Reed Smith Client Alerts

Authors: Nicholas Rock

Executive Summary:

  • Community rights to purchase stakes in large renewable energy projects
  • Underground access rights for shale gas and oil and geothermal energy
  • Shale gas fracking safeguards
  • New carbon offsetting regime: allowable solutions for zero carbon homes

On 12 February 2015, the Infrastructure Bill received Royal Assent, becoming the Infrastructure Act 2015 (IA 2015).

The IA 2015 takes the form of wide ranging framework legislation, the detail of which will be implemented through various secondary legislation that is yet to be enacted.

It has significant potential implications for, among others, the renewable energy sector, developers of shale oil and gas and geothermal energy projects, carbon offset providers and UK house-builders.

This article highlights some of the key implications of the IA 2015 in the sphere of environmental law.

Rights to purchase stakes in large renewable energy projects In its Community Energy Strategy in January 2014, the Government said it would consider requiring all developers of renewable energy projects to offer communities the chance to acquire an ownership stake in those projects, if significant progress on a voluntary approach to shared ownership was not made by 2015.

The IA 2015 now introduces a compulsory alternative if a voluntary approach to increasing shared ownership fails to deliver.

Sections 38 and 39 of the IA 2015 give the Secretary of State a power to make regulations giving individuals and/or community groups the right to purchase a stake in a renewable electricity generation facility in their local area at a fair market price (the ‘community electricity right’).

This includes both onshore and offshore facilities. The right extends to Great Britain, its territorial waters and to the Renewable Energy Zone (except the territorial sea adjacent to Northern Ireland).

However, it only applies to facilities with a total installed generation capacity of at least 5 megawatts, or to facilities that are expanded to reach that capacity.

The precise details of the right will be set out in forthcoming secondary legislation. However, Schedule 6 to the IA 2015 gives some indication of the likely nature of that further legislation by setting out what regulations relating to the right to buy may include.

Schedule 6 contemplates that the promoters or operators of affected large renewable energy projects will be able to choose the kind of stake they make available out of a minimum of two of the following options:

  • One or more shares in a company
  • Any other interest in a body other than a company
  • An equitable interest
  • A right to a royalty related to revenues
  • A loan

Individuals/communities must be allowed to acquire small stakes: i.e. of equal to or less than 5% of the total capital costs of development of the relevant facility.

Obligations under the community electricity right are likely to be enforceable as generation licence/exemption conditions and financial penalties will be imposed for breach of these obligations.

However, with the possible exception of new expansions of existing facilities, the regulations will not apply retroactively.

New statutory right of underground access for shale gas and oil and geothermal energy We have previously reported on the fact that the English common law of trespass had the potential to create a major obstacle to the development of the UK shale gas industry: see here.

Until now, the law of trespass required those seeking underground access for shale gas or similar exploration and production activities to either obtain consent from landowners, or go through a potentially lengthy application to court under the Mines (Working Facilities and Support) Act 1966 for the compulsory acquisition of such rights and the payment of compensation.

This gave rise to the very real threat of anti-fracking landowners significantly hampering the development of the shale industry in England by refusing consent to access, and even the risk of protest groups trying to buy up ‘ransom strips’ in an attempt to prevent shale drilling.

In May 2014, as one of the its measures to encourage shale gas exploitation, the government consulted on a new underground access regime to provide a statutory bar on landowners claiming that drilling under their land was a trespass.

In line with the government response to that consultation published in September 2014, Section 43 of the IA 2015 provides a new statutory right to use deep-level land for the purpose of exploiting petroleum or deep geothermal energy in England and Wales.

The right only applies to the use of land which is at a depth of at least 300 metres within a landward area (although a landward area may still, in principle, be used to exploit offshore petroleum or deep geothermal).

Section 44 of the IA 2015 sets out the scope of the right of use of deep-level land. The right of use is widely defined. It may be exercised for drilling, boring, fracturing “or otherwise altering” deep-level land. It may further be used for the installation, keeping, use and removal of infrastructure; and putting any substance into deep-level land and subsequently removing it. The right allows land to be left in a different state than it was before.

