Overview of the Energy Act 2023 (Feb 2024)

The Energy Act 2023 (the “Act”) became law after receiving royal assent on 26 October 2023.  It took almost fifteen months and lengthy deliberations from its introduction as a Bill in Parliament until its enactment.  The deliberations on the key aspects of the Bill revolved around the introduction of a net zero target for the Office for Gas and Electricity Markets ("Ofgem"), heat transition, sustainable aviation fuels (SAFs), the remit of Great British Nuclear, the definition of the nuclear installation, the Convention on Supplementary Compensation (CSC) for nuclear damage and the Hydrogen levy.  This paper provides an overview of the civil nuclear sector provisions.

The Act was introduced to increase the resilience and reliability of energy systems in the UK, liberating investments in clean energy, supporting climate commitments and reforming the system by minimising consumer costs and protecting against unfair pricing.  For the nuclear sector, the Act provides for several changes to the Nuclear Installations Act 1965 (NIA 1965) and sets out more information on the key bodies.

Great British Nuclear – some clarity

In the UK’s 2023 Spring Budget UK, it was announced that the government planned to launch the Great British Nuclear (GBN) programme, which was first announced in April 2022.  The GBN concept was first announced as part of plans to source 95% of the UK’s electricity from “low carbon” sources, of which nuclear would be one source.  The government planned to support new nuclear builds, notably the development of Small Modular Reactors (SMRs).

Great British Nuclear (GBN) has been set up to deliver the government’s nuclear programme.  It was envisioned to support the government’s ambition to deliver up to 24GW (this target has also been re-confirmed in the latest roadmap, ‘Civil nuclear: Roadmap to 2050’) of nuclear power in the UK by 2050.  However little clarity was available on how GBN would deliver these ambitions.

We now know that GBN is to be a company designated by the Secretary of State to work as an arms-length body and a delivery vehicle by helping accelerate nuclear development and oversee competition for funding next-generation technologies.  The new Act has shed some light on the status, objects, and financial arrangements in relation to GBN.  It is not to be regarded as a servant or agent of the Crown or as enjoying any status, immunity or privilege of the Crown.  The objects of GBN have been listed as facilitating the design, construction, commissioning, and operation of nuclear energy generation projects to further any policies published by the government. GBN is to act in accordance with the guidance and policy set by the government.

The explanatory notes of the Act elaborate on the role of GBN as follows:

“This will enable GBN to have an evolving and enduring role within the civil nuclear sector. GBN will act as an expert-led delivery body with the requisite skills and knowledge to deliver on the policy set by HM Government.  It is anticipated that GBN will carry out a variety of functions including, but not limited to, de-risking the early stages in the development of nuclear projects by deploying co-funding from the Government to support the development of selected technologies, ensuring the right financing and site arrangements are in place, amongst a range of other functions.”

The Civil Nuclear Roadmap to 2050 also gives insight into GBN’s future role besides highlighting its current focus on delivering the SMR programme.  It is expected that GBN will respond and broaden its delivery focus as the government progresses on the nuclear programme beyond the SMRs which is its current focus.  The government has expressed its commitment to work with GBN to consider how both large-scale and advanced nuclear technologies could contribute to UK energy security.

The Act also provides more information on the financial arrangement for GBN by giving powers to the Secretary of State, who may render financial assistance to GBN or to any other person facilitate the design, construction, commissioning, and operation of nuclear energy generation projects.  In essence, the power has been granted to the Secretary of State to confer financial assistance in the form of grants and awards to the stakeholders engaged in developing and deploying nuclear.

The law provides information on GBN's structure and objects but also subjects GBN's actions to the government's policy and guidance.  The exact role of GBN in developing nuclear programmes for the UK remains unclear.

Nuclear Sites – update to the existing definitions

The Act includes a site situated wholly or partly in or under the territorial sea adjacent to the United Kingdom in the definition of a nuclear site under the NIA 1965.  This means that a site within the territorial seas adjacent to the UK will require a licence and be regulated by the Office for Nuclear Regulation (ONR).

As mentioned in a paper titled 'Implementing geological disposal – working with Communities’ published in December 2018 by the UK Government, the process to find a location for a Geological Disposal Facility (GDF) is underway, and there is interest from communities in locating a GDF off the coast deep below the seabed.

This provision makes it clear that nuclear sites within or adjacent to the boundaries of the UK territorial sea must be licensed and made subject to regulatory oversight by the ONR.  As mentioned in the explanatory note to the Act, the policy driver for this change is to ensure a GDF beneath the seabed is licensable; the legislative changes cover other nuclear sites (which may include ports harbouring floating nuclear power plants and floating nuclear power plants) located wholly or partly in or under the territorial sea adjacent to the UK.

It also amends section 1 of the NIA Act 1965 to exclude fusion energy facilities from the section.  A fusion energy facility has been defined as a site that is:

(a)    used for the purpose of installing or operating any plant designed or adapted for the production of electrical energy or heat by fusion, and

(b)    not also used for the purpose of installing or operating a nuclear reactor.”

Regulating sites for the disposal of certain radioactive wastes

Spent fuel and higher activity wastes are removed and stored securely elsewhere in the early stages of decommissioning of a nuclear reactor. Removing spent fuel and higher activity waste leads to a considerable (almost 99%) reduction of radiological hazards on the site. At the end stages of decommissioning, radiological hazards and risks reach such a low level that regulation as a nuclear installation and application of the nuclear third-party liability regime is no longer necessary.

The Steering Committee for Nuclear Energy of the Organisation for Economic Co-operation and Development (OECD) (“the OECD NEA Steering Committee”) decided in 2014, in recognition of the scenario above, that sites in the process of being decommissioned may be excluded from the international nuclear liability regime when the principal nuclear hazards have been removed.

