Energy Bill [HL] 2022-23, parts 7-10: heat networks, smart appliances, load control and energy performance of buildings

The Energy Bill was introduced the House of Lords on 6 July 2022. The Bill is centred around three pillars:

1. Leveraging investment in clean technologies.
2. Reforming the UK’s energy system and protecting consumers.
3. Maintaining the safety, security and resilience of the energy systems across the UK.

This briefing primarily covers measures that fall under the second of those pillars, which comprises parts 7 to 10 of the Bill.

Part 7 – Heat networks regulation and heat network zones

Part 7 of the Bill includes proposals for regulation of the heat network market.

The Government made a number of unopposed amendments to part 7 the Bill during committee and in report stage. There were no opposition amendments to this part of the Bill.

The proposals for heat network regulation and heat network zoning have been generally welcome by stakeholders.

Heat network regulation

Unlike gas and electricity, households that get their heat delivered through a heat network are not covered by the energy regulator Ofgem. While the supply of gas to a heat network is regulated as a commercial supply, the supply of heat from the network to homes is not.

The proposals in the Bill follow a Competitions and Market Authority report (PDF) in July 2018, which recommended that the market should be regulated. It said any regulator should introduce “consumer protection for all heat network customers so they get the same level of protection as customers in the gas and electricity sectors”.

The proposals in the Bill extend the role of the existing electricity and market regulators to cover heat networks; Ofgem would regulate in England, Scotland and Wales, and Utilities Regulator would regulate in Northern Ireland. The detail of the legislation will be set out in regulations.

Heat network zones

Part 7 also includes provisions for the creation and regulation of designated heat network zones, where zoning will be used to require heat network installation in new buildings as the first option for heat provision. This is to support the Government’s target set out in the Energy White Paper 2020 to designate the first heat network zone by 2025.

The Bill includes provisions for the creation of a Heat Network Authority together with zone coordinators. These will have powers to designate heat network zones, require buildings to be connected to a heat network and require waste heat to be connected to heat networks. The detail of the legislation will be set out in regulations.

Part 8 – Energy smart appliances and load control

An energy smart appliance (ESA) is an internet-connected appliance that can adjust its electricity usage automatically based on signals received remotely. The act of sending a signal telling ESAs how much power they should draw is called ‘load control’.

Part 8 of the Bill would introduce measures designed to encourage the take-up of energy smart appliances and load control services. It would do so by:

• giving the Government powers to introduce regulations requiring energy smart appliances to meet requirements regarding cyber security, data privacy, interoperability, and grid stability; and
• requiring load controllers to hold a licence issued by Ofgem, the energy regulator.

The Government said in its policy statement on Part 8 that these measures will create a regulatory and technical framework that will give consumers the confidence to engage with ’demand-side response’ (DSR). DSR involves energy consumers reducing the demand they place on the grid by changing how and when they use electricity. For example, electric vehicles can be set to charge overnight when demand is low. ESAs and remote load control allow this to be done by a service provider on behalf of consumers rather than manually by consumers themselves.

Organisations including the Climate Change Committee and National Grid ESO have predicted that DSR will be an important part of the transition to net zero. DSR is expected to help the electricity grid cope with the combination of increasing demand for electricity resulting from the electrification of heat and transport, alongside the intermittent supply of electricity provided by weather-dependent renewable energy sources.

Several unopposed Government amendments were made to the Bill. There were no opposition amendments.

Part 9 – Energy performance of buildings

The energy performance of buildings (EPB) regime is currently governed by the Energy Performance of Buildings Regulations 2012. They are derived from EU law. The 2012 Regulations require Energy Performance Certificates (EPCs), which grade a building’s energy efficiency, to be produced when a property is built, let or sold. Public buildings are required to display their EPC rating.

Following the UK’s departure from the EU, the Government said it would need new powers to make changes to the existing EPB regime. Part 9 of the Energy Bill 2022-23 would give the Secretary of State powers to make changes to the existing EPB regime. Specifically, the Secretary of State would be able to make new regulations:

• requiring the energy usage or efficiency of premises to be assessed, certified and published;
• prohibiting the marketing, letting and leasing of properties if their energy performance has not been assessed, certified and published; and
• requiring energy performance certificates to be produced when new premises are constructed.

At the Lords report stage, a non-government clause tabled by Baroness Hayman (Crossbench) was added to the Bill which would require the Secretary of State to publish a “Warmer Homes and Businesses Action Plan” within six months of the Act’s passage. The action plan would have to set out how the Government intends to meet its energy efficiency targets for buildings, including how it will meet:

• EPC band C by 2035 for all UK homes and EPC band B by 2028 for all non-domestic properties; and
• the Future Homes Standard for all new builds in England by 2025.

Responding for the Government, the Minister for Energy Efficiency, Lord Callanan, said the proposed plans duplicated the Government’s efforts. However, the amendment was agreed on division by 227 to 194, and added to the Bill as clause 204.

Part 10 – Energy Savings Opportunity Scheme

The Energy Savings Opportunity Scheme (ESOS) was introduced across the UK in 2014 to meet requirements set out in the EU Energy Efficiency Directive. A Department for Energy Security and Net Zero (DESNZ) factsheet explains it is an energy assessment scheme, which “requires large businesses in the UK to carry out an audit of the energy used by their buildings, industrial processes and transport at least every 4 years”.

The Energy Savings Opportunity Scheme Regulations 2014 set out the requirements for the existing scheme. When the European Communities Act 1972 was repealed, as part of the UK’s departure from the EU, so too were the primary powers to amend the 2014 ESOS regulations. Consequently, no changes to the ESOS regulations can currently be made.

Part 10 of the Bill would provide a power to replace the repealed regulation-making power. The replacement power would allow the Secretary of State to make regulations requiring organisations to assess their energy consumption and greenhouse gas emissions, including by amending the ESOS regulations.

The Bill did not include any provisions on ESOS when it was originally introduced in the Lords. The Government announced its intention to introduce new provisions to improve and expand ESOS at the Lords second reading on 19 July 2022. This followed a 2021 consultation on options to strengthen ESOS audits, to which the Government published its consultation response (PDF) on 28 July 2022, confirming its plans to reform ESOS.

Government amendments were agreed at committee stage to introduce the new Part 10 (then Part 9A) of the Bill, which would set out the new ESOS provisions. Further Government amendments were agreed at report stage, which would require ESOS regulations to provide for the right to appeal against financial penalties.