Utility Week

UTILITY Week 16 05 14

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14 | 16Th - 22nd MaY 2014 | UTILITY WEEK Policy & Regulation Analysis Peers say 'go all out for shale' A Lords Economic Affairs Committee report concludes that developing shale gas in the UK is an urgent priority, says Mathew Beech. S hale gas is not the answer to all the UK's energy policy challenges, peers said last week, but it appears to be a solution to a lot of them. The Lords Economic Affairs Committee's (EAC) study into the economic impact of shale gas and oil, said a substantial impact on oil and gas prices in the UK, such as that experienced in the US, was "unlikely". However, peers did state that, despite this, "abundant new shale gas reserves are bound to have a restraining effect on prices". This comes as a timely reminder for the government, and the rest of Europe, as the G7 state that Russia should not use energy as a weapon and that Europe should try to find more diverse energy resources, one of which is shale. The three key points that peers were keen to stress in their report were: the increased security of supply that shale gas could pro- vide; the boost to employment that the development and exploitation of the UK's resources could have; and the retaining and re-shoring of energy-intensive industries and the petrochemical industries in the UK. With these wins available, peers have urged the government to "go all out for shale". Lord MacGregor, chairman of the House of Lords EAC, commented: "The UK has not yet le the starting gate. Developing a suc- cessful shale gas and oil industry in the UK must be an urgent national priority." He warned of a "regulatory logjam" hold- ing up the development of the shale gas and oil industry, citing this as the primary reason why the Environment Agency has not received an application, nor approved a permit, for fracking since 2012. As it currently stands, energy and drilling companies face at least 16 different regula- tions when applying for a permit to under- take the controversial fracking process. Lord MacGregor said: "The government has made attempts to simplify the regulatory regime for development of shale, but these measures have not gone far enough. "Our report shows that unnecessary duplication and diffusion of authority are still rife throughout the regulatory process." The government is expected to remove one of these barriers to development by mak- ing changes to the trespass law as part of the forthcoming Infrastructure Bill. This would allow companies access under privately owned properties to hydraulically fracture shale rock, to access the oil and gas. Responding to the report from the EAC, energy minister Michael Fallon said the gov- ernment has made "great progress" in setting up a regulatory regime to support the develop- ment of the UK's shale gas industry. He added: "It's now up to operators to seize these oppor- tunities and step up the search for shale." Alongside the potential benefits to the UK of a shale boom, the House of Lords report stated that delays to the development of the UK's shale industry were partly caused by public resistance. Peers recommended "that the industry improves its presentation and communication skills and puts across more convincingly the economic and employment gains shale development can bring". Essentially, the Lords are saying that a better co-ordinated campaign could win over the majority of public doubters. But Green- peace chief scientist Doug Parr slammed their report, saying: "This is just more tax- payer-funded cheerleading from unelected politicians who seem all too happy to ignore the country's legitimate concerns about fracking." Despite resistance from groups such as Greenpeace, the Lords were convinced that the use of shale gas would help the UK to meet its 2020 carbon emissions targets by displacing coal from the UK's energy mix. They also dispelled other environmen- tal concerns as "unfounded" and urged the government and industry to put across these points more clearly to the public. Ken Cronin, chief executive of the UK Onshore Operators Group, said: "We are working with government, industry, local communities and other interested parties to create the right environment to develop the UK's shale gas reserves safely and in the most environmentally sensitive way possible, while enabling local communities to share in the national benefits shale gas can bring." Market view Support Act Knowing the Housing Grants Construction Act can save you money, says Michael Bennett. N ot understanding whether your con- tract is subject to the Housing Grants Construction and Regeneration Act 1996 (as amended) could lead to increased costs, disputes and delays. It cannot be con- tracted out of, so knowledge is your best defence. Under the Act "construction contracts" must provide for interim payments, and dis- putes may be adjudicated upon at any time. However, many contracts traditionally con- sidered construction contracts do not fall into the Act's definition. A specific exclusion was included for nuclear processing, power generation and water or effluent treatment. However, the exclusion only relates to plant and machinery or supporting steelwork. So, what does that include? Two approaches have been adopted by the courts. These can be seen in two cases, both involving ABB Power Construction. The cases are: Palmers Limited v ABB Power Construction Limited [1999]; and ABB Power Construction Limited v Norwest Holst Engi- neering Limited [2000]. In Palmers v ABB, HHJ Thornton QC adopted a narrow approach to interpret- ing the Act. ABB's boiler installation works were clearly not a "construction contract". ABB argued that, because its works were excluded, the scaffolding provided by Palm- ers to assist in the installation must also be excluded. HHJ Thornton QC disagreed because the Act did not specifically exclude temporary access and preparatory works. This narrow definition means that more con- tracts would be caught by the Act. In contrast, in ABB v Norwest, HHJ Lloyd QC determined that Norwest's insulation and cladding works were excluded by the Act. In doing so, he stated that it would be "invidi- ous" if some contracts on site were excluded, but others were not. This statement gave a far wider interpretation of section 105(2)(c), thereby reducing the number of contracts that would be caught by the Act. So which is the right approach? The answer is the narrow approach. The leading cases are North Midland Construction plc v AE & E Lentjes UK Limited [2009] and Cleve-

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