Energy Bill [HL] 2022-23: Parts 11 and 12 - Offshore wind, oil and gas

The Government’s Energy Bill [HL] 2022-23 was introduced to the House of Commons on 25 April 2023, following its Lords stages. Second reading is due to begin on 9 May 2023.

This briefing provides background on parts 11 and 12 of the bill. These parts contribute to the third of the bill’s three pillars, which aims to “maintain the safety, security and resilience of the UK’s energy system”. They cover the following measures, as summarised by the bill’s explanatory notes (PDF):

• Reducing the risk of fuel supply disruption and improve fuel supply resilience in the core fuels sector.
• Amending the Habitats Regulations Assessment process for all offshore wind projects making applications from late 2023, helping reduce the time it takes to develop new offshore wind projects, whilst maintaining high environmental standards.
• Ensuring that the offshore oil and gas environmental regulatory regime continues to be effective, to maintain current levels of environmental standards and facilitate the offshore oil and gas industry’s transition to net zero.
• Amending the Petroleum Act 1998 to change the fee regime and cost recovery mechanism for the regulation and offshore decommissioning activities of oil and gas producers.
• Granting the Oil and Gas Authority, whose business name is the North Sea Transition Authority, additional powers to ensure the UK’s oil and gas [...] infrastructure remains in the hands of companies best able to operate or decommission it.

The following summarises each of these measures.

Part 11: Core fuel sector resilience

The core fuel sector covers the storage, handling, transport, processing, and production of crude-oil based fuels and renewable transport fuels (e.g. biofuels). At present the supply of these fuels is largely unregulated, with no central system coordinator. The limited regulation that currently exists addresses only the risks to the supply of fuel before a state of emergency is declared.

The Government currently works with industry on a voluntary basis to manage issues relating to the sector’s resilience, and risks to the supply of core fuels as and when issues arise. However the explanatory notes (PDF) explain that “market participants have repeatedly told the Government that competition concerns remain a barrier to full co-operation on a voluntary basis”.

Part 11 would therefore give the Secretary of State new powers to “maintain continuity of core fuel supplies and ensure that industry maintains or improves its resilience to reduce the risk of emergencies affecting fuel supplies”. These would include:

• A direction making power, enabling the Secretary of state to
  • issue directions to individual enterprises, and in some circumstances, more than one enterprise, to take action to maintain or improve core fuel sector resilience, and
  • make regulations requiring a class of enterprises to take action to maintain or improve core fuel sector resilience.
• An information power, enabling the Secretary of State to require core fuel businesses to provide relevant information on request, and to require major operators to report an incident which poses a significant threat to the continuity of fuel supply.
• A financial assistance power, enabling the Secretary of State to provide financial assistance to core fuel businesses to support them in implementing measures to improve resilience or protect core fuel supplies.

Part 11 builds on the proposals in the draft Downstream Oil Resilience Bill (PDF), which was published in June 2021 and which received pre-legislative scrutiny from the Business, Energy and Industrial Strategy (BEIS) Committee.

During the Lords stages, opposition peers discussed grouped amendments to expand Part 11’s scope to cover the storage of natural gas and to require that financial assistance provided under the new powers would be reported to Parliament. However, the leading amendment was withdrawn.

Part 12: Offshore wind electricity generation, oil and gas Chapter 1: Offshore wind electricity generation

Part 12, Chapter 1, Clauses 245-251 of the bill cover offshore wind electricity generation. The clauses were introduced by the Government during the House of Lords committee stage. The new clauses were not opposed and no further amendments made at report stage.

The Government has an ambition to deliver up to 50 GW of offshore wind capacity by 2030, trebling the current offshore capacity. The clauses aim to implement measures announced in the British Energy Security Strategy (BESS) published in April 2022. In this the Government committed to cutting the time to develop and deploy offshore wind projects by half, from 13 years.

The Department for Energy Security and Net Zero (DESNZ) Energy Bill factsheet on environmental commitments for offshore wind provides an overview of the measures in the bill. The bill includes powers to amend the requirements of Habitat Regulations Assessments, carried out before an offshore wind farm is approved. A new strategic compensation approach will allow for mitigation of the impacts on the marine environment across multiple projects. This is not currently possible, with any mitigation measures having to be implemented in each site. The bill would also create a marine recovery fund, for wind developers to pay into, which would deliver some of these strategic measures. The proposals have been generally welcomed by both environmental and industry stakeholders.

Chapter 2: Oil and gas Environmental protection

Part 12, Chapter 2 Clauses 251 and 252 of the bill cover marine environmental protection. They were not amended in the Lords.

The clauses would give the Secretary of State power to make regulations concerning the offshore oil and gas environmental regulatory regime. In the explanatory notes, the Government says that it will use the powers to ensure that the regime “remains fit for purpose”.

The Delegated Powers Committee raised concerns in its report on the bill that the proposals in Clause 252, covering the impact of offshore activities on habitats, were “very wide and open ended” and considered them inappropriate. The proposals have been also criticised by stakeholders for providing too broad a power to amend environmental regulations.

Charges for decommissioning schemes

Clause 253 would amend the Secretary of State’s powers in the Petroleum Act 1998 to establish a new fee charging scheme for the costs of regulating the decommissioning of offshore oil and gas and carbon storage infrastructure. The new scheme would allow costs incurred by the regulator after the approval of a decommissioning programme to be recovered from infrastructure owners and operators. It would replace the existing fee charging scheme, which only allows for a fee to be charged when a decommissioning programme is submitted to the regulator, and when a request is made to the regulator for a decommissioning programme to be revised.

The change would align the fee charging regime with the ‘polluter pays’ principle of UK environmental law. It would also align the decommissioning fee charging regime with that for environmental fees.

When originally introduced in the Lords, the clause proposed to give the Secretary of State a power to establish the new charging scheme administratively, rather than through regulations, meaning that the power would not have been subject to a parliamentary procedure. The House of Lords Delegated Powers and Regulatory Reform Committee said this approach would be inconsistent with existing provisions on fees (PDF). It recommended that the charging scheme made under the new power should be contained in regulations subject to the negative procedure.

During the Lords report stage, a Government amendment to take the new powers in this way was accepted.

Change in control of licensee

The rights to search for, bore for and extract petroleum in most areas of Great Britain and the UK's offshore waters are the exclusive rights of the Crown. Companies who wish to undertake these activities must obtain the relevant licence from the regulator, the Oil and Gas Authority (OGA), whose business name is the North Sea Transition Authority (NSTA).

A DESNZ factsheet explains that during the lifetime of a petroleum production licence, “it is quite likely that the ownership and control of a Licensee should pass to a new parent company, most often by means of a share sale or merger”. This is known as a ‘change of control’. It notes that “an undesirable change of control could undermine investor confidence in the commercial environment, making the United Kingdom Continental Shelf (UKCS) a less attractive place for investment”.

At present the NSTA cannot prevent undesirable changes of control before they happen. It can, however, examine the change of control, and seek to remedy it, after it has occurred, for example by requiring a further change of control or by revoking any UK petroleum licences held by the licensee. The potential for the NSTA to overturn a change of control after it has taken place is a concern for companies who may be subject to such an action.

Clauses 254 and 255 would give new powers to the North Sea Transition Authority (NSTA) to intervene before the ownership and control of a licensee is passed to a new parent company. This would replace the NSTA’s existing powers to intervene after such a ‘change of control’ event.

The clauses were not amended during the Lords stages.

Part 2, chapter 4 of the bill (clauses 98 to 101) sets out equivalent provisions for carbon storage licences. For more information, see the Library briefing on parts 1-3 of the Energy Bill.