The Energy Transition | UK and EU reset relations and strike energy deal

This week we look at a new energy deal between the UK and EU, Ofgem's guidance on AI in the energy sector, the government's working paper on a mandatory community benefit scheme for energy infrastructure, and much more.  

UK and EU reset relations and strike energy deal

As part of the government's pledge to reset the relationship with the European Union (EU), the government has reached a new agreement with the bloc.  

In a joint statement following the EU-UK talks, both parties outlined a series of commitments, which included cooperation on energy matters and notably the potential for the UK to reintegrate into the EU's internal electricity market (IEM) and trading platforms, streamlining trading and reducing bills in both markets. 

While details remain limited for now, it is expected that the integration would require the UK to follow relevant EU rules and give the UK government rights to contribute to decision making.  

The plan to link the UK and EU emissions trading schemes (ETSs) is also significant. This will mean carbon intensive firms and industries can trade their CO₂ allowances across the two markets. It is estimated that this alone could save British businesses £800 million each year, as they would no longer face the EU Carbon Border Adjustment Mechanism (CBAM) tariffs.

In addition to the above, the new agreement includes greater cooperation on clean energy technologies, including hydrogen, carbon capture usage and storage and decarbonised gas, as well as tariff protections on British steel exports – an estimated saving of £25 million per year.  

Energy UK's CEO, Dhara Vyas, said: “Working together is the best way to ensure the UK and EU are investing in energy security and tackling carbon emissions quickly and at lower cost. This agreement will remove barriers to growth, lowering energy prices and clearing the way for a shared future powered by clean energy.” 

Ofgem publishes guidance on use of AI in the energy sector

Ofgem has published its first guidance on the use of artificial intelligence (AI) in the energy sector, designed to encourage "an ethical approach" to AI adoption. In order to achieve this, Ofgem focuses on four main areas: safety, security, fairness and sustainability.

Safety

The guidance recognises that the broad scope of AI use cases means that the risk implications for the electricity network in the event of a failure range from negligible to widespread disruption to critical infrastructure. On this basis, market participants must assess their AI to adequately consider the context of its operation, including accounting for potential misuse.  

Security

Ofgem acknowledges that, as an emerging technology, AI can present significant new security risks alongside other cyber threats. As such, market participants must consider security from initial deployment through the system life cycle. The guidance recommends good practice in this area can be achieved through "applied risk analysis and assurance methodologies".

Fairness

Ofgem notes the inherent, unintentional bias that can result from opaque AI processes, which in some cases can lead to direct or indirect discrimination. The guidance therefore requires market participants to establish robust governance and maintain identifiably transparent systems and processes to ensure their AI systems treat energy consumers fairly.  

Sustainability

The growth of AI and other data-intensive technologies is predicted to result in significant growth in demand for electricity due to the need for additional computing power and consequentially data centres. Ofgem states its commitment to supporting the innovation of AI in the energy sector, but reiterates the need for "collaboration and, where necessary, the creation of guidance" to ensure this aligns with the UK's net zero targets.

Best practice governance

The guidance also provides best practice governance for market participants to ensure effective oversight of AI usage, a risk framework to help businesses to identify and manage associated risks, and a consideration of the competencies, policies, and procedures required to ensure ethical adoption of AI. Ofgem intends its guidance to complement the energy market's existing regulatory framework. 

Recognising that AI is a rapidly evolving technology, Ofgem has pledged to review and update the guidance as development occurs. 

Working paper addresses mandatory community benefit scheme for UK renewables

The government has published a working paper which details proposals to make the provision of community benefits a mandatory legal obligation for developers building renewable energy assets, including onshore and offshore wind and solar PV (photovoltaic).

The government is consulting stakeholders on how to implement this legal requirement and which types of energy infrastructure should be liable for paying into community benefit funds. The working paper sets out the expectation from government that developers would work alongside communities meaning specific benefits are delivered to areas in need. It discusses what community benefits are and the possibilities for a share ownership model in two parts. 

Part 1: community benefits

The government has set out that communities who live in areas where renewable energy assets are developed should receive continuing benefits due to their proximity to the development of a low-cost, clean energy system. It is considering mandating community benefit funds for low-carbon energy infrastructure.

These benefits could be monetary or non-monetary, such as funding for local projects, tourism, education, or infrastructure. The government hopes that flexible fund mandates tailored to local needs could maximise impact. However, implementing a mandatory scheme would require primary legislation. The government will consult on mandating community benefit funds before developing more specific policy proposals.

Part 2: shared ownership

The government is also exploring whether shared ownership of energy infrastructure could significantly contribute to the delivery of renewable energy assets by delivering financial, social, and economic benefits to communities.

Developers are encouraged to offer shared ownership opportunities for renewable energy projects. The Infrastructure Act 2015 allows the Secretary of State to create regulations granting local communities the right to buy stakes in renewable assets if voluntary approaches fail. The working paper aims to review the success of voluntary shared ownership in Great Britain through consideration of current support for communities and developers, international examples, and barriers to shared ownership.

An example of successful implementation can be seen in Denmark, where developers are legally required to offer at least 20% ownership to local communities. This approach has led to high levels of community engagement and support for renewable energy projects. The Middelgrunden offshore wind farm near Copenhagen is co-owned by a cooperative of local citizens and a developer, demonstrating the successful integration of shared ownership models in renewable energy infrastructure.

The consultation – Community Benefits and Shared Ownership for Low Carbon Energy Infrastructure - Department for Energy Security and Net Zero - Citizen Space – is open until 16 July.

Ofgem approves extension of transitional reliefs until the implementation of connections reform

Ofgem has approved an extension to the transitional reliefs put in place to manage the shift to the new TM04+ reform package. The announcement on 21 May will allow these reliefs to continue until TM04+ goes live on 10 June.

The original transitional reliefs were due to expire on 31 May, which was set as a “backstop” date in the event of delays to the reform’s implementation. However, following Ofgem’s approval of the TM04+ reform package on 15 April, the implementation date has been postponed to 10 June.

Consequently, the National Electricity System Operator (NESO) and Great Britain's three Transmission Owners (TOs) have requested an extension of the transitional reliefs. Without this extension, there would be a period where neither the old nor the new connections regime would be fully operational, resulting in delays and uncertainty.

Ofgem’s extension is expected to ensure continuity and certainty for all stakeholders during this interim period and enable NESO and the TOs to prepare for TM04+ and the Gate 2 to Whole Queue exercise.

This article was written with the assistance of Ellie Smyk, Adam Budd, trainee solicitors, Sumaiya Hafiza, solicitor apprentice, and Tomi Agbonifo, paralegal.