post

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

post

SUBSIDIES UNDER ATTACK? APPARENT RISE IN SHORT TERM OFGEM AUDITS

Since the fundamental changes to the Feed-in Tariff that have been introduced over the last 6 months it would appear that OFGEM has now moved its focus onto existing members of the scheme. We have noticed a significant increase in the number of OFGEM audits in the last few months investigating generating stations with existing full accreditation under the scheme, in many cases to be carried out by consultants Black & Veatch.

These audits look to be comprehensive, and investigate all aspects of the generating station’s compliance with the underlying requirements of the FIT scheme, including the specifics of commissioning, the ‘site’ of the generating station, the metering arrangements and the information provided in support of the accreditation application.

We have seen such audits issued to a variety of technologies, including Solar PV, Onshore Wind, Anaerobic Digestion and Hydro and across a wide range of installation sizes, so it would appear that this round of audits is extensive.

The audit letters request the provision of detailed information and documents prior to the date of the audit, and are often requested at short notice.  These requests may prove problematic for generating stations that have, since commissioning and accreditation, been sold on to long term investors who were not necessarily involved in the initial development and construction phase. We are working closely with our clients to assist in responding to these OFGEM audit requests.

Given the perceived assault on renewable energy schemes over the past few years there is a feeling in the industry that now that entry into the FIT scheme has been significantly reduced the Government is seeking further savings by looking for generating stations to remove from the scheme on technicalities, and this is causing a level of anxiety for some holding renewable generation assets. Where it was once the view that, having achieved full accreditation, an investment was safe, this feeling of long term security is currently under threat.

It is hoped by many that these audits are simply looking for obvious abusers of the scheme, however given the history of the renewables obligation and FIT schemes there is certainly a fear that this is an attempt to remove as many as possible from the scheme.  The underlying rationale for these audits will become apparent in time, however we would be surprised if at least a few of these audit outcomes did not end up before the courts.

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 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.

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 Jonathan Green on 01332 818 785 or by email on: jng@prospectlaw.co.uk

For a PDF of this blog click here

post

CHANGES ON THE HORIZON FOR UK SOLAR PART III: A BRIGHTER FUTURE?

This is the last of a series of articles covering the recent overhaul of the mechanics that previously structured government support for the UK solar industry. I previously examined the outcome of the FIT Consultation. My final article examines the future direction the SOLAR industry could take.

A recent paper by the Institution of Mechanical Engineers projected a significant 55% shortfall in meeting the UK’s energy demand should Amber Rudd successfully decommission the remaining fleet of UK coal power stations by 2025. Besides bolstering the clear need for an incentivised renewables framework, the paper also calls for the UK to take full advantage of its natural resources suited to clean energy sources. So, why stop now?

A large part of the apparent logic behind the cuts appears to be the progress made in transitioning to a low-carbon source economy. The UK has been set the EU target of 15% of energy demand from renewable sources by 2020. Figures released in June 2015 highlight that 6.3% of the resource for 2013/14 came from such sources, well above the target of 5.4%. Yet what the government does not appear to accept is that this strong deployment progress will not continue.

The time of securing the low hanging fruit of 5MW+ of capacity on distribution networks has gone. Network Operators are currently inundated with ENA applications for new generating projects that will struggle to secure a connection by the March 31st deadline. Small pockets of capacity remain in some areas of the country, but in most areas capacity is extremely limited, with some applicants joining interactive queues with 20+ participants.

The rolling improvement of the UK’s electrical infrastructure is not, it seems, matching the demand from new connection projects, a consideration which may have been overlooked during the Government’s FIT Consultation.

Several UK solar developers have now shifted their attention towards projects in Scotland. Devolved energy policies have meant that levels of previous support in England and Wales are still applicable across the border.

Once dominated by large wind farms, screening applications to local authorities and applications to SP Energy Networks for solar project works have spiked on an unprecedented level. Areas such as Fife and Midlothian, which have not been as high on wind farm developers’ radars, have potential for commercial scale solar developers.

The structure of SP Energy’s network is also relatively robust compared to network operators further south, allowing as much as 10MW in some cases to be exported onto their cheaper 11kV network.

The falling cost of solar installations, coupled with suitable export capacities for reasonably sized projects has allowed developers to work around more healthy IRRs, despite lower PV irradiance scores north of the border.

ESB Networks, the licensed distribution network operator in the Republic of Ireland, have also received over 1.2GW of solar applications as developers gear up for the release of the brand new support framework in the coming months. The exact level of support has not yet been quantified, but Ireland’s Department of Communications, Energy and Natural Resources new version of the previous REFIT schemes will incorporate both domestic and ground-mounted solar deployment.

