Legislation in the UK energy industry. A guide to legislation, policy, directives and plans directly affecting the UK energy industry December 2010

Legislation in the UK energy industry A guide to legislation, policy, directives and plans directly affecting the UK energy industry December 2010 Legislation in the UK energy industry 1

Legislation in the UK energy industry UK Legislation affects all aspects of life in the UK and the energy industry within the UK is a constantly evolving market with new policy, legislation and directives being introduced by the government on a regular basis. It can be difficult to keep up to date with the current government targets, market stimulation strategies and requirements placed on companies operating within the sector. Arup has been operating within the UK energy market providing assistance to clients on a range of energy related projects for several years. As a result Arup understand the importance to businesses operating within the market to be up to date with their knowledge of policy and legislative items. Arup are well placed to provide advice on all aspects of energy policy and legislation from new EU directives to key UK plans and strategies. This document provides an overview of key legislative items and policies affecting the UK energy industry. Legislation and policy influencing the UK energy industry follows a clear hierarchy. The legislative items are influenced by two key sets of policy makers; the UK government and EU Institutions. Both these sets of policy makers influence the UK energy industry but in different ways; the EU institutions influence the market by introducing regulations, directives and decisions which place implications either upon the UK government to introduce legislation and policy or directly upon operators within the energy market. The UK government on the other hand have direct influence over the UK energy market. EU Legislation UK Legislation Acts Orders & Regulations Plans & Strategies Programmes EU Legislation Legislation from the EU is formed through several different institutions including the European Commission, The Council of the European Union and the European Parliament. Each of these institutions shape the directives, decisions and regulations imposed by the EU upon its member states. As a result the UK legislation and policy makers must adapt to meet the requirements set by these institutions. Acts An act of parliament is defined as a statute enacted as primary legislation by a national or subnational parliament. UK acts relating to the energy industry cover major legislative items such as new laws, providing bodies with new powers and enforcing policy which directly influences a market. Orders & Regulations Orders and Regulations are utilised by the UK government to introduce policy measures as a means for meeting the targets and requirements set out in both acts of parliament and EU directives. Orders and Regulations set out legally binding requirements on companies and bodies operating within the energy market and industry. Plans & Strategies Plans and strategies cover non-legally binding policy items introduced by the government which affect the energy industry. Generally plans and strategies are less specific than orders and regulations and introduce measures which the government believes will either help to regulate or stimulate the market or will help move the industry towards a certain target. Programmes Programmes are utilised by the UK government as a method of helping to build and stimulate specific areas of the energy market. They are generally used as a method of injecting public spending into the market place through specific schemes. Schemes Schemes are similar to government programmes but rather than directly allocating public funding directly to specific areas of the energy industry schemes are set up to make public funding available to persons, companies and bodies who meet particular requirements or wish to undertake particular endeavours. Legis Schemes 2 Legislation in the UK energy industry

EU Legislation Cogeneration Directive The aim of the Cogeneration Directive is to establish a transparent common framework to promote and facilitate the installation of cogeneration plants where demand for useful heat exists or is anticipated. The Directive makes it possible to consolidate existing cogeneration installations while promoting new plants. The Directive also serves to create the necessary framework for high efficiency cogeneration, aimed at reducing emissions of CO 2 and other substances. The Cogeneration Directive was introduced to promote the currently underutilised potential of cogeneration throughout the EU. The directive has led to the introduction of regulatory developments throughout the EU with respect to cogeneration as well as the introduction of criteria to guarantee the origin of energy produced from high-efficiency cogeneration. The main implications of the directive are to developers of larger energy infrastructure installations. February 2004 - Introduced August 2007 - Transposition to member states Combined Heat and Power Quality Assurance Directive on