Energy—Lexis®PSL comments on key developments in 2018 and 2019

17 Dec 2018 | 7 min read

In this year’s end of year comment, our Lexis®PSL Energy team consider what their standout legal development was in Energy Law in 2018. Our Lexis®PSL Energy team also preview the anticipated talking points for Energy in 2019.

First published on Lexis®PSL on 12 December 2018.

What was the standout legal development in your area this year?

This year has been notable for significant developments across almost all aspects of the Great Britain energy arena, therefore picking just one is difficult. However, in terms of scope and impact, perhaps the most significant sea-change is being seen at the supply/retail end of the market. This change has been driven by technological advancement (such as smart metering, smart homes and remote communication more generally) combined with far greater scrutiny on the role of, and charges associated with, licensed energy suppliers.
 
As a result, the retail market has faced a plethora of new regulation and challenge across a range of areas, along with more existential questions about the purpose/value of energy suppliers in their present form. This has presented opportunities, particularly for well-run and sophisticated small/medium suppliers, but has also led to unprecedented numbers of smaller suppliers ceasing trading and headwinds for the large incumbent suppliers.
 

How has this impacted on practice in your area?

It has led to significant changes to energy regulation but also (like for many areas of legal practice) increasing encroachment of technology and data regulation. On the energy regulation side, 2018 has seen comprehensive price controls imposed on energy supply tariffs, continued challenges with smart metering roll-out and impending electricity settlement reform. Even more fundamentally, the Office of Gas and Electricity Markets (Ofgem) is looking at reform of the ‘energy supplier hub model’ and a spate of energy supplier insolvencies has led Ofgem to recently issue a wholesale supplier ‘licensing review’.

 

Alongside energy specific regulation, we have seen recognition that in future consumer data (rather than electricity and gas) may be the most valuable commodity held by suppliers. This has seen the sector specific ‘Energy Data Taskforce’, together with wider developments like the Smart Data Review and sector agnostic data protection regulation, emerging as key focus points for the energy supply market. Finally, the use of remote communication in energy consumption and demand management/self supply by sophisticated ‘prosumers’ has meant that fast developing regulation around cybersecurity, peer to peer trading, and technology more widely is an area the retail market can ill afford to ignore.

 

What Lexis®PSL content would you recommend to find out more about these developments?

You will find evolving coverage recognising the transition of the energy supply market available through the Energy module and in particular in our GB electricity and gas supply/retail regulation subtopic, including:

What do you think will be the key development(s) next year?

Ensuring sufficient future electricity capacity to efficiently meet Great Britain’s electricity demand continues to feel unresolved. Further clarity is expected on the future development of new gas-fired powered stations, onshore renewables, storage capacity, electricity interconnections, nuclear projects, demand side response and Carbon Capture Usage and Storage. This will be partly driven by what forms and level of support will be available to them but will also be determined by how these sub-sectors minimise their need for subsidy. Linked to this wider issue, both the proposed total closure of the Feed-In-Tariffs (FIT) scheme and the recent Capacity Market suspension following Tempus State aid judgment have been important developments and will remain a key focus going into 2019.

What do you think this will impact and how do practitioners find out more?

The technological winners and losers will inevitably have an impact on the project types and regulatory areas where significant numbers of lawyers spend the bulk of their time advising. For example, should the economics for onshore renewables projects improve (through the balance between project costs and regulatory support available tilting in their favour) then we might expect to see a new wave of such projects. Alternatively (or indeed in addition) the Tempus State aid judgment may see the Capacity Market become more favourable for demand side response, the government may decide to more wholeheartedly facilitate new gas generation, or perhaps energy storage on an aggregated and/or large scale basis may become mainstream. Such developments, or a wide range of alternative directions on meeting our energy needs, will present new opportunities and challenges.

Other developments of interest

We will also be watching with interest:

  • Brexit, the EU ETS, carbon price support and the Carbon Emissions Tax: the practicalities of how the EU ETS aspect of carbon pricing will continue (or be replicated) upon Brexit is evolving. The government stated in early 2018 a preference for the UK to reach a deal with the EU to remain in the EU ETS until the end of 2020 (see: LNB News 23/03/2018 23) and this was reiterated in the Budget of 29 October 2018. In the scenario of a Withdrawal Agreement being entered into on the terms envisaged by the Draft Withdrawal Agreement, then the EU ETS mechanisms would continue to apply in the UK until the end of the Implementation Period. The Budget also revealed that in the event of a no deal Brexit, there would be a new Carbon Emissions Tax, to replace the EU ETS for the UK installations. This will be an important development in 2019. For more detailed analysis, see Practice Note: Emissions controls and carbon pricing in respect of carbon emissions from UK fossil fuel powered electricity generation
  • Split of National Grid: National Grid Electricity Transmission plc (NGET) is currently the owner of the onshore high voltage electricity transmission system (NETS) in England and Wales (often referred to as the ‘Transmission Owner’ (TO)), and is responsible for balancing electricity flowing onto the NETS, entering into contractual connection agreements for those connecting to the NETS and applying charges to NETS users (this is often referred to as the ‘System Operator’ (SO)). However, from 1 April 2019 this is set to change, with the separation and partial transfer of the electricity transmissions licence held by NGET plc to new National Grid entity National Grid Electricity System Operator Limited. For more information, see Practice Note: The Split of National Grid’s Transmission Owner (TO) and System Operator (SO) Roles and Licences
  • Decommissioning disputes: oil and gas decommissioning activity has been gaining increasing momentum in the UK in recent years fuelled by a low oil price climate, and as it is expected that approximately 80 fields will cease production over the next five years. Due to the nature of decommissioning and the scope for disagreement over estimated costs, risk & liabilities, contractually required security and access to necessary funding, there has been an increase in the number of decommissioning disputes. In large part, disputes often relate to Decommissioning Security Agreements and the adequacy of the security provided thereunder, therefore involving the project partners. These disputes concern issues such as the calculation of net costs (that is, the best estimated costs of performing all decommissioning operations) and net value (the expected revenues from a field's production). For more detail on our practical guidance in this area, see: Corporate oil and gas transactions—overview

Brexit

As the UK prepares to withdraw from the EU in March 2019, Brexit will continue to be essential reading for all legal practitioners. See: Brexit—Lexis®PSL comments on key developments in 2018 and 2019.

 

Filed Under: Energy

Area of Interest