Offshore renewable energy: decommissioning guidance for Scottish waters

Annex A Summary of Energy Act 2004 decommissioning provisions

Note

1. This summary is intended to provide a helpful description of the key decommissioning provisions in the Energy Act 2004 (as amended) (the "Energy Act"), as they apply to installations in Scottish territorial waters or in the Scottish REZ. It should not be relied upon to be a comprehensive description of the legislation and the responsible person should seek their own legal advice.

Introduction

2. The Energy Act provides a statutory scheme for the decommissioning of OREIs. The scheme applies to territorial waters in or adjacent to England, Scotland and Wales (between the mean low water mark and the seaward limits of the territorial sea) and to waters in a REZ (including that part adjacent to Northern Ireland territorial waters) and gives the 'appropriate minister' certain functions regarding decommissioning. The Scottish Ministers are the 'appropriate minister' for the purposes of Part 2, Chapter 3 in relation to renewable energy installations and electric lines which are located in an area of Scottish waters or an area of waters in a Scottish part of a REZ. The Scottish Ministers and the Secretary of State may also agree that the Scottish Ministers are the 'appropriate minister' for all of a renewable energy installation that is in Scotland and England. As the 'appropriate minister', the Scottish Ministers have powers under the Energy Act with regard to the decommissioning of those OREIs. This summary will focus purely on those powers.

Requirement to prepare decommissioning programmes (Section 105)

3. Section 105 of the Energy Act enables the Scottish Ministers to require, by notice, where a person who is proposing to construct, extend, operate or use an OREI (or is already doing so) (the "responsible person") to submit a decommissioning programme for the installation.

4. Section 105(8) of the Energy Act requires that a decommissioning programme must:

a) set out measures to be taken for decommissioning the relevant object;

b) contain an estimate of the expenditure likely to be incurred in carrying out those measures;

c) make provision for determination of the times at which, or the periods within which, those measures will have to be taken;

d) if it proposes that the relevant object will be wholly or partly removed from a place in waters regulated under this chapter, include provision about restoring the place to the condition that it was in prior to the construction of the relevant object; and

e) if it proposes that the relevant object will be left in position at a place in water regulated under this chapter or will not be wholly removed from a place in such waters, include provision about whatever continuing monitoring and maintenance of the object will be necessary.

Information supplemental to Section 105 notices

5. This section details the circumstances in which the Scottish Ministers can issue a Section 105 notice to an associate company. This can only be done (where the Scottish Ministers have already served a notice on a person listed in Section 105(2)(a) and if, having done so, the Scottish Ministers are not satisfied that adequate arrangements have been made by the recipient of that notice to carry out the decommissioning programme satisfactorily. A Section 105 notice can also be served on an associate company if there has been a failure by the person with primary responsibility for the relevant object to comply with a notice served under Section 105(2), or, the Scottish Ministers have rejected a programme submitted by such a person pursuant to such a notice.

6. The provisions in Sections 105A(3) to (8) set out the test for determining whether one body corporate is associated with another. In essence, one body corporate is associated with another if one of them controls the other or if a third body corporate controls both of them. The tests for determining control in various different situations are contained in subsections (4) to (8). The principal cases dealt with are where the body controlled is a company (subsection (4)) and where the body controlled is a limited liability partnership (subsection (5)). There is however a catch all definition of what 'control' means in subsection 7 of the Energy Act.

Approval of decommissioning programmes (Section 106); failure to submit or rejection of decommissioning programmes (Section 107)

7. The Scottish Ministers may:

• approve the programme as it is (s.106(1));
• approve the programme with modifications and/or subject to conditions (s.106(3));
• reject the programme (s.106(1));
• reject the programme (s.106(1)) and require a new one (s.106(6)(b)); or
• reject the programme (s.106(1)) and prepare one themselves (s.107(1)) and recover the expenditure incurred from the person concerned (s.107(9)).

8. The Scottish Ministers may approve a programme subject to conditions, including, in particular, a condition that the person who submitted the programme (a) provides such security in relation to the carrying out of the programme, and for their compliance with the conditions (if any) of its approval, as may be specified by the Scottish Ministers; and (b) provides that security at such time, and in accordance with such requirements, as may be specified by the Scottish Ministers (s,106(4)).