Companies benefitting from the right must still comply with all other regimes governing petroleum, fracking or deep geothermal activities, such as obtaining all necessary planning permissions and environmental permits.

Industry has already voluntarily committed to give notice of their intention to exercise the right before doing so, and to make payments in return for the right of use to owners of the land and potentially other persons for the benefit of areas in which relevant land is situated. However, the IA 2015 creates powers for the Secretary of State to impose these obligations through regulation if the voluntary commitment is not followed.

Shale gas fracking safeguards The IA 2015 also seeks to introduce a series of shale gas fracking safeguards into the UK’s overarching petroleum licensing regime. These safeguards are already broadly applied in practice.

Section 50 of the IA 2015 inserts new sections 4A and 4B into the Petroleum Act 1998.

Section 4A sets out conditions for the granting of a well consent for hydraulic fracturing in England and Wales. Among other matters, the safeguards prohibit “associated hydraulic fracturing” at a depth of less than 1000 metres and require a separate hydraulic fracturing consent for associated hydraulic fracturing at a depth of 1000 metres and below.1

The IA 2015 also provides for numerous safeguards to be in place in relation to environmental impacts (in particular, relating to groundwater), monitoring, consultation and providing public information.

Certain other fracking safeguards that were proposed during the Bill's passage have not found their way into the final version of the IA 2015, such as a requirement for a mandatory environmental impact assessment (EIA) and preventing fracking under national parks, areas of outstanding natural beauty (AONBs) and sites of special scientific interest (SSSIs).

Click here to find more information about our European shale sector capabilities

Zero carbon homes and carbon off-setting The government is introducing a zero carbon emissions standard for new homes in England and Wales from 2016, implemented through the Building Regulations. The intention is that there should be no carbon emissions generated from the energy required to heat and light a home.

The amount of emissions currently generated by homes is around a quarter of the total amount of carbon emissions generated overall in the United Kingdom.

However, the government recognises that it may not be technically feasible, or cost effective, to require house builders to meet the zero carbon standard through on-site measures (such as insulation or solar panels) alone.

Therefore, in England and Wales there will be a maximum on-site carbon dioxide emissions standard for new homes, with the remainder of the zero carbon target being met by house builders supporting off-site carbon abatement measures, doing more on-site or a combination of both ("allowable solutions").

Section 37 of the IA 2015 amends the Building Act 1984 to create powers to make Building Regulations provisions for “allowable solutions”.

These may be undertaken in various ways by the developer or by a third party on behalf of the developer or, alternatively, by the developer paying into a fund that invests in carbon abatement projects.

Further detail of the allowable solutions regime will be set out in revised Building Regulations. However, it appears likely that the regime will have a familiar feel for those acquainted with the voluntary carbon offset market. Off-sets will have to be “additional” (i.e. achieve carbon savings that would not otherwise have occurred) and the savings will have to be independently verified and certified. Section 37 of the IA 2015 provides for the setting up and running of a register of certificates showing compliance with the carbon emissions standard by use of allowable solutions.

The government has decided not to impose a statutory list of acceptable off-set solutions, but in order to provide maximum flexibility and efficiency in the scheme, it will instead draw up a list of criteria that off-sets must satisfy.

Allowable solutions will not be restricted to carbon abatement measures in the ‘non-traded’ sector of the economy (i.e. not restricted to measures in areas such as heat, transport, waste and agriculture that are not covered by the EU Emissions Trading Scheme (EU ETS)), so it seems that measures may also be achieved in those sectors of the economy to which the EU ETS applies. Whether this will create opportunities for "joint implementation" style offset projects in the UK which have not previously been possible remains to be seen.


  1. The 1000 metre restriction is unlikely to be an issue in practice, given the depth at which most shale gas resources lie in the UK. Associated hydraulic fracturing is fracturing which involves the injection of more than 1,000m3 of fracking fluid at each stage, or more than 10,000m3 in aggregate.

 

Client Alert 2015-052