the Performance of Buildings This directive on the energy performance of buildings was introduced by the EU to combat the large proportion of carbon emissions associated with buildings. The directive introduced a common methodology for calculating the energy performance of buildings, introduced minimum standards for energy performance of new and existing buildings and introduced systems for energy certification. The directive was required to be implemented by all EU member states by 4th January 2006. Due to the significant proportion of carbon emissions associated with buildings the directive on energy performance of buildings has large implications for the built environment within the UK. The directive has resulted in the introduction of energy performance certificates, display energy certificates, inspections for air conditioning systems and guidance for boiler system users and therefore has significant implications for both developers and occupiers of buildings within the UK. January 2003 - Introduced January 2006 - Transposition to member states Building Regulations European Commission Directive on Renewable The European Commission s Renewable Directive imposes renewable energy targets for 2020 across the European Union. The directive sets a target for each member state to meet based on its share of renewable energy production in 2005 and its gross domestic product per capita. The directive also states that a minimum of 10% transport fuel must come from renewable sources by 2020. The directive replaces the Directive on electricity production from renewable energy sources. The Renewable Directive has clear implications for all EU member states. The main aim of the directive is to increase the proportion of renewable energy in the EU s energy mix from a total of 8.5% to 20% by 2020. The Directive sets a target for 15% of energy in the UK to come from renewable sources by 2020, and necessitates that the UK submits a National Action Plan by June 2010 setting out how it will meet its obligations. The target applies to electricity, heat and transport sectors. December 2009 - Introduced December 2010 - Transposition to member states 2020-15% of UK energy from renewable sources Fuel Quality Directive Renewable Strategy National Action Plan European Union Biofuels Directive The European Union Biofuels Directive was introduced to cut the European transport market s dependence on oil and to help reduce the expected growth in carbon emissions associated with the European transport sector. The directive promotes the use of biofuels in all member states through a mandatory, binding target of 10% of all road fuels by 2020. The Biofuels Directive has a clear impact on biofuel production and availability throughout the EU. The directive promotes the use of biofuels within the transport industry although the details on how the targets set out are met by member states are not defined. The Biofuels Directive has resulted in the introduction of the Renewable Transport Fuel Obligation within the UK and has implications for producers and suppliers of transport fuels and all stakeholders of the biofuel production and supply chain. May 2003 - Introduced 2005-2% of all road fuels from biofuel 2010-5.75% of all road fuels from biofuel 2020-10% of all road fuels from biofuel Renewable Transport Fuel Obligation Legislation in the UK energy industry 3

EU Legislation continued/ European Union Trading Scheme The European Union Greenhouse Gas Trading Scheme is the largest multi-country, multi-industry emissions trading scheme in the world and is a major part of EU climate policy. As part of the scheme large emitters of CO 2 in the EU must monitor and report their annual emissions. Installations are obliged to return an amount of emission allowances to the government equivalent to their emissions. The system is sequenced over three distinct chronological phases: Phase 1: Including combustion power generation >20MW, refineries and offshore installations and other sectors. Phase 2: Approximately 3% of allowances auctioned, project credit from outside the EU will not exceed 226% of required reductions. Non-EU members, Norway, Iceland and Liechtenstein join the EUETS. Phase 3: At least 50% of overall allowances will be auctioned, with 100% in the power sector. Credits from outside the EU will not exceed 50% of required reductions. Sectors deemed at risk of relocation outside the EU will receive 100% allowances while those not deemed at risk will initially receive 80% in 2013, December to 30% in 2020 and 0% in 2027. October 2003 - Introduced January 2005 - Transposition to member states January 2005 - Phase 1 begins (3 years) January 2008 - Phase 2 begins (5 years) January 2013 - Phase 3 proposed to begin (7 years) Carbon Reduction Commitment Industrial Directive The Industrial Directive has been created through the Integrated Pollution Prevention and Control directive. The Industrial directive combines six EU directives on industrial emissions. The directive also tightens existing limits on emissions of sulphur and nitrogen oxides from industrial applications. The Industrial directive will have an impact on