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IRAN NUCLEAR DEAL – HAS TRUMP GOT IT RIGHT?

Is President Donald Trump alone in his criticism of the “Iran nuclear deal”? And was his decision to withdraw from it a wise one, based on facts rather than conjecture? This “deal”, officially known as the Joint Comprehensive Plan of Action (JCPOA) was signed in July 2015 by Iran, the five permanent members of the Security Council (China, France, Russia, UK and US), Germany and the European Union. Of course, the US signed it under the Obama administration and President Trump made no secret of his opposition to it during his election campaign; as with “Obamacare”, was his main reason for withdrawing from the deal because it was implemented under the previous administration?

HISTORY

What do people say is wrong with the deal? Ironically, Iran’s civil nuclear development programme started in the 1970’s with assistance from the US under the Atoms for Peace programme. Under this, the US deployed many nuclear research reactors around the world and supplied the associated nuclear fuel.

Since those early days, Iran’s nuclear programme has gone through many changes, but to many, in recent years, it was pursuing what appeared to be its own nuclear weapons development programme. Like any country signed up to the Non-Proliferation Treaty (NPT), which Iran became party to in 1970, it has a right to undertake research into the production of nuclear energy for peaceful purposes. Iran protests that its research was purely related to power generation was not helped when the existence of previously unknown uranium conversion and enrichment facilities, which could be related to nuclear weapons research, were revealed in the early 2000’s. For a chronology of key events in Iran’s nuclear history see here.

Attempts to curb Iran’s nuclear research through diplomatic means, various international agreements and the imposition of sanctions through UN resolutions seemed to be having some effect, but there were indications that weapons research had not stopped – In 2006, Iran was found to have a heavy water production plant but had not notified the International Atomic Energy Agency (IAEA). Heavy water can have a “dual use” purpose in either nuclear weapons production or for power production. To make matters worse, Iran did not permit full inspection of its facilities by the IAEA, something which all countries signed up to the NPT must allow.

Iran’s stance towards the international community changed somewhat in 2013 with the election of president Rouhani, thought to be more moderate than his predecessor Ahmadinejad. He requested the start of new negotiations with the international community, and even had direct talks with President Obama.

THE JCPOA

These new negotiations laid the foundation for the JCPOA and an interim agreement came into effect at the start of 2014 which allowed for increased inspections by the IAEA and the suspension of certain parts of its programme in return for relief from some sanctions. The IAEA issued a statement that Iran had complied with terms of the interim agreement which was reinforced by a statement on 5 March 2018 from the IAEA’s Director General, Yukio Amana, to the IAEA’s Board of Governors: “As of today, I can state that Iran is implementing its nuclear-related commitments …”; a conclusion supported by the Agency’s inspectors who spend some 3000 calendar days per year on the ground in Iran.

The JCPOA is quite a complex agreement, under which Iran has to reduce its stockpile of enriched uranium, limit any future enrichment to values not capable of producing nuclear weapons, limit uranium enrichment to one site, not build any new heavy water reactors, and adapt its existing one for peaceful purposes. Iran will also sign up to the Additional Protocol and submit to a comprehensive inspections regime by the IAEA which will involve some 150 inspectors. So long as Iran complies with the terms of the JCPOA, then various sanctions will be eased or lifted altogether.

The signing of the JCPOA was welcomed by virtually every country and international institution, although Israel remained critical. Iran’s fellow Middle East states saw it as bringing stability to the region. So what does President Trump have to be concerned about?

PRESIDENT TRUMP’S VIEW

Under US law the JCPOA is a non-binding agreement and has to have the approval of Congress following certification by the President. In his statement of 8th May 2018, President Trump said “It is clear to me that we cannot prevent an Iranian nuclear bomb under the decaying and rotten structure of the current agreement” and the deal is “defective at its core”. He further believes that Iran is a “sponsor of terror” and that there is a “very real threat of Iran’s nuclear breakout”; moreover, he linked Iran’s missile and other defence activities to the deal, something it was not designed to do. He is particularly concerned that much of the agreement is time-limited – around a decade or so for many of its provisions, but he wants it to be permanent.

INTERNATIONAL REACTION

Ahead of the 8th May statement, the position of the JCPOA’s counter signatories was that they remained committed to the deal, but their powers of persuasion were obviously non-existent. The UK Foreign Secretary, Boris Johnson said President Trump would be “throwing the baby out with the bathwater” if he went ahead with his decision; French President Macron Tweeted after the statement “France, Germany and the United Kingdom regret the US decision to get out of the Iranian nuclear deal …the international regime against nuclear proliferation is at stake.” UN Secretary General Antonio Guterres says he is “deeply concerned by the US decision to withdraw from Iran nuclear deal”, and calls on all other parties to fully abide by deal’s commitments.

