What role does the law play in the future of energy?

Mar 01, 2019

Written By Shermaine Williams

Gone are the days when the Big Six energy providers had a monopoly over the market—smaller companies are now taking their place at the table. But the law will need to play a part in ensuring that energy can be enjoyed from various sources without interruption.

It used to be the case that consumers could only choose between one of the Big Six energy companies—British Gas, EDF Energy, E.On, Npower, Scottish Power and SSE. Having been incorporated following the privatisation of the energy industry via the Electricity Act 1989, these long-standing companies have been able to maintain the lion’s share of the energy-supply market to both residential and commercial premises.

But since 1997, new players have started to enter the market to supply energy on the same basis, albeit on a smaller scale. While none of the smaller companies are in a position to rival the Big Six, they have given consumers more choice and are especially relevant to those who have become savvier about their outgoings and increasingly concerned about the environment. No longer beholden to the main players, consumers feel more in control by using an energy company that aligns with their ethical standards. They don’t need to remain with the same provider and suffer increased prices year after year. It’s a simple process for a consumer to switch suppliers at the end of every contract to get the best deal.

In order to attract customers and gain a share of the lucrative energy market, these new companies will often do things differently. First Utility uses AI to deal with customer’s queries, while Bulb Energy purchases energy in advance to pass the savings onto their customers. This ability to do things differently extends to providing energy from renewable sources—whereas the Big Six tend to supply energy sourced from nuclear power or from the burning of fossil fuels. The environmentally-conscious consumer, therefore, gets a credible alternative as an energy supplier.

Despite the fact that all energy companies essentially provide the same service, greater choice allows consumers to seek a provider that suits their needs; some people may prefer small companies and would be more inclined to support an independent company rather than contribute to the profits of a large company.

Whether a large multi-national or a small independent, all energy providers must comply with regulations relating to the supply of energy. The Gas and Electricity Markets Authority regulates the industry as a whole by way of the Office of Gas and Electricity Markets (Ofgem). Ofgem will have the last word on any complaints against an energy company, though it also gathers data and analyses results to determine the state of the energy market. Energy in the UK—how does it work?

The electricity used in the UK is mainly generated by large-scale power stations. However, there are also smaller sites around the country that can be owned by one of the smaller companies. All of these must have obtained planning permission, for which the process varies according to the generating capacity of the particular station. Some energy providers will simply purchase electricity and gas on a wholesale basis before distributing it to their customers; others will invest in the infrastructure to generate their own.

Through the distribution network, the energy companies provide electricity to residential and commercial properties. In order for this to happen, the transmission network must first come into play to transport the electricity around the country at a high voltage. A similar process is in place for the supply of gas. For electricity, this process starts with the National Grid, which is responsible for the distribution of high-voltage electricity around the country, after which the distribution network reduces the voltage before sending it on to homes and businesses.

Energy providers can obtain the energy they supply from multiple sources, which means that different suppliers will offer different combinations. For example, when considering green energy, it’s possible for a supplier to provide 100% green electricity, a majority percentage, a minority percentage, or none at all. It’s even possible that energy users in the UK may have been supplied energy that was generated abroad.

Some of these newer companies focus on providing green energy—Tonik is an example of one that provides 100% renewable electricity as standard, with its greenest tariffs including 10% green gas and 90% carbon offset. Few others do this. The law obligates energy companies to reveal the source of the energy they provide, and in what combination. Ofgem also certifies companies that provide green energy so that they can prove their credentials.

Overall, about a quarter of the energy fed to the National Grid comes from renewable sources. However, these figures often only relate to electricity, as obtaining green gas is no easy task; there’s some way to go before it’s on the same level as electricity when it comes to being green. For example, Bulb Energy provides electricity on a 100% renewable basis, although the gas is 10% green.

Pollution: a catalyst for greener energy sources.

The frontrunners in the energy-supply industry, which have traditionally used nuclear and other non-green sources, will work to appeal to environmentally-conscious consumers. They can do this by adjusting where they obtain energy from in order to appeal to those eager to reduce their carbon footprint.

Although the amount of renewable energy generated in the UK is gradually increasing, it’s still only a small part of the overall supply. But studies show that the increase is necessary. Measurements of pollution levels in London showed that within the first five days of 2017, the annual air-pollution limit—as set out by law—was exceeded. There must be no more than 200 micrograms of nitrogen dioxide per cubic metre on an hourly basis.

This failure of the UK to meet its own obligation has been deemed “another shameful reminder of the severity of London’s air pollution” by Alan Andrews, a lawyer for ClientEarth, and has prompted action from those with the power to do so. Sadiq Khan, the mayor of London, promised funding of £875m over five years and outlined new measures designed to deal with the problem. Reports of these excessive pollution levels can also make consumers more aware of how they contribute to this, which can prompt them to consider their energy usage. This in turn makes green energy companies more attractive.

Finding the right energy sources

The need for green-energy sources is increasing, as is the need for electricity generally. “The EU Renewable Energy Directive 2009 (EU RED) requires the UK to source 15% of energy from renewable sources by 2020,” says Dominic FitzPatrick, partner and head of energy at Taylor Wessing. “In order to achieve this target, it’s expected that 30% of electricity generation would need to come from renewable energy.”

There must be sufficient infrastructure to enable this to take place. For example, a large number of commercial solar panels will be able to produce a significant amount of electricity, but they need a large open space to accommodate them. This requirement raises a number of law-related issues, from finding and obtaining the right piece of land, to successfully navigating the process for getting planning permission. The configuration of solar panels is important not only from the point of view of being able to gather efficiently the sun’s rays, but also because of how they can affect wildlife.

Wind turbines that are located offshore are generally accepted (or reluctantly tolerated by those who think they are an eye sore). But when they are situated close to inhabited areas, residents have complained about noise.

Fracking is arguably the most controversial means of obtaining natural gas, with the process attracting protests both within and outside the vicinity where the work take place. Fracking comes with its own unique set of issues—legal injunctions and earthquakes, to name a couple. Rules were put in place to control the fracking industry, specifically in respect of what should happen if the process triggered an earthquake. Lately, these have been relaxed to make it easier for fracking to take place.

Further legislative concerns

These aren’t the only concerns that energy suppliers need to contend with when supplying energy. The 2013 Energy Act provides secondary legislation that allows the secretary of state to set a target for decarbonisation of the electricity industry by 2030. The Act also provides for nuclear regulation in that it issues statutory powers to the Office for Nuclear Regulation.

The Act makes it clear that it’s necessary for investment to be made in the electricity industry to create infrastructure that can cope with increased demand. As part of this, provision has been made for incentivising companies to invest in the generation of low-carbon energy under Contracts for Difference and the Emissions Performance Standard for the control of carbon-dioxide emissions from new fossil-fuel power stations, among others. Its aim appears to be to increase the use of renewable energy and maintain the safety of production of non-renewable energy.

It remains to be seen what effect Brexit will have on the energy industry, though some assert that it will result in some of the nuclear-power stations in the UK having to close. Senior nuclear-energy lawyer at Prospect Law, Rupert Cowen, advised MPs that ending membership of the Euratom treaty will mean that the trade in nuclear energy will cease. “Unlike other arrangements, if we don’t get this right, business stops. There will be no trade. If we can’t arrive at safeguards and other principles that allow compliance [with international nuclear standards] to be demonstrated, no nuclear trade will be able to continue.”

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