is proposing that solar projects of 5MW or less, with an accreditation date between 23 July 2015 and 31 March 2017, that do not qualify for the “significant commitment” grace period will lose their “grandfathering” protection.  That protection would otherwise have guaranteed the level of ROCs that a project is entitled to, for 20 years from the date of accreditation.
• A number of changes have been made to the Renewable Heat Incentive scheme, including the introduction of an overall budget cap on 1 April 2016, the removal of solar thermal panels from the scheme, an increase in heat pump tariffs and a reduction in biogass tariffs.
• On 31 March 2017 the RO closes to all new projects, subject to applicable grace periods and the early closure of the RO solar and on-shore wind projects.

18 April 2016: Utilities Contracts Regulations in force

The UCR 2016, which refresh the rules around utility procurement, came into force on 18 April 2016. Among the key areas of change under the UCR 2016 are:

• a new definition of a utility, including removal of the method of identification of utilities by list; 
• codification of the rules on pre-procurement market engagement; 
• removal of the distinction between Part A (fully regulated) and Part B (lightly regulated) services; 
• limitation of the duration of framework agreements to eight years; 
• the introduction of a positive requirement for utilities to investigate abnormally low tenders; and 
• limitations on the modification of contracts during their term (also referred to as material variation).

The thresholds above which the regulations apply, and the rights and remedies of bidders in the event that a utility is in breach, will remain unchanged under the UCR 2016. Similar regulations applicable to Scotland – Utilities Contracts (Scotland) Regulations 2016 – came into force on the same day

Q2 2016: Cyber Security Directive to be passed

The European Council, Parliament and Commission have reached agreement on the text of the NIS Directive. The NIS Directive requires, amongst other things, that operators of essential services – including critical infrastructure in the energy sector – take appropriate security measures and report security incidents to national authorities. The NIS Directive will likely see the creation of a new regulator in the UK, to whom certain network security breaches will need to be reported.  This raises the spectre of yet more (potentially competing) reporting obligations for businesses hit by a major cyber security incident. We expect the Directive to come into force during Q2 2016. Once in force, Member States will have 21 months to implement the necessary national legislation and another six months to identify the “operators of essential services” to whom the new rules will apply. Businesses potentially caught by the Directive need to start planning now.

For more information on the NIS Directive see here.

June 2016: energy market investigation

The Competition and Markets Authority has until 25 June 2016 to complete its investigation into the energy market. The CMA published a summary of its provisional remedies on 10 March 2016 and the final market investigation report will follow in June 2016, prior to the statutory deadline.

Ofgem in particular is likely to be active in taking forward the recommendations made by the CMA following this investigation, and the government has already committed to implementing the CMA’s recommendations.

Q2/Q3 2016: overhaul of business energy efficiency taxes

The government will be consulting on its proposed reform of business energy efficiency taxes and associated regulations. The consultation’s objective is to review how tax schemes cross over with energy efficiency policies, with the aim of simplifying and improving the current structure. The review will consider, amongst others:

• the Climate Change Levy; 
• the Carbon Reduction Commitment; 
• climate change agreements;
• the mandatory reporting of greenhouse gas emissions; and 
• the Energy Saving Opportunity Scheme.