THE US SCIENTISTS’ VIEWS

More criticism of the President’s position came from 90 American scientists in a letter published in October 2017 asking Congress to remain party to the agreement. They noted also that non-nuclear activities, not covered by the JCPOA, could be addressed separately and acknowledged Iran’s willingness to hold separate talks on its ballistic missile program. They point out that the IAEA’s system of safeguards under the Additional Protocol is the “strongest set … implemented by the IAEA”. They go on to say that additional “real-time” verification measures would be beneficial, not only in Iran, but in all non-nuclear weapon states where there is doubt about product use and that multinational control of enrichment plants would provide an extra level of security, citing the arrangements that URENCO, the European enrichment company.

FORMER GOVERNMENT OFFICIALS AND EXPERTS’ COUNTER VIEWS

A counter statement by the Foundation for Defense of Democracies (FDD) was also given in October 2017 which supported President Trump’s stance. It was signed by some 20 “former Government officials and experts” and included former IAEA Deputy Director General Olli Heinonen. It described the JCPOA “as one of the most highly deficient arms control accords in the history of American arms control diplomacy”. It went on to say that “We hope that the White House and Congress can come together to fix a fundamentally flawed agreement, curb Iran’s illicit activities, and end the nuclear blackmail imposed by the current JCPOA”.

WHAT NEXT?

Some observers believe that the US withdrawing from the JCPOA will mean Iran will continue to develop a nuclear weapons’ programme, however, technically, the JCPOA remains in force. Will it trigger a nuclear arms race in the Middle East? Although not officially recognised, it is well believed that Israel possesses over 40 nuclear warheads, on a par with India and Pakistan. Netanyahu fully supports President Trump’s decision, of course, giving his own assessment of Iran’s nuclear programme, saying “Iran lied”.

In March 2018 on a visit to the US Saudi Arabia’s Crown Prince Mohammed bin Salman said “… if Iran developed a nuclear bomb, we will follow suit as soon as possible”.

There will be plenty of commentary over the coming days and month. Decisions such as this have a tendency to implement the “law of unintended consequences”. We will monitor the situation and post further blogs on the issue.

For a PDF of this blog click here

Prospect Law is a multi-disciplinary practice with specialist expertise in the energy and environmental sectors with particular experience in the low carbon energy sector. The firm is made up of lawyers, engineers, surveyors and finance experts.
This article remains the copyright property of Prospect Law Ltd and Prospect Advisory Ltd and neither the article nor any part of it may be published or copied without the prior written permission of the directors of Prospect Law and Prospect Advisory.
This article is not intended to constitute legal or other professional advice and it should not be relied on in any way. For more information or assistance with a particular query please in the first instance contact the department paralegal Adam Mikula on 020 7947 5354 or by email on adm@prospectlaw.co.uk

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NEW ARRIVAL: DOMINIC WHITTOME

We are pleased to have added a further consultant to our team of technical experts.

Dominic Whittome is an economist, and graduated with BA and MA degree qualifications from Exeter University.

He has 25 years of commercial experience in oil & gas exploration, power generation, business development and supply & trading. Dominic has served as an analyst, contract negotiator and Head of Trading with four energy majors (Statoil, Mobil, ENI and EDF), first joining the industry in 1990.

His tasks included the start up and management of UK and European trading activities and handling arbitration & expert determination cases relating to terminated long-term contracts. As a consultant, Dominic Whittome has advised government clients (including the UK Treasury, Met Office and Consumer Focus) and various private entities on a range of energy origination, strategy and trading issues.

Recent assignments have included advising on UK market entry and regulation, and the optimisation of renewable energy assets through storage and direct access to trading markets. Dominic has established a network of government and industry contacts across the oil and gas sector, and he also assists British manufacturers as the elected representative of the Energy Intensive Users Group on the Nord Pool power exchange.

Prospect Law and Prospect Energy provide a unique combination of legal and technical advisory services for clients involved in energy, infrastructure and natural resource projects in the UK and internationally.

This article remains the copyright property of Prospect Law and Prospect Energy and neither the article nor any part of it may be published or copied without the prior written permission of the directors of Prospect Law and Prospect Energy.