KPMG have recommended €67/MWh (5p/kWh) for commercial scale, diminishing to €12/MWh (0.01p/kWh) by 2023 and entirely removed by 2030.

Meeting the demand for the UK’s ever increasingly extensive energy culture is not without its challenges, as I hope has been detailed over my three recent articles. What seems quite clear to me is the need to provide financially viable incentives where both developers and governments can prosper whilst securing long-term clean energy solutions and helping to meet associated climate change objectives.

Adam Payne is a technical consultant for Prospect Energy Ltd. His background is predominately in solar deployment throughout the UK having worked on the development of 76MW of ground-mounted solar assets to date.

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 reflects the personal views of the author and is not intended to constitute legal advice. Prospect Law and Prospect Energy accept no responsibility for loss or damage incurred as a result of reliance on its content and specific legal advice should be taken in relation to any issues or concerns of readers which are raised by the article.

For a PDF of this blog click here

post

CHANGES ON THE HORIZON FOR UK SOLAR PART 2:

This is the second of three articles by Adam Payne which are intended to summarise the recent overhaul of the mechanics that have structured government support for the UK solar industry in recent years.

In the previous article I outlined how changes to subsidy support for the UK solar industry may undermine the fundamentals of last month’s climate change summit in Paris. In this article I delve into the detail of the consultation outcome, and In my third article I will consider the long term future prospects of the UK solar market.

The long awaited outcome of the Government’s FIT consultation was released on 17th December 2015. The consultation, which commenced on 27th August 2015, set out to review the level of support offered by the FIT scheme.

The principle argument behind the review has stemmed from the success of solar deployment in the UK and the uptake of the Government’s subsidy schemes.

Solar deployment throughout the UK has rapidly developed over the past 5 years and the Government anticipates what it considers to be an unacceptable over spend on the levied scheme which, in turn, will be passed onto consumer energy bill prices.

The cost of the increase in consumer energy bills is widely debated. However, a conservative estimate would indicate a potential increase of approximately £7. This sum, and the 65% decrease in subsidy levels that has now been imposed by DECC, should perhaps be set against the potential value to the country of securing a clean and secure energy source for the long-term future and how this interplays with our commitments on climate change objectives, as well as the job security of 25,000 people who are, or have been until recently, directly associated with the UK solar industry.

The headline points of the consultation response might usefully be summarized as follows:

–           from 15th January 2016, the maximum overall budget for FITs will be reduced to a cap of £100m per annum across all technologies,

–           all new applications applying for FITs will be subject to a new system of caps,

–           new tariffs for solar outline 0.87p/kW for stand-alone projects, and

–           <10kW system installations will receive 4.39p/kW, down from the previous 12.03p/kW.

Under the new cap system, the Government has limited deployment to a certain number of installation sizes that could come forward per quarter. Provisions have been made for just 5 stand-alone projects to be eligible for FITs per quarter from Q1 2016 to Q1 2019.

One of the most significant changes to come out of the consultation was the decision to remove the ability to pre-accredit projects under the scheme. The rationale behind this development was again, it appears, to stem the then current strong deployment progress, but the move has been particularly detrimental to investor confidence since there is no longer any guarantee of obtaining accreditation.

To further confuse the industry the Government has now decided to reinstate the process of pre-accreditation from 8th February 2016 for solar projects larger than 50kW under the new caps. The validity period, i.e. the time in which the project must be built, energised and pre-accreditation converted to a ROO-FIT application (full accreditation), is only 6 months.

This is, in my view, an alarmingly narrow window of time bearing in mind the entire planning application and decision making process (and its inherent unpredictability, as well as expense), not to mention the 90 day turn around for ENA applications to Distribution Network Operators.

Developers across the country have since scrambled to get their pipelines completed.  As much as 3.9GW of solar was installed during 2015, eclipsing the previous record of 2.5GW  in 2014.

In the third and final article of the series, I will attempt to outline the direction in which the solar market could go in spite of the downturn in investment and investor confidence currently being experienced.

Adam Payne is a technical consultant for Prospect Energy Ltd. His background is predominately in solar deployment throughout the UK having worked on the development of 76MW of ground-mounted solar assets to date.

This blog is not intended to constitute legal advice. We accept no responsibility for loss or damage incurred as a result of reliance on its content.