In 2016, the OECD NEA Steering Committee made a similar decision to exclude qualifying low-level waste disposal sites that meet strict radiological criteria from the requirement for nuclear third-party liability.

The Act also includes provisions relating to regulating sites for the disposal of certain radioactive wastes. The Act has amended the NIA 1965 and made specific provisions about the exclusion of certain radioactive waste disposal facilities from the nuclear third-party liability regime.

The United Kingdom is a party to the Paris Convention on Third Party Liability in the Field of Nuclear Energy (the Paris Convention) and the Brussels Supplementary Convention on Third Party Liability in the Field of Nuclear Energy, dated 3 January 1963 (the Brussels Convention). These Conventions have been amended, and the amendments have been in force since 2022.

In 2022, amendments were made to the NIA in 1965, and the law from that point onwards covered installations for the disposal of radioactive substances. It is important to note that these installations are under the regulatory supervision of the environmental regulatory bodies.

The recent changes made by the Act have introduced conditions in which the installations for the disposal of radioactive substances are excluded from the third-party liability regime if they meet the applicable conditions prescribed y the law. The applicable conditions under section 7C are as follows:

(a)    the Secretary of State is satisfied, on an application by the operator of the site, that the site meets:

(i)    the permit condition,

(ii)   the site history condition, and

(iii)  such other conditions as may be prescribed, and

(b)    the Secretary of State gives the operator notice in writing to that effect.

The permit condition, as listed above, is that an appropriate permit is in force with respect to the site. That permit shall include a condition preventing the site from receiving the disqualifying matter at any time during its operation.

The disqualifying matter defined by the Act refers to nuclear matter that exceeds the radioactivity concentration limits set out in paragraph 3(a) of the Appendix to the Decision and Recommendation Concerning the Application of the Paris Convention on Third Party Liability in the Field of Nuclear Energy to Nuclear Installations for the Disposal of Certain Types of Low-level Radioactive Waste.  The site history condition, as mentioned in the conditions above, is that the disqualifying matter has not at any time been accepted for disposal at the site, or any disqualifying matter previously accepted for disposal at the site has been removed from the site. The law also empowers the Secretary of State to notify the operator through a written notice to exclude the installation for the disposal of radioactive substances from the nuclear third-party liability regime.

The Convention on Supplementary Compensation for Nuclear Damage (CSC)

The Act also includes provisions for accession to the Convention on Supplementary Compensation for Nuclear Damage (CSC) through amendments to the NIA 1965 set out in Schedule 22. However, Section 305 and Schedule 22 of the Act 2023 would only come into force on the day on which the Convention on Supplementary Compensation for Nuclear Damage comes into force in respect of the United Kingdom.

The Convention on Supplementary Compensation for Nuclear Damage (CSC) (1997) came into force in 2015. It includes 11 parties, the most significant of which are Canada, Japan, UAE, and the US.  

It was designed (by the IAEA) to form the basis of an international umbrella(harmonized) liability regime; therefore, in principle, it is open to all countries. The CSC looks to supplement the compensation amounts available under the national law of contracting states (similar to the tiered approach to the Brussels Convention).

The supplementary tiers provide additional compensation for a minimum of 300million Special Drawing Rights (SDRs) provided by the Installation State (based on the Amended Vienna Convention`s first tier of 300 million SDRs) and a minimum of 300 million SDRs provided by a fund of all contracting states. Contributions are calculated based on installed nuclear capacity per state and the UN rate of assessment per MW thermal. It is estimated that the UK`s contribution would be about £7.5 million.

Overall, accession to the CSC not only ensures that greater compensation is available to potential victims of a nuclear incident but, equally importantly, it provides greater reassurance to private sector investors and the supply chain. US, Canadian and Japanese companies (all parties to the CSC and already playing a key role in the UK nuclear sector with the potential for a greater role as key strategic partners) obtain protection in their own countries, as they cannot be sued there for a nuclear incident arising in the UK.

To note that UK operators are already liable under the Paris/Brussels regime for a greater amount than the CSC minimum compensation limits, and therefore, there is no expected increase in their liability in the event of a nuclear incident in the UK. As a member of the CSC, accession creates a contingent liability for the Government and, therefore, the taxpayer. This would only be used to compensate victims in the event of an incident in a CSC country that exceeds the operator liability limit.

The Secretary of State has the power to regulate and make such provisions it considers appropriate to implement the CSC or otherwise for the purposes of dealing with any other matter arising out of, or related to, the CSC. The Secretary of State, also under the regulation-making power, may amend Schedule 22,the Nuclear Installations Act 1965, or any other enactment having effect in relation to a matter to which the CSC relates. The regulations under this section are subject to the affirmative procedure.

Conclusion

The Act is a key milestone towards the government's ambitions to achieve net zero, and some significant amendments affecting the nuclear sector have been introduced.  However, some of these key amendments, such as the exclusion of disposal of certain radioactive wastes, would also require complementing secondary legislation.

The amendments include some clarity about regulating and licensing nuclear sites in the territorial sea, the special status of the fusion energy sites, the legal status and role of GBN, regulating sites for the disposal of certain radioactive wastes, and the provisions about the CSC.  However, the status of applicability and coming into force of the CSC still remains unclear.

As is often said, the devil will be in the details.  Any secondary legislation would require careful analysis.

Recently, in line with the Act, the government has also provided a roadmap for the civil nuclear sector with the purpose of sending an unambiguous signal to the nuclear sector and investors and the policy role of the government in supporting and enabling the net zero target.

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