For a PDF of this blog click here

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THE IMPACT OF BREXIT ON THE UK NUCLEAR AND RENEWABLE ENERGY SECTORS

Brexit has become reality. No member of the EU has ever decided to leave, so the process of withdrawal is untested, although the vote for Brexit is only the start – not the end – of a process which may or may not, result in complete withdrawal. The position of the UK at the end of this process is as yet unclear.

It is important to understand that until the process of withdrawal is complete the UK continues to be a full member of the EU and remains subject to EU law.

The Main Question: Trading Relations and the Single Market
The main questions to be resolved between the UK and the EU will relate to trading relations. The extent to which applicable law will be capable of change depends on whether the UK wishes to enter the European Economic Area, with continuing reciprocal market access. This question was not a matter for the referendum and will be decided by Parliament following negotiations with the continuing states. The degree to which EU laws and regulations will need to be unpicked depends on those negotiations.

It is the trading relationship between member states and the UK as a non member state that will determine the extent to which the UK is required to maintain current EU legislation.

It is too early to have any view as to the likely relationship that the UK will have with the EU and, while it is possible to draw parallels between the EU’s current arrangements with states outside the EU, none of these can be said to offer a precedent. No indication has been forthcoming from the EU as to what terms may be on offer, and indeed there will, inevitably, be differing views between members states each of which hold a veto.

Fundamentally, if open access to the EU market is to be maintained through membership of the EEA / EFTA, the UK will have to agree to the free movement of goods, services and, in theory at least, labour – a compromise which, if carried through to reality, would seem to perpetuate the primary concerns of those who have recently voted to leave the EU.
Against this developing background we have sought to consider some of the issues likely to be relevant to those working in the nuclear and renewable energy sectors in the UK.

Nuclear Energy
The nuclear sector is most affected by safety and environmental law, which is governed by a number of layers. International treaties, conventions, EU directives, EU regulations, and laws established by the devolved administrations. Withdrawal from the EU will not mean automatic repeal of these various layers.

International treaties, such as the Paris and Brussels Conventions, and the domestic enabling legislation, the Nuclear Installations Act, are independent of EU legislation and will continue unchanged.

The Euratom treaty is also an independent legal treaty which, although entered into at the same time as the Treaty of Rome creating the EEC, remains independent from the subsequent Maastricht and Lisbon Treaties. The Euratom treaty is however, administered by the European Commission on which, following withdrawal, the UK will cease to have representation. The UK and the remainder of the EU will undoubtedly wish for the UK to remain subject to Euratom and therefore this is an area for future discussion.

EU directives are directly applicable in states and require domestic legislation to implement them, whereas EU regulations apply once in force. The domestic legislation implementing EU directives is made under specific legislation which can be repealed. There will have therefore, to be an evaluation exercise as to whether EU laws should be replaced by similar laws or repealed.

Renewable Energy
The UK commitment to the Kyoto protocol and the Climate Change Act 2008 is unlikely to be revoked and so, policies to encourage the generation of power through low carbon sources will continue.

It will be difficult for the UK to have substantially different policies to the remainder of Europe on global issues such as decarbonisation and cross border energy distribution if any trading relationship is to be maintained.

One area of concern is energy subsidy, where EU funding has provided an element of the financing for ROC and FIT. These will need to be covered by the UK government if continuity of projects currently under development is to be maintained.

Conclusion
At present, without further clarity being provided as to either the timetable for or the actual extent of the planned UK withdrawal from the EU, it is difficult to offer precision in relation to the effect of Brexit on these sectors. We are monitoring developments and will begin to prepare regular bulletins as to how clients should consider protecting themselves.

Introduction to Prospect Energy and Prospect Law
This article is not intended to constitute legal advice and Prospect Law and Prospect Energy accepts no responsibility for loss or damage incurred as a result of reliance on its content. Specific legal advice should be taken in relation to any issues or concerns of readers which are raised by this article.

Prospect Law and Prospect Energy provide a unique combination of legal and technical advisory services for clients involved in energy, infrastructure and natural resource projects in the UK and internationally.

This article remains the copyright property of Prospect Law and Prospect Energy and neither the article nor any part of it may be published or copied without the prior written permission of the directors of Prospect Law and Prospect Energy.

For more information please contact Edmund Robb on 01332 818 785 or by email on: er@prospectlaw.co.uk

For a PDF of this blog click here

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THINKING OF GOING NUCLEAR: SMALL MODULAR REACTORS (SMRs) EXPLORED

In this series of blogs, we look at a major decision a country would need to consider before pursuing the nuclear option for energy generation; the choice of reactor.