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.

post

CHANGES ON THE HORIZON FOR UK SOLAR PART I:

This is the first of three articles by Adam Payne which are intended to summarise the recent complete overhaul of the mechanics that have structured government support for the UK solar industry. Throughout the series, we will discuss the fallout from the Government’s Feed-in-Tariff consultation before finally anticipating the market’s longevity.

We start this series on the back of last month’s United Nations Climate Change summit in Paris. An array of environmentalists, political leaders and scientists assembled in the French capital representing the 195 attending nations. Mitigating global warming and becoming rapidly less dependent on fossil fuel consumption is clearly now the central challenge facing the international community. The ambitiousness of these targets will be key in achieving the Paris summit agreement as countries already suffering from long-term drought and sea-level rise call for the most aggressive targets to be set.

Solar deployment will no doubt play a crucial role in meeting targets. Yet the actions of the UK Government’s Department for Energy and Climate Change (DECC) seems to go against the objective of limiting long-term global warming to 2°C.

Drastic policy change, headed by DECC Secretary of State Amber Rudd, has left much of the solar industry confounded into rethinking its entire resource and capital expenditure beyond March FY16. The curtain has already been drawn on several well-known utility companies such as Mark Group and Climate Energy, with several more on the brink of closure as shattered investor confidence leads to a search for new markets. Meanwhile, the US Congress’s approval to extend the $1.14 trillion dollar tax credits deal has boosted the confidence and stock prices of US utility companies, drawing further questioning of the UK Government’s decision making processes on renewable energy policy.

Protective legislation and investments also continue to pour into the nuclear, oil and gas industries. Government figures suggest that tax breaks announced in 2015 for crude oil production in the North Sea will cost taxpayers a further £1.7bn by 2020. How much of a future do finite fuels have in an already saturated market? And why is the UK the only G7 country where such subsidies are actually increasing.

Everyone understands the importance of keeping energy bills low for “hard-working” households and businesses, but to justify the complete overhaul of subsidy mechanics for a technology set to be self-sufficient by 2020 seems surprising. Is jeopardising the livelihood of 20,000 employees in the solar sector really worth an average annual household saving of just £7? Drawing the curtain on a thriving industry with falling costs and improving technologies seems to undermine the whole objective of last month’s summit.

Our next article will break down the specifics of the FIT consultation outcome.

Adam Payne is a technical consultant for Prospect Energy Ltd. His background is predominantly in solar deployment throughout the UK having worked on the development of 76MWp of ground-mounted solar assets to date.

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

For a PDF of this blog click here

post

RENEWABLES INDUSTRY NEWS – JUNE 2015

Onshore Wind – Closure of the RO early for Onshore Wind

In a written ministerial statement of 18 June, the Secretary of State for Energy and Climate Change Amber Rudd MP set forth the Government’s intentions to end subsidies for onshore wind. The statement sets out the department’s plans to introduce primary legislation to close the Renewables Obligation to onshore wind projects as of 1 April 2016 (a year earlier than planned), whilst leaving details of how the Contracts for Difference and the Feed-in Tariff schemes will be dealt with for a later announcement. Included in the statement was a mention of grace periods for projects that already have planning consent, an accepted grid connection offer, and evidence of land rights, albeit only for projects that had these in place as of 18 June 2015. This was followed up by debates in both the House of Commons and the House of Lords on 22 June indicating both that support under the Contracts for Difference and the Feed-in Tariff were also under review.

PEL Note: Given the manifesto commitment of the Conservatives in regards to onshore wind this will not have come as a shock to many, although to have an announcement with very little detail, but that sets the deadline for the grace period criteria to that day, is potentially damaging to investor confidence. The lack of detail confirming the FIT and CfD scheme is certainly disappointing, although in the House of Commons on 22 June Amber Rudd MP did say “I said in my statement that, in respect of contracts for difference, we would be implementing the terms of our manifesto.” This appears to be a clear indication that the CfD budget may exclude onshore wind. The fate of onshore wind under the feed-in tariff is still unknown, but the outlook is not good. Many stories are already circulating about possible legal challenges following this announcement.