emissions from industrial processes. The directive combines an integrated and combined approach, the use of best available techniques and specific solutions and a requirement for public consultation. January 2011 - Proposed Introduction June 2012 - Proposed transposition to member states January 2016 - Proposed date of enforcement UK Integrated Pollution Prevention and Control Directive Large Combustion Plant Directive Integrated Pollution Prevention and Control Directive The Integrated Pollution Prevention and Control Directive was introduced with the aim of minimising pollution from various industrial and agricultural sources throughout the European Union. Operators of industrial and agricultural installations and activities covered by the directive are required to obtain an environmental permit from authorities in EU member states. Over 52,000 installations are currently covered by the Integrated Pollution Prevention and Control Directive. The directive covers industrial and agricultural installations and operations with high pollution potential to atmosphere, water and soil. The directive also establishes a procedures for authorising these activities particularly in terms of pollutants released. February 2008 - Introduced 2011 - IED proposed to replace IPPC Industrial Directive Large Combustion Plant Directive The Large Combustion Plant Directive was introduced with the aims of reducing acidification, ground level ozone and particulates by controlling emissions from large combustion plant. The directive applies to all combustion plants with a thermal output of greater than 50MW. The directive specifies controls on sulphur dioxide, nitrogen oxides and particulates by introducing emission limit values for these emissions and requiring that member states operate within a national action plan. The Large Combustion Plant Directive has implications for all combustion plants. All combustions plants with a thermal output greater than 50MW must comply with the emission limits. Plants choosing to opt-out of the directive are restricted in operation after 2007 and must close by 2015. The directive has been updated to reflect advances in combustion and abatement technologies. October 2001 - Directive Updated September 2007 - Transposition to member states January 2016 - Revised NOx limits introduced 2018 - Superceded by IED National Reduction Plan 4 Legislation in the UK energy industry

UK Acts Climate Change Act 2008 The climate change act 2008 was introduced to ensure that the net UK account for all six Kyoto greenhouse gases for the year 2050 is reduced by 80% relative to a 1990 baseline. The act establishes a framework for allowing the UK to meet its longterm greenhouse gas goals while steering the UK towards a lowcarbon economy. The act also makes provisions for the introduction of the Carbon Reduction Commitment. The Act is split into 5 distinct parts. The first sets out the 80% reduction in the UK net carbon account by 2050. Part 2 establishes a non-departmental public body the committee on climate change to advise and support the government. Part 3 provides the powers to setup the Carbon Reduction Commitment. Part 4 places a duty on the secretary of state to carry out an assessment of the implications of climate change. Part 5 contains various other measures to reduce emissions such as waste reduction schemes. November 2008 - Introduced 2020-34% reduction in greenhouse gas emissions on 1990 base level 2050-80% reduction in greenhouse gas emissions on 1990 base level UK Low Carbon Transition Plan Carbon reduction commitment European Union Trading Scheme Carbon Reduction Target Climate Change & Sustainable Act 2006 The Climate Change and Sustainable Act 2006 is an Act of the UK Parliament which aims to enhance the UK s contribution to battling climate change through securing a diverse and viable long-term energy supply. The act also aims to boost the number of heat and electricity microgeneration installations in the UK, so helping to cut carbon emissions and reduce fuel poverty. Amendments are made to the Electricity Act 1989 and the Town and Country Planning Act 1990, with a view to furthering the use of microgeneration equipment. The Act also contains provisions which modify the Gas Act 1986 and the Electricity Act 1989 and enable the Secretary of State to impose obligations upon gas transporters and suppliers and electricity distributors and suppliers, to achieve carbon emissions reductions targets. The Act also makes further provisions regarding the promotion of community energy projects; the provision of powers for parish and community councils to promote local energy saving measures; and the promotion of heat from renewable sources. June 2006 - Introduced March 2009 - National microgeneration targets set Electricity Act 1989 Town and Country Planning Act 1990 Gas Act 1986 Community Saving Programme Act 2008 The Act was given Royal Assent in November 2008 and implements the legislative aspects of the White Paper 2007: Meeting the energy challenge. The act covers renewable energy, offshore gas infrastructure, carbon capture and storage, decommissioning offshore installations, offshore