The alternatives are the so-called small modular reactors (SMRs), or the full scale offerings. With the latter, there is then the choice of vendors of which there appears to be no shortage, a subject we may cover at another stage. However, to date no newcomer country has opted for an SMR.

It is first of all worth explaining what an SMR is. “SMR” can stand for either “small modular reactor” or “small and medium sized reactor”. However, the “modular” acronym seems to have come into wider use these days, and will be used here.

An SMR is usually defined as an advanced reactor with 300 MW(e) to 500 MW(e) output, whereas the full scale modern varieties are around 1000 MW(e) to 2000 MW(e) output. By way of comparison, EDF Energy’s Sizewell B PWR and its Advanced Gas Cooled Reactors have ratings around 1200 MW(e), and the older Magnox were between 50 MW(e) and 490 MW(e) (these would never be described as SMRs as they were not “advanced” in their design).

SMRs can be deployed either singly or in multiples to build up to the required capacity. Deploying single units will be convenient for countries with dispersed centres of population but without any grid connection between them. Moreover, as well as power supply for homes and businesses, they can be utilised for heavy industry purposes including process heat and desalination. Being modular, new units can be added to a suite of existing ones when needed, or when further finance becomes available (which can be generated from the profits of the existing ones).

As with the larger reactors, there is a large range of designs of SMRs – up to 45 according to the IAEA. They fall into four broad categories: light water cooled reactors, high temperature gas cooled reactors, molten salt and liquid-metal (sodium or lead) cooled fast reactors.

Additional advantages of SMR’s include:

Ease of Construction: They can be factory built and transported on the back of a truck or railcar to site, thus assuring the construction programme and minimising the need for onsite activities. The Russians even have floating designs – not to be confused with nuclear propelled vessels which have been around for some time.

Affordability: Being smaller, they are more affordable and open up a number of financing models.

Safety: The advanced design means they have inherent and passive safety features which have fewer moving parts that can go wrong and a reliance on natural circulation of the coolant if something does.

It’s not just newcomer countries that are interested in SMRs. Those with existing nuclear programmes, such as the US and Russia, are also looking at their use, as is the UK. The total global market is estimated to be between £250 and £400 billion.

Prospect Law and Prospect Energy provide a unique combination of legal and technical advisory services for clients involved in energy, infrastructure and natural resource projects in the UK and internationally.

This article remains the copyright property of Prospect Law and Prospect Energy and neither the article nor any part of it may be published or copied without the prior written permission of the directors of Prospect Law and Prospect Energy.
For more information please contact us on 01332 818 785 or by email on: info@prospectlaw.co.uk

For a PDF of this blog click here

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Updates to future Contracts for Difference (CfD) proposed by DECC – Negative Pricing

On 9 March 2015, the Department of Energy & Climate Change (DECC) published a consultation proposing a number of policy changes to the CfD contract and CfD regulations. This consultation closed on 20 April 2015 and a Government response is due in the summer of 2015. Any amendments adopted following the consultation are proposed to apply from the 2015 CfD round onwards, with no proposed effect on existing CfD contract holders. For this note we concentrate on the proposed changes relating to negative pricing.

Click here to download a full note

Prospect represented the Respondent Local Authority in the Court of Appeal concerning the case of Hussain v Brent Council [2014] EWCA Crim. 2344, a challenge to a Proceeds of Crime Act 2002 award of £500,000 made in connection with environmental offences in North London

For an article on the case, published by Planning Resource, please click the link below:
London Borough of Brent – Confiscation order for planning breaches under POCA 2002.

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House of Commons debates local communities right to shared ownership of commercial renewable energy projects under The Infrastructure Bill 2014-15

The Infrastructure Bill is currently allocated to a Public Bill Committee in the House of Commons where it will be debated in December 2014 and January 2015. Part 5 and Schedule 5 of the Bill gives the Secretary of State significant powers to stipulate ownership of renewable energy facilities by local communities. Known as the ‘Community Electricity Right Provisions’, they could provide local community groups rights to purchase a stake in renewable energy projects located in or adjacent to their community.

