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APPEAL FAILS FOR JUDICIAL REVIEW OF EARLY CLOSURE OF RENEWABLES OBLIGATION TO LARGE-SCALE SOLAR PV

Prospect Law Limited acted for the Appellants in Solar Century Holdings Ltd and Others v Secretary of State for Energy and Climate Change [2016] EWCA Civ 117

The Solar Century Holdings Ltd case concerned the legality of the decision by the Secretary of State for Energy and Climate Change to bring to a premature close a statutory scheme supporting the generation of electricity from renewable sources. Jonathan Green, senior solicitor at Prospect Law, examines the case in more detail and concludes that the judgment is likely to result in reduced investment in large-scale renewable energy projects as a consequence of ‘pipeline’ investments remaining vulnerable to policy changes.                                                                                                                                             

What is the background to the case?

The Renewables Obligation (RO) has been the main method by which the UK government has subsidised large-scale renewable energy generation since 2002.

On 13 May 2014, the Department of Energy and Climate Change (DECC) published a consultation announcing its intention to close the RO to solar photovoltaic (PV) projects over 5 megawatt peak (MWp) in size, with effect from 31 March 2015. The government confirmed the closure in October 2014 and the Renewables Obligation Closure (Amendment) Order 2015 was passed.

The claimants carry on business building solar PV systems (solar farms) and challenged the legality of the decision to bring forward the closure of the scheme. Many large-scale solar installations take over a year to go from inception to accreditation and developers working on projects over 5MWp stood little hope of completing their installations by 31 March 2015 once the consultation was published.

A judicial review of the decision was issued in the High Court on 1 August 2014. On 7 November 2014, Mr Justice Green dismissed the application. Permission to appeal was subsequently granted by Rt. Hon. Lord Justice Bean of the Court of Appeal.  

What were the key issues?

The decision to close the RO for 5MW+ projects was challenged on four grounds:

  • the decision to implement an early closure of the RO scheme by statutory instrument, as per the power granted by the Electricity Act 1989, ss 32LA and 32LB, was ultra vires because the statutory power was for the purpose of preserving the 2017 closure date and not for extending it;
  • the pre-legislative statements that the RO scheme would run until 2017 amounted to the type of assurance which would bind the executive, and early closure violated those assurances;
  • the statements made by the government from 2010 onwards that the scheme would not close before 2017 were clear and unequivocal representations giving rise to a legitimate expectation which was not thwarted by any policy consideration; and
  • the deadline imposed to fall within a one year Grace Period was retrospective in effect and therefore unfair in a public law sense.                                                     

What was the decision?

    • The Court of Appeal held that there was no reason to believe that Parliament had intended to stop the minister from closing the scheme before 1 April 2017. Under the Electricity Act 1989, s 32LA the minister had a power to close the scheme to ‘to electricity generated after a specified date’.
    • The government had not undertaken that the RO would be immune from the changes it underwent by way of the May 2014 announcement. The minister stated that the closure was planned for 31 March 2017, not that there were no circumstances in which the scheme could be closed earlier.
    • The Court of Appeal rejected the suggestions that the grace periods were the subject of retrospective legislation, and that the use of the legislation to enact them was unfair in a public law sense.                   

What are the implications of the case?

Together with some of DECC’s other decisions, this judgment is likely to result in reduced investment in large-scale renewable energy projects.

The ruling endorses DECC’s use of the Levy Control Framework (LCF) as a means through which to create