oil and gas licensing, nuclear waste and decommissioning, smart metering, feed-in tariffs and the renewable heat incentive. The act updates energy legislation to reflect upon availability of new and emerging technologies. The act also takes into account the UK s changing requirements for secure energy supply. The act also updates energy legislation with the aim of protecting the environment and the tax payer as the UK energy Market changes and evolves. November 2008 - Introduced April 2010 - Feed-in Tariffs Introduced June 2011 - Renewable heat Incentive Proposed to be Introduced Planning Act 2008 Climate Change Act 2008 Feed-in Tariffs Renewable Heat Incentive Renewables Obligation Act 2010 The Act follows on from the low carbon transition plan and aims to deliver emissions cuts of 34 per cent from 1990 levels by 2020 and of 80 per cent by 2050, while maintaining security of supply, maximising economic opportunities and protecting vulnerable consumers. The act also makes provisions for carbon capture and storage, introducing mandatory social price support and fairness of energy Markets. The act introduces new incentives to support the development of carbon capture and storage schemes. The act requires the government to produce regular reports on the progress of decarbonisation of electricity generation in the UK. The act also aims to reduce the energy bills of the most vulnerable consumers by requiring energy companies to make 300m available per annum. April 2010 - Introduced Finance Act 2000, Part II (Climate Change Levy) The Finance Act 2000 Part II provided the legal basis for the introduction of the climate change levy. This levy is a tax on the use of energy by industry, commerce, agriculture and the public sector and aims to increase energy efficiency and reduce carbon emissions through a tax on non-domestic users. Certain forms of energy are excluded or exempt from the levy. UK businesses and the public sector pay the levy through their energy bills. Revenue from the levy is returned to the non-domestic sector through a reduction in employers National Insurance contributions. The supplier of the energy is responsible for applying the levy within the bills to the consumer. Certain forms of energy are excluded or exempt from the levy, e.g. good CHP and renewable energy. July 2000 - Introduced April 2001 - Climate Change Levy introduced Climate Change Levy Fossil Fuel Levy Legislation in the UK energy industry 5

UK Acts continued Green Act 2009 The green energy act was introduced to help promote the development, installation and usage of green energy in the UK. The act specifically defines green energy. The act is particularly weighed towards micro generation of green energy setting out a strategy for both residential and commercial developments. The Green Act has implications for the installation and development of microgeneration schemes within the UK. The act makes provisions to promote the use of microgeneration in both residential and commercial developments. November 2009 - Introduced April 2010 - Introduction of Feed-in Tariffs Microgeneration Strategy Feed-in Tariffs Planning Act 2008 The planning act 2008 introduced a number of reforms to the planning system, of which the most controversial and most relevant to the energy industry is the creation of a new regime for the approval by the Infrastructure Planning Commission of Nationally Significant Infrastructure Projects. Linked to this new development consent order regime is the preparation of National Policy Statements for each category of NSIP. The act also introduced the community infrastructure levy, a new regime intended to simplify and provide a more fair approach to securing financial contributions from developers for needed infrastructure. The full implications of this act remain unclear, due to the new Government s objections to both the NSIP and CIL provisions and the unresolved status of National Policy Statements. The IPC is in place and the first DCO application has already been lodged (for an EfW facility) but the Government has signalled the intention to subsume the IPC into the existing Planning Inspectorate organisation. Therefore a cloud of uncertainty remains but any replacement regime is likely to retain the principles of extensive pre-submission consultation and a single authorisation covering multiple consents. The NSIP thresholds (which are the same as in the Electricity Act) are also unlikely to change. The CIL regime is in place and many LPAs are gathering evidence bases to justify levy proposals. The timing of a replacement regime (or its abolition) is also uncertain, but existing examples of tariffs used through Section 106 agreements mean that any authority minded to adopt a tariff would be able to retain that system even if CIL is abolished. November 2008 - Introduced November 2009-7 of 12 National Policy Statements released National Policy Statements Sustainable Act 2003 The sustainable energy act 2003, applying to the UK, requires the Secretary of State to publish a report every year, which details the progress made towards achieving the five energy policy goals. The act