Click here to download a full note

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The Impact of the Solar Damages outcome for the British Renewable Industry

In 2011, the UK Government’s Department of Environment and Climate Change (DECC), announced unlawful policy changes to the feed in tariff (FiT) for solar power generators in the UK. The FiT changes were deemed unlawful and unfair and in July 2014, the High Court granted £132million in damages to the 14 companies involved in the case to compensate for the negative impact and stifling of business that they suffered. (Read article here)

It was a novel case for the solar industry for two reasons. Firstly, human rights violations had been introduced in relation to compensation for commercial losses suffered by solar firms, and secondly it was the first time that contracts for solar projects relying on FiTs had been qualified as “possessions”.

The positive outcome of this standout case sets a precedent for policy regulation. It shows that the UK’s solar businesses have a right to legal certainty for FiTs and that any policy mismanagements will not go unaccounted for by the courts.

There is a great opportunity ahead of us with the solar industry in terms of creating a viable alternative energy source, helping the economy grow. It plays a large part in meeting the EU’s 2020 target for 15% of all energy usage in the UK to come from renewable energy. If it was left to grow organically without interruption, we could see it as economically sufficient to power big cities. The UK Government has a target of 32% of electricity to be produced by renewables by 2020. (Renewable Energy Roadmap) DECC indicates that £100-110 billion in new investments is needed to make that figure. We need the Government to get behind the solar industry and recognise that it is in a good position to help meet these targets.

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DECC held liable to compensate the Solar PV supply chain industries for its unlawful acts in Prospect Law’s claim for £132 million brought under Human Rights legislation

1.     On 9 July 2014, judgment was handed down in the case of Breyer Group Plc & Ors v. Department of Energy and Climate Change [2014] EWHC 2257 (QB), in which Prospect Law successfully represented 14 solar supply-chain businesses to establish their right in principle to recover substantial damages in relation to government’s attempts to make unlawful retrospective changes to the Feed-in Tariff Scheme, under which generators are paid for generating green renewable energy.

Feed in Tariff Scheme

2.     The Feed-in Tariff scheme (“FITS”) is a subsidy scheme created by the Department of Energy and Climate Change (“DECC”) to encourage the small-scale generation of electricity from renewable sources. It came into force on 1 April 2010

3.     Under the scheme, generators of clean energy would be paid a fixed subsidy per kWh of electricity they produced for 25 years, adjusted yearly for inflation. This subsidy was to allow those adopting such technology to recoup the initial high upfront costs. Without the subsidy the technology was unaffordable and no UK solar industry could have existed.

4.     The original subsidy rate was due to remain in place until 31 March 2012; however, in a consultation released on 31 October 2011, DECC indicated that it would set a ‘reference date’ of 12 December and that anyone installing after this date would only enjoy the current rate until 31 March 2012, at which point it would be reduced by 55%.  The drop was from 43.3p to 21p per kWh

5.     This essentially pulled the rug from under the fledgling industry. With only 6 weeks’ notice of the proposed change, the market endured a catastrophic dislocation until, from 12 December, it collapsed.

 

Judicial Review

6.     Prospect Law was instructed by members of the supply chain industries to mount an urgent Judicial Review challenge to DECC’s proposed changes.  The action was subsequently joined by Friends of the Earth.

7.     The challenge was successful, both in the High Court ([2011] EWHC 3575 (Admin)) and, on DECC’s challenge to this decision, in the Court of Appeal ([2012] EWCA Civ 28).  DECC attempted to appeal to the Supreme Court, but it was refused permission to do so.

8.     What DECC had proposed was unlawful because the statute in question did not permit DECC to introduce secondary legislation with retrospective effect.

 

Compensating the industry

9.     In the aftermath of its successful Judicial Review challenge, Prospect Law was approached by several companies enquiring as to the potential of claiming compensatory damages from the Government for the losses suffered as a result of the 31 October 2011 announcement.

10.  Prospect Law’s analysis was that damages could be claimed pursuant to the Human Rights Act 1998, which permits claims for damages in relation to violations of human rights guaranteed by the European Convention.  The right in question was that of peaceable enjoyment of possessions.

11.  The claim would involve novel aspects. First, it is somewhat counter-intuitive to employ legislation concerned with “human rights” violations to compensate commercial organisations for their losses.

12.  Further, the case-law in relation to crucial matters such as the nature of qualifying “possessions” was under-developed and often contradictory. Nevertheless, Prospect Law evolved a case that would have a reasonable chance of success, and was instructed to issue the first of a series of claims.

13.  Eventually 18 claimants instructed Prospect Law and the claims were consolidated into a single action in the High Court with a combined value of some £132 million. Subsequently, 3 other companies made independent claims of their own similar to the Prospect Law claims, and the Court decided to deal with them at the same time.