9. The Scottish Ministers must act without unreasonable delay in reaching a decision as to whether to approve or reject a programme (s.106(8)).

10. If there is a failure to comply with a Section 105 notice, the Scottish Ministers may prepare a programme and impose it on the person concerned (s.107(1)). That programme is then treated as if it had been submitted and approved in the usual way (s.107(3)(b)) and can require the provision of financial security (s.107(4)(a)). The Scottish Ministers may also recover any expenditure incurred in preparing the programme (s.107 (9)), together with any applicable interest, from the person concerned (s.107(9) and (10)).

Reviews and revisions of decommissioning programmes (Section 108)

11. The Scottish Ministers must, from time to time, conduct such reviews of a decommissioning programme as they consider appropriate (s.108(1)). Either the Scottish Ministers or the person who submitted the programme may propose modifications to it, including modifications to any conditions attached to the programme (s.108(2)). The decision to revise a decommissioning programme is made by the Scottish Ministers after considering any representations made to them by the recipient(s) of a s.108 notice.

12. Either the Scottish Ministers or the person who submitted the programme may propose to relieve a person of their duty to carry out the decommissioning programme or to impose that duty upon a new person (either in addition to or in substitution for another person, including in relation to a body corporate associated with a responsible person) (s.108(3)). The decision is made by the Scottish Ministers, after considering any representations. When the duty is imposed upon a new person, that person may be required to provide security (s.108(10(a)).

Carrying out of decommissioning programmes (Section 109); default in carrying out decommissioning programmes (Section 110)

13. The person who submitted the decommissioning programme (or any new person upon whom the duty has been imposed) must ensure that the programme is carried out (s.109(1)). Where there is an approved decommissioning programme in place it is an offence for a person to take any decommissioning measures unless in accordance with the approved programme or with the agreement of the Scottish Ministers (s.109(2)).

14. The Scottish Ministers may, by notice, require remedial action if the programme is not carried out in any particular respect (s.110(1)) and set a date by which the remedial action must be undertaken (s.110(2)). If this is not done, the Scottish Ministers may secure the remedial action and recover the expenditure (s.110(5)), including any interest, incurred from the person concerned (s.110(6)).

Security for decommissioning obligations (Sections 110A and 110B)

15. Section 110A applies to any security which has been provided in relation to the carrying out of an approved decommissioning programme or for compliance with the conditions of its approval. It caters for the scenario of a person responsible for decommissioning a relevant object ending up insolvent, helping to ensure that the funds set aside for meeting those liabilities remain available for decommissioning and are not available to the general body of creditors. This protection applies where funds have been set aside in a secure way (such as a trust or other arrangement) for meeting obligations under a decommissioning programme.

16. To enable this, Section 110A(3) states that the security is to be used in accordance with the trust or other arrangements under which the security has been set up. Section 110A(4) disapplies any provision of the Insolvency Act 1986, the Insolvency (Northern Ireland) Order 1989 or any other enactment or rule of law where its operation would prevent or restrict the security being used for the purpose for which it was set up (meeting decommissioning liabilities).

17. Under Section 110B the Scottish Ministers may direct that information regarding relevant security arrangements is published by the person responsible for the decommissioning programme (for example, in the financial pages of that person's website). Section 110B(3) enables the Scottish Ministers, or a creditor of the person responsible for a decommissioning programme, to apply for a court to ensure compliance with a direction under Section 110B(4), the court may order the security provider to take steps to comply with the direction. Sections 110B(5) and (6) provide definitions of the terms "the protected assets", "security provider", and "the court" for the purposes of this section.

Regulations about decommissioning (Section 111)

18. The Scottish Ministers may make regulations relating to decommissioning of OREIs in Scottish waters or Scottish parts of the REZ (s.111(1)). Regulations may include, in particular:

a) provision prescribing standards in respect of decommissioning;

b) provision prescribing standards and safety requirements in respect of anything left in place where a relevant object is not wholly removed;

c) provision about the security that a person may be required to provide under this chapter;

d) provision for the prevention of pollution;

e) provision for inspections, including provision as to the payment of the costs of inspections.