was subsequently amended by the Climate Change Act 2008, Sustainable Act 2006 and the Act 2004. The primary aim of the act is to increase the energy generated through sustainable means. The Act inserts new provisions into the Utilities Act 2000 and allows the Secretary of State to request that the Gas and Electricity Markets Authority make payments into the Consolidated Fund. The act also requires the Sectary of State to designate one particular energy efficiency aim with regards to residential accommodation. October 2003 - Introduced 2004 - Act 2004 Introduced 2006 - Sustainable Act 2006 November 2008 - Climate Change Act 2008 Utilities Act 2000 Climate Change Act 2008 Sustainable Act 2006 Act 2004 Utilities Act 2000 The Utilities Act 2000 deals with gas and electric markets within the UK. It mainly provides modifications to the Gas Act 1995 and the Electricity Act 1989. The act introduced the requirement for integrated electricity companies to have separate licenses for each of their businesses such as supply and distribution. The Act introduces reforms to utilities markets with the aim of modernising the framework in place and creating a fairer deal for consumers of utilities. The act established a single gas and electricity markets authority with the aim of achieving a fair balance between consumers and shareholders. July 2000 - Introduced Gas Act 1995 Electricity Act 1989 6 Legislation in the UK energy industry

UK Orders & Regulations Building Regulations Building regulations are statutory instruments that seek to ensure that the policies set out in the relevant legislation are carried out. Building Regulations implement Articles 3, 4 and 5 of the European Union Performance of Buildings Directive. Part L is part of a set of documents providing interpretation and guidance on the regulations. The regulations specify the Secretary of State s right to approve the methodology for calculation of the energy performance of buildings and approve the minimum energy requirements for new buildings in the form of Target CO 2 Emission Rates (TER). Building regulations affect all new non-domestic building developments within the UK. New builds must meet the requirements set out within the building regulations. Part L refers specifically to the conservation of fuel and power in buildings and therefore energy consumption. Building regulations are reviewed and updated periodically. October 2010 - Part L Updated 2013 - Part L proposed to be updated 2016 - Part L proposed to be updated 2019 - Part L proposed to be updated European Union Performance of Buildings Directive Carbon Emission Reduction Target The Carbon Emission Reduction Target places an obligation on domestic energy suppliers with a customer base of greater than 50,000 to make savings in the carbon emissions of those customers. The CERT has been introduced as the third phase of the Commitment. A extension to the scheme has been proposed until December 2012 with improved targets and is currently under review. The CERT requires energy suppliers to deliver measures that provide overall lifetime carbon savings of 154MtCO 2. The CERT is significantly more ambitious than the first two phases of the EEC, doubling the required level of activity. Targets for the CERT are set in terms or carbon as opposed to the previous phases of the EEC which covered energy. April 2008 - Introduction March 2011-185 million lifetime tonnes of carbon dioxide saved Commitment Electricity & Gas Order 2008 Gas Act 1986 Electricity Act 1989 Carbon Reduction Commitment Scheme The Carbon Reduction Commitment imposes legally binding targets for the reduction of the net UK carbon account for all six Kyoto greenhouse gases. The CRC Scheme is a mandatory cap and trade scheme applying to all large non-energy intensive organisations in the public and private sector. The commitment was introduced through enabling powers included within the Climate Change Act 2008. The government announced during the October 2010 spending review that recycling of payments will no longer be a feature of the CRC scheme. The CRC EES has implications for all qualifying organisations with electricity consumption greater than 6,000MWh per year. Organisations covered by the European Union Trading scheme and climate change agreements are exempt from CRC EES. The scheme is anticipated to cut carbon emissions by 1.2million tonnes of carbon per year by 2020. The CRC effectively becomes a tax on carbon emissions due to the nonrecycling of payments under the new proposals. 2008 - Qualification Period April - September 2010 - Registration Period April 2010 - Footprint Year April 2010-2nd Phase Qualification Begins April 2015-3rd Phase Qualification Begins Climate Change Act 2008 European Union Trading Scheme Legislation in the UK energy industry 7