 

Preliminary trial of legal issues, 19-21 May 2014

14.  On Prospect Law’s advice, its clients adopted a split-trial strategy. If certain legal issues were not held in the Claimants’ favour, the costs of a full trial on evidence would be avoided. If, on the other hand, these issues were held in the Claimants’ favour, they could expect to establish significant damages in due course.

15.  DECC on the face of it accepted the split-trial approach, but took the position that it must be a preliminary trial of both factual and legal issues and that the scope of the issues to be decided should be limited.

16.  This was a suggestion to incur significantly more costs for a less decisive outcome, and, so, would effectively have negated the benefit of a preliminary trial of issues. DECC fought hard in relation to these points in two interlocutory hearings, and lost in both instances.

17.  The preliminary trial went ahead on the basis advocated by Prospect Law, and was heard by Mr Justice Coulson in the sitting in the Queen’s Bench Division between 19-21 May 2014.

18.  The four vital issues were:

(i)     Did the Claimants have A1P1 possessions?

(ii)   If so, had DECC interfered with them?

(iii)  If so, had that interference been justified?

(iv)  If not, were the Claimants entitled to damages to put them back into the position they were in before the interference?

19.  The Court answered in the Claimants’ favour on all 4 issues.

20.  DECC had argued that the Claimants had no A1P1 possessions. The Claimants argued that they had, by virtue of having the benefit of contracts, having a legitimate expectation and having marketable goodwill. The Judge accepted that, in each of these three ways, the Claimants had possessions to the extent that they had concluded or binding contracts.

21.  The Claimants submitted that the making of the proposal took effect as a decision, as it had an immediate and catastrophic effect, an effect, moreover, that DECC had anticipated and intended.

22.  DECC argued that there had been no interference, and could not be, because its consultation had been a mere proposal. The “mere proposal” submission found no more favour with Mr Justice Coulson than it had in the judicial review proceedings.

23.  DECC’s submission that the Claimants had caused harm to themselves by not going ahead with contracts was, in effect, to say that the Claimants were at fault for believing that DECC would do what it said it would do.

24.  The Court did not find any merit in such submissions. Further, the Judge held that, as DECC knew and intended the making of its proposal to have an immediate impact by discouraging further installations, it was entirely artificial to seek to deny that it was an act of interference.

25.  DECC had argued that its actions were justified in the public interest. The Court agreed with the Claimants’ submissions that unlawful conduct, such as DECC proposed, could not, as a matter of principle, be in the public interest.

26.  The Claimants maintained that interference was not justified on the facts, even though the trial of this issue proceeded on the basis of facts assumed in DECC’s favour. On these facts, the Judge recognised that DECC had some legitimate aims in seeking to protect subsidy budgets, but considered that these were outweighed by contrary factors.

27.  The Judge accepted that the FIT scheme had been presented as long-term, and yielding a certain return, in order to induce private investment, investment that the Claimants had made on a considerable scale. The Court also noted that DECC had assured the market that it would make no retrospective changes to the FIT scheme, shortly before attempting to do so.

28.  Finally, the Judge fully accepted the Claimants’ submission that the ‘just satisfaction’ remedy available for a rights violation  would be compensatory damages in this case, designed to put the Claimants in the position that they would have been in, but for the interference with their rights.

29.  Prospect Law is now engaged in the exercise of assisting each of the Claimants in establishing the precise amount of the losses that it can expect to recover following the principles set out by Mr Justice Coulson.  The damages sought will be very substantial.

30.  DECC has indicated that it is considering an appeal to the Court of Appeal.

Solar industry companies win High Court victory in £132m damages claim against Department of Energy and Climate Change (DECC) Q&A

Case details

Q1. What is the news?

A1. 14 companies have won victory in a trial of legal issues for their £132 million claim against the Government’s Department of Energy and Climate Change (DECC) for the losses they incurred as a result of the Department’s unlawful cuts to Feed-in Tarrifs in December 2011.

The claim is being run by Prospect Law, the energy specialist law firm which successfully led the FiTs Judicial Review claim against DECC in 2011 and 2012.