PLL Note: Whilst Prospect Law does not often directly comment in this update, this announcement has led to a number of rumours of legal challenges appearing in the press, rumoured to being brought by parties ranging from the Scottish Government through to developers. Previous challenges against sudden and/or retrospective changes to the RO/FIT schemes have all been based on changes to be introduced by secondary legislation following the release of a consultation. The difference here is that the Government is proposing using primary legislation, passed directly by Parliament, to achieve its ends, which is likely more difficult to challenge owing to Parliamentary sovereignty. Whilst we have yet to look at this in great detail, given the devastation the statement alone has had on the sector, even before any firm proposals or draft legislation is put forward, the statement itself may be open to legal challenge as a ‘decision’, especially if the final legislation does not cover projects that have been shelved owing to the announcement. The possibility of applying for a declaration of incompatibility and taking the case to the European Court of Human Rights (as a breach of the right to peaceful enjoyment of possessions, contrary to Article 1 of the first protocol, as established in earlier challenges against unlawful changes to the subsidy schemes brought by us) as an arguable route to a claim for damages remains open to consideration, given that a mere declaration of incompatibility cannot be a suitable remedy for any financial losses incurred.

 

Onshore Wind – Changes to Planning Regime

In a further written ministerial statement of 18 June, the Secretary of State for Communities and Local Government Greg Clark MP set out the Government’s intentions to impose new requirements for local planning authorities to consider when determining applications for onshore wind developments. These proposals, which take effect from the date of the statement, require that consent only be given when the development is in an area identified on the local plan as being suitable for wind development and when the planning impacts have been fully addressed and it therefore has the backing of the local community. For applications already in the system only the requirement to have addressed the planning impacts and to have the backing of the community will be required.

PEL Note: This story was somewhat overshadowed by the announcement regarding subsidies, however it could be even more important for onshore wind developers. The details of the updated guidance have not been released, however whilst the requirement for councils to have agreed (and approved) areas for wind development could prove difficult this could give potential investors useful information before money is spent – assuming such areas do materialise on local plans. The real concern seems to be the obligation for the project to have ‘the backing of the local community’ and the uncertainty as to just how easy it may be for a small group of local opposition to torpedo a project. It is not unusual, even when all local concerns have been diligently addressed, for there to be a few people who just do not want the project to go ahead, and if these individuals are allowed to prevent development the industry could have a serious problem.

 

Contracts for Difference – Consultation Response re Negative Pricing Released

On 29 June DECC released the Government response to the 9 March 2015 consultation on updates to the standard CfD contract terms. Alongside this the commissioned report on the likelihood of negative pricing events is also published. Owing to the state aid requirement the proposals regarding negative pricing (i.e. not paying generators if there is a 6+ hour negative pricing period) will be implemented, but with a promise to engage with the industry further. The negative pricing report gives low estimates for the probability of such events, with a conservative estimate of 0.5% of generation given for a ‘high renewables’ scenario.

PEL Note: The main area of interest in this response is likely to be the negative pricing issue, with the rest being small technical changes. The addition of a clause to the CfD contract stating that payments will not be made on generation occurring during a 6+ hour adds a risk to CfD generators that is difficult to quantify and price, however the published report gives relatively good news on the magnitude of this risk. It is worth noting that energy storage, interconnectors between countries and an increase in smart grids (that may also back onto an increase in the number of electric cars on the road) will all have a mitigating effect on the negative pricing risk. Whilst energy storage and interconnector projects are expected to go forward as planned, any curtailment of this type of investment will lead to this risk increasing and so is worth monitoring.

 

Capacity Market – 2015 Auction Parameters Published

On 29 June DECC published the letter to National Grid setting the parameters for the 2016 Capacity Market auction. Derating factors for interconnectors are also given as the scheme opens up to bids from such installations. The letter also sets out the parameters of the first Transitional Arrangement auction, which specifically targets demand-side response bidders.

PEL Note: Aside from the introduction of interconnectors, the December 2015 Capacity Market auction looks as if it is going to be similar to the first carried out at the end of 2014.

 

For a PDF of the June 2015 update, click here

If you would like to find out more about any of the points raised in this newsletter please contact us at updates@prospectenergy.co.uk or call us on +44 (0)20 3427 5955.

post

Building-mounted solar PV installations get separate tariff degression band in new Feed-in Tariff Order

On 1 January 2015, the Feed-in Tariffs (Amendment) (No. 2) Order 2014 (SI 2014/2865)  came into force. The Order, which has an attached explanatory memorandum and applies to England, Wales and Scotland, implements changes to the ‘degression bands’ for the feed-in tariffs (FIT) scheme. This follows the DECC consultation published on 13 May 2014 , with part B of the consultation covering this proposal. The Government response was published on 2 October 2014.

Click here to download a full note:

Legal Update, January 2015 – FITs Order new tariff degression band for building mounted solar PV

post

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.

post

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

-ENDS-