UK Orders & Regulations continued Climate Change Levy The Climate Change Levy was introduced under the Finance Act 2000, Part II. It aims is to provide an incentive to increase energy efficiency and reduce carbon emissions through a tax on non-domestic users. Certain forms of energy are excluded or exempt from the levy such as renewable energy and good quality CHP. The Climate Change Levy replaced the Fossil Fuel Levy. UK businesses and the public sector pay the levy through their energy bills. Revenue from the levy is returned to the non-domestic sector through a reduction in employers National Insurance contributions. The supplier of the energy is responsible for applying the levy within the bills to the consumer. Certain forms of energy are excluded or exempt from the levy, e.g. good CHP and renewable energy. 2000 - Finance Act Part II introduced April 2001 - Climate Change Levy Introduced Fossil Fuel Levy Finance Act 2000 Renewables Obligation Obligation on licensed electricity suppliers to source an ever increasing proportion of electricity from a renewable source. The Renewables Obligations Order 2006 is the Government s main policy measure to encourage the development of electricity generating capacity using renewable sources of energy in the UK. The Renewables Obligation Order is intended to remain in place until March 2037. Preceded by Non Fossil Fuel Obligation (NFFO). The Renewables Obligation is underpinned by a substantial package of financial and non-financial supporting mechanisms and active assistance to the industry to develop its competitive potential. The Obligation has already provided, and will continue to provide, an impetus for the new renewable generating capacity that will be needed to meet the UK s current 10% by 2010 target for electricity produced from renewable energy sources and as a basis for further reductions in carbon dioxide emissions. April 2002 - Introduced April 2009 - Technology banding introduced April 2013 - Banding reviewed April 2017 - Banding reviewed. April 2021 - Banding reviewed Feed-in Tariffs Renewable Transport Fuels Obligation The renewable transport fuel obligation is a UK mandate for biofuel use in the UK transport industry. The RTFO places an obligation on fuel suppliers to ensure a percentage of aggregate sales is made up of biofuel. The RTFO also led to the introduction of renewable fuel certificates for biofuel. Biofuel producers are required to report on the greenhouse gas balance and the environmental impact of biofuels under the obligation. 2008 - Introduced 2010-5% of all road vehicle fuel to be biofuel Act 2004 European Union Biofuels Directive 8 Legislation in the UK energy industry

UK Plans & Strategies Code for Sustainable Homes The Code for Sustainable Homes strategy sets out the sustainability assessment process of new homes and the performance standards required. The Code is a standard which sets out a single framework designed to improve the overall sustainability of new homes. A code rating systems for new build homes became mandatory from May 2008. A minimum of code level 3 for publicly funded developments was introduced as of May 2008. April 2007 - Introduced 2008 - Code Level 3 2010 - Code Level 4 2013 - Code Level 5 2016 - Code Level 6 Building Regulations Microgeneration Strategy The Microgeneration Strategy was launched with the aim of creating conditions under which microgeneration schemes could become a realistic alternative or supplementary energy source for individual households, communities and small businesses. The strategy sets out a list of actions including how to tackle cost constrains and technical constraints associated with microgeneration scheme development. The Microgeneration Strategy suggested that by 2050, microgeneration could provide 30-40% of the UK s electricity needs and help to reduce household carbon emissions by 15% per annum. Under the low carbon building programme the government provides grants for the development of microgeneration systems. March 2006 - Published 2050-30-40% of electricity from microgeneration Climate Change and Sustainable Act 2006 Feed-in Tariffs Renewable Heat Incentive Low Carbon Building Programme Planning Policy Statement 1 Planning Policy Statement 1 (and the climate change supplement which was published separately) gives strong support to the implementation of decentralised energy systems. PPS1 and PPS22 are proposed to be replaced by a new single PPS on Climate Change and energy. The draft replacement PPS was published early in 2010 by the previous government. The final publication is expected in 2010 or early 2011. It encourages a commitment to decentralised and renewable or low carbon energy to be embedded in policy at a regional and local level. The new draft PPS clarifies policy and is presented in a simpler structure with separate sections on LDFs and development management. However, the substance of the policy did not waver from the core concern with addressing climate change and delivering sustainable development. January 2005 - Published November 2008 - Planning Act 2008 Introduced November 2009-7 of 12 National Policy Statements released National Policy Statements Planning Policy Statement 22 Planning Policy Statement 22 puts an onus on both regional planning bodies and local authorities to promote and encourage renewable energy resources and have appropriate policies and targets in place. PPS22 covers Biomass, energy crops and energy from waste. PPS22 and PPS1 are proposed to be replaced