The solar companies case is that DECC’s policy change, which was announced by energy Minister Greg Barker MP in October 2011, resulted in cuts to solar FiTs which were ruled to be ‘unlawful and unfair’ by the High Court, the Court of Appeal and then the Supreme Court in Spring 2012. DECC’s conduct caused:

  • An estimated loss of £132m in revenue and earnings for the claimants
  • Significant reductions in sales orders and profit margins as the industry contracted 25 per cent (Source: Cut Don’t Kill campaign via BusinessGreen.com)
  • Extreme surplus of inventory caused by a sudden reduction in new orders and the cancellation of existing ones
  • The cancellation of high numbers of large scale contracts, including many from social housing providers designed to tackle fuel poverty in vulnerable section of society
  • Direct damage to consumer and investor confidence in solar policy, causing the UK to drop 2 places in the Earnest & Young Renewable Energy Country Attractiveness Index (Source: E&Y RECAI Issue 33, May 2012)
  • An immediate decline in the demand for solar energy with installations dropping from 27,000 per month prior to the cut to 12,000 (Source: Guardian.co.uk) following the premature cuts before falling significantly further

The average size of the Prospect Law claims is £6 million with individual claims ranging in size from £250,000 to tens of millions of pounds.

The extent of the reduction in the solar industry is best illustrated by the installation figures provided by OFGEM:

 

(Source: Feed-in Tariff Annual Report 2012-13, OFGEM)

 

Q2. What is the legal issue that has been decided by the High Court?

A2. Prospect Law has obtained a ruling on the essential legal questions in the case which were heard over 3 days at the High Court in May at a preliminary trial of legal issues.

The case is ground breaking as damages have been sought for losses applying to the FiTs scheme under the Human Rights Act 1998. The legal issues revolved around the question of whether the claimant companies had “possessions” for the purposes of the European Convention on Human Rights (ECHR). Mr Justice Coulson decided (i) that the claimant firms did have possessions, (ii) that these possessions were unlawfully interfered with by DECC’s conduct in 2011, and (iii) that DECC’s conduct caused substantial losses which were not justified.

The judge has ruled (iv) that the companies are entitled to “just satisfaction” for their losses and, the judge having ruled on the legal issues at stake in the case, Prospect Law will now be finalising the quantum of each firm’s claim for damages against DECC.

 

Q3. Why is this happening?

A3. The damages action is being taken to recoup the losses incurred by the companies as a result of the unlawful cuts which DECC attempted to make to FiTs rates, and to enable the companies to invest in the jobs and technological innovation which are needed in the UK renewables industry in order to meet the Government’s carbon reduction commitments.

 

Q4. What was it that DECC did wrong?

A4. DECC made retrospective changes to the Government’s policy on solar FiTs rates, unlawfully bringing forward the date at which the FiT rates were to be reduced, contrary to the requirements of the Energy Act 2008.

DECC’s original policy scheduled solar FiTs to be reduced on the 31 March 2012. As a result of the policy announcement in October 2011, this date was brought forward almost four months to 12 December 2011, two weeks prior to the conclusion of the consultation. Thousands of planned solar installations were cancelled.

On 21 December 2011 Mr Justice Mitting sitting on the Judicial Review case in the High Court stated that, in relation to the FiT cuts, DECC:

  • Acted in an “unlawful and unfair” manner by making sudden and retrospective changes to legislation
  • Made illegal and premature changes to a legal framework which was designed to provide industry and consumers with certainty over investments in renewable energy systems, and which caused the cancellation of numerous contracts
  • Operated outside its code of practice
  • Stifled the performance of one of the few growth industries in the UK’s economy
  • Indirectly discouraged the adoption of solar energy by both UK consumers and businesses

“It doesn’t make economic sense to let the sun go down on the solar industry in the UK. As well as helping to cut carbon emissions, every panel that is installed brings in VAT for the Government and every company that benefits from the support is keeping people in work.

This [premature cuts to FiTs] will stop nine out of ten installations from going ahead, which will have a devastating effect on hundreds of solar companies and small building firms installing these panels across the country.”

Joan Walley MP, Chair of the Environmental Audit Committee

22 December 2011

(Source: Parliament.uk)

“The government’s chaotic mismanagement has put thousands of jobs and businesses in the solar industry in jeopardy, undermined confidence and investment in the whole energy sector and gives lie to the government’s promise to be the ‘greenest government ever'”.

Caroline Flint, Shadow Secretary of State for Energy and Climate Change

22 December 2011

(Source: PoliticsHome.com)

Q5. How important is solar to the UK economy?

A5. There is currently 2.94GW of solar PV capacity installed in the UK as at the end of March 2014 and solar is the forth largest source of renewable energy in the UK, behind Wind, Biomass and Hydro. In its recently published UK Solar PV Strategy, DECC outlined that this will grow to reach up to 20GW by 2020 (Source: DECC.gov.uk). The industry employs over 16,000 individuals (Source: Solar Trade Association).