Duty to inform the Scottish Ministers (Section 112)

19. When a person becomes responsible for a relevant object they must notify the Scottish Ministers (s.112(1)). This would happen when, for example, a person makes a proposal to construct, extend, operate or use a relevant object, (or becomes party to such a proposal), or begins to construct, extend, operate, use or decommission a relevant object. (This would apply whether it was a proposal for a new installation or whether the person was acquiring an existing installation.) In the case of a new installation, notification is not required until after at least one of the statutory consents, licences or approvals has been given or applied for.

Power of the Scottish Ministers to require information and documents (Section 112A)

20. The Scottish Ministers can require persons who are, or may in future be, subject to decommissioning obligations to provide relevant information or documents to assist the Scottish Ministers in exercising their functions under Chapter 3 of Part 2 of the Energy Act (decommissioning of OREIs). These functions include making a judgement on the sustainability and financial viability of the proposals contained in a decommissioning programme, for example financial projections, banking models and electricity generation forecasts.

21. Under Section 112A(2), the Scottish Ministers can require "relevant" information or documents to be provided by the person on whom notice to submit a decommissioning programme has been served under Section 105(2)(a) of the Energy Act (those with principal responsibility for the relevant object, such as the developer), a body corporate associated with such person, or a person who has been made subject to the duty under Section 109(1) of the Energy Act to carry out a decommissioning programme and comply with all conditions.

22. Under Section 112A(3), information or a document is "relevant" if it relates to:

• the place where the relevant object is or will be situated
• the relevant object itself
• where the recipient of a notice to submit a decommissioning programme is an associated corporate entity, details of that associated corporate entity
• the financial affairs of the person receiving the notice to submit a decommissioning programme and, where the recipient of a notice to submit a decommissioning programme is an associated corporate entity, the financial affairs of that associated corporate entity
• the proposed security in relation to the carrying out of the decommissioning programme or for the recipient's compliance with any conditions of the programme's approval
• where the recipient of a notice to submit a decommissioning programme is an associated corporate entity, the name or address of any person whom the recipient of the notice believes to be an associated body corporate

23. Section 112A(4) allows the Scottish Ministers to require the provision of additional information or documents which the Scottish Ministers consider are necessary or expedient for the purpose of exercising their functions under Sections 107(1) or (4) of the Energy Act. Those provisions allow the Scottish Ministers to prepare their own decommissioning programme where one has not been submitted or has been rejected, and to require the responsible person to provide security in relation to the carrying out of the programme.

24. Under Section 112A(5), the notice requiring the information must specify the documents or information (or the description of documents or information) to which it relates. The recipient of the notice is required to provide the information within the period specified in the notice (s.112A(6)).

25. Section 112A(9) makes it an offence to disclose information obtained by virtue of a notice issued under Section 112A of the Energy Act, unless the disclosure is:

• made with the consent of the person who provided the information; or
• for the purpose of the Scottish Ministers exercising their functions under Chapter 3 of the Energy Act, the Electricity Act 1989; or
• required by or under another piece of legislation

Offences relating to decommissioning programmes (Section 113)

26. A person guilty of an offence is liable: on summary conviction, to a fine not exceeding the statutory maximum; on conviction on indictment, to imprisonment for a term not exceeding two years or to a fine, or to both.

Use of Energy Act 2004 enforcement powers

27. The Scottish Ministers expect that the final draft of a decommissioning programme should be submitted no later than six months prior to construction, and that deadlines given by the Scottish Ministers will be met. Where it is likely that this deadline will be missed the Scottish Ministers may consider using powers under the Energy Act to gather information to impose their own decommissioning programme.

28. The responsible person is strongly encouraged to speak to the Scottish Ministers informally at an early stage, so that the draft decommissioning programme can be submitted in accordance with the timetable set out in the Section 105 notice.

29. The Scottish Ministers expect to implement a strict approach to the timely payment of expected securities. Where expected payments are missed, a 'Section 110 notice' would be sent within several weeks re-affirming the requirements to make the payment. Failure to comply with a Section 110 notice can incur an offence, carrying a risk of a fine or up to two years imprisonment.