by a new single PPS on Climate Change and energy. The draft replacement PPS was published early in 2010 by the previous government. The final publication is expected in 2010 or early 2011. PPS22 has direct implications on all aspects of biomass, biofuel and waste uses within the energy industry. The new draft PPS clarifies policy and is presented in a simpler structure with separate sections on LDFs and development management. However, the substance of the policy did not waver from the core concern with addressing climate change and delivering sustainable development. January 2004 - Published November 2008 - Planning Act 2008 Introduced November 2009-7 of 12 National Policy Statements released National Policy Statements Renewable Strategy The UK Renewable Strategy aims to set out a path for the UK to ensure 15% of energy comes from renewable sources by 2020. The strategy has been developed in order to meet the requirements of the European Union Renewable Directive. The RES states that this would entail 30% of electricity, 12% of heat (including biomass, biogas, solar and heat pumps) and 10% of transport energy to be generated from renewables. The Renewable Strategy will have an impact on all aspects of renewable energy generation as the government looks to radically reduce greenhouse gas emissions and improve diversity of energy sources. July 2009 - Launched 2020-15% of energy from renewable sources European Union Renewable Directive UK Low Carbon Transition Plan The Low Carbon Transition Plan is a Government strategy setting out the UK s transition plan for building a low carbon economy. The strategy aims to deliver 18% emissions cuts on 2008 levels by 2020. The strategy also sets a target for 40% of the UK s electricity to come from low carbon sources by 2020. The low carbon transition plan has wide ranging implications from energy generation to the future UK economy. The strategy supports the use of renewables, nuclear and clean coal in meeting the targets set out and in meeting the future energy demand of the UK. The strategy aims to create a significant amount of jobs in green industries, 1.2million by 2020 and also covers reductions in transport emissions and reductions in imported fuels. July 2009 - Published 2020-18% emission cuts on 2008 levels Renewable Strategy Renewables Obligation 2020-40% of electricity from Feed-in Tariffs low carbon sources Renewable Heat Legislation in the Incentive UK energy industry 9

UK Programmes Climate Change Programme The climate change programme was launched in response to the 1992 United Nations Conference on Environment and Development. The aim of the program was to not only cut emissions by 12.5% between 2008 and 2012 but go beyond this and cut emission by 20% by 2010. The CCP resulted in the introduction of the climate change act, the renewables obligation, housing and community grants and the carbon reduction commitment. The act updates energy legislation to reflect upon availability of new and emerging technologies. The act also takes into account the UK s changing requirements for secure energy supply. The act also updates energy legislation with the aim of protecting the environment and the tax payer as the UK energy market changes and evolves. November 2000 - Launched 2012-12.5% emission cut 2010-20% emission cut Climate Change Act Renewables Obligation Carbon Reduction Commitment Community Saving Programme The Community Saving Programme was created as part of the home energy saving programme and aims to achieve further investment in energy efficiency measures through a legal obligation placed on energy companies. The programme will target areas of high deprivation to raise the take-up of energy efficiency measures on a street by street basis. The government hope to deliver around 350m of energy efficiency measures through this scheme. The programme requires all licensed gas and electricity suppliers that have at least 50,000 domestic customers and all licensed electricity generators that have generated on average 10 TWh/yr or more in a specified three year period to meet a carbon reduction obligation. suppliers and for the first time electricity generators must comply with an overall carbon emissions reduction target of 19.25 million tonnes of carbon dioxide (MtCO 2 ). Obligated suppliers and generators must perform their obligations between 1 October 2009 and 31 December 2012. October 2009 - Introduced December 2012 - Finishes Home Saving Programme Home Saving Programme The Home Saving Programme is a 1billion pound programme to help reduce the energy consumption within homes most vulnerable to fuel poverty. A key part of this programme is a commitment from energy companies to invest in making homes more energy efficient in addition to their existing obligations. Works alongside the Carbon Reduction Targets. The Home Saving Programme introduces obligations for energy companies to provide investment in energy efficiency measures. April 2008 - Carbon Emission Reduction Target introduced September 2008 - Home Saving Programme introduced October 2009 - Community Saving Programme Introduced Carbon Reduction Target Community Saving Programme 10 Legislation in the UK energy industry