Q6. Does this have an impact on consumers and energy prices?

A6. Much emphasis at the time of the unlawful policy change was placed on consumer bills. As of 2013 the Feed-in Tariff added ~£7 to an average yearly electricity bill (3,500kWh), with this expected to rise to £17.50 by 2020. This is still less than 3% of an expected 2020 electricity bill. (Source:  Estimated impacts of energy and climate change policies on energy prices and bills, DECC, March 2013).

As stated by the then Energy and Climate Change Secretary, Ed Davey, in November 2012 “The impact of supporting green energy policy is only two per cent on people’s bills at the moment” (Source: BBC Today programme via BusinessGreen).

Solar energy plays an important role in diversifying domestic energy supply and reducing the long term cost of electricity for all. As the price of grid electricity increases year on year, the Feed-in tariff plays a major role in increasing demand for solar power and enabling prices to drop in the long term. It is a medium term demand generating policy which will not be required in the long term once prices have fallen to a level equal to or less than the price of grid electricity (known as “grid parity”).

The return to stable FiT levels for solar provides consumers and businesses with secure and predictable clean energy investment opportunities. This security is in part due to the 2012 legal case which demonstrated the detrimental impact of FiT policy mismanagement and the instability it creates.

Based on 26.4m households in the UK (Source: ONS) the £132m equates to £5 per household, less than a years worth of FiT subsidy cost.

Q7.  What about the UK’s climate change targets?

A7. The 2009 EU Renewable Energy Directive placed a legally-binding target of 15% of all energy usage in the UK, including transport fuels and heating, to come from renewables by 2020. As part of the UK Government “renewables roadmap” the target of electricity generation from renewables is set at 32%. DECC states that £100-110 billion in new investment is required in the electricity sector between now and 2020 to meet this target.  (Source: UK Renewable Energy Roadmap Update 2013, DECC).  Market confidence is the key to unlocking this investment and the threat of retrospective changes to subsidy schemes is devastating to this confidence. Recent retrospective changes to renewables subsidies in Spain, Italy, the Czech Republic and Bulgaria have shown the effect such actions can have on investors (e.g. Source: Cogeneration & On-Site Power Production). This victory in the High Court should reassure investors in the UK renewables sector that such actions will not be an issue here.

The approval rating of Renewable energy in the UK is currently over 80% (Source: Public Attitudes Tracker survey, DECC).

Q8. Who are the claimants?

A8. The 14 companies behind the Prospect Law claim include solar installers, developers, investors and free solar companies:

–        Freetricity Plc

–        Ecovision

–        Cleaner Air Solutions

–        Solarlec

–        Breyer Group Plc

–        New Energy Solutions

–        E-tricity

–        Foz Electrical

–        Green Home Ltd

–        Viscount Solar Ltd

–        Evo Energy

–        Crystal Windows

–        Monitor My Solar

–        Solar Power PV Ltd

Q9. Who is DECC?

A9. The Department of Energy and Climate Change (DECC) is the government department responsible for the management and overseeing of Britain’s energy economy. In this role, DECC is responsible for incentivising the adoption of green energy generation among businesses and consumers, helping encourage innovation and growth among businesses supplying these products and services.

Q10. Why is this so significant?

A10. The illegal action by DECC reduced the demand for solar causing the loss of sales and jobs, effectively halting one of the UK’s fastest growing sectors for a number of months in 2012.

“With something like a third of all our growth accounted for by green business last year, the UK could be a global front-runner in the shift to low-carbon. In the search for growth, we’re digging for goldmines – and one of them is green. Get our energy and climate change policies right, and we can add £20bn extra to our economy and knock £0.8bn off the trade gap, all within the lifetime of this Parliament.”

John Cridland, CBI Director-General, 5th of July 2012 (Source: CBI.org.uk)

The UK Government has legally binding carbon reduction targets to be achieved by 2020 for which solar plays a large part in achieving. To achieve these targets the Government must provide clear, stable and secure policy to support and encourage wider adoption of clean technologies like solar which DECC failed to do in this case.

Q11. Has the solar industry recovered from this and is solar a good investment now?

A11. The solar industry is now recovering thanks to falling solar prices and the commitment of individuals and businesses working in the solar energy sector.  FiT levels are now stable and secure and solar is widely considered as a good investment for consumers and businesses.

To calculate returns go to The Energy Savings Trust website

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