UK Schemes Climate Change Agreements The Government has recognised the need to give special consideration to energy-intensive industries with regards to climate change, given their energy use and their need to compete internationally. Consequently, energy-intensive industries can obtain an 80 percent discount from the Climate Change Levy, provided they meet challenging targets for improving their energy efficiency or reducing their carbon emissions. Climate Change Agreements (CCAs) set the terms under which eligible companies may claim the levy reduction. The Climate Change Agreements will have an impact on energyintensive industries through providing an incentive to both reduce energy consumption through energy efficiency measures and reduce carbon emissions through reducing energy consumption and generating energy through renewable and low carbon means. This scheme is aimed to help reduce the environmental impact of UK industry without compromising the ability for these companies to compete in a global market. Eligible companies wishing to claim the levy reduction must meet the terms set out in the Climate Change Agreements. 2001 - Introduced March 2009 - Extended until 2017 April 2011 - Discount reduced to 65% The Climate Change Agreements Regulations 2006 Climate Change Levy Finance Act 2000 Combined Heat and Power Quality Assurance Scheme The Combined Heat and Power Quality Assurance scheme provides the means to assess and monitor the quality of CHP installations. Encouraging CHP Self-Assessment and Certification under CHPQA provides the principal evidence required for determining eligibility for various benefits designed to encourage the development of CHP schemes. The Combined Heat and Power Quality Assurance scheme provides an motivation to ensure that CHP developments meet the terms set out to claim good quality CHP. The ability to claim good quality CHP can lead to several benefits including the ability to claim enhanced capital allowances, a greater number of renewable obligation certificates (for renewable fuel systems) and climate change levy exemptions for gas systems. 2000 - Introduced 2010-10GWe Good Quality CHP capacity to be installed Enhanced Capital Allowances Renewable Obligation Climate Change Levy Feed-in Tariffs Feed-in Tariffs are a fiscal incentive introduced to increase the takeup of small scale renewable and low carbon electricity generation by domestic and small-scale energy consumers. Feed-in Tariffs have been made possible through provision in the Act 2008. Feed-in Tariffs provide cash-back for every unit of electricity generated and have been designed to improve the potential return from a variety of renewable electricity generating technologies. The tariffs are paid by electricity supply companies, with the overall cost of the scheme split between the companies dependent upon market share. Feed-in tariffs have implications for both small scale electricity generators and large scale electricity suppliers. Small scale generators now have the potential to make greater returns through the installation of small scale renewable electricity generation systems such as PV, hydro and wind. The added cash-back incentive should improve the take up among domestic, community and smallcommercial investors. All large scale electricity suppliers have an obligation to provide feed-in tariffs to eligible generators. The actually cost is then split between all electricity suppliers dependent upon market share. April 2010 - Launched April 2013 - First Review Act 2008 Renewable Heat Incentive Low Carbon Transition Plan Renewables Obligation Microgeneration Strategy Renewable Heat Incentive The Renewable Heat Incentive, similar to the Feed-in Tariffs, are proposed to be provided to incentivise the generation of heat from renewable sources. The Renewable Heat Incentive has been made possible through provisions in the Act 2008. Unlike feed-in tariffs there is currently no proposed capacity limit for which the heat incentive can be claimed although the tariff will only be paid for heat generated and used or feed into a heat network and not for heat which is not needed. The scheme is currently under consultation. Similar to Feed-in Tariffs the Renewable Heat Incentive has implications for generators of renewable heat and fossil fuel suppliers. Although there are eligibility criteria on installation dates and technologies types it is currently not proposed to set eligibility criteria on scheme capacity as the cash-back will only be paid for useful heat generated. The Renewable Heat Incentive is proposed to be paid for by a levy introduced on suppliers of fossil fuels for the purpose of generating heat. April 2010 - Consultation Period Ends December 2010 - Government response expected June 2011 - Proposed introduction date. Act 2008 Renewable Heat Incentive Low Carbon Transition Plan Renewables Obligation Microgeneration Strategy Legislation in the UK energy industry 11

For further information or to comment on this document, please contact: Alan Thomson E alan.thomson@arup.com T 020 7636 1531 www.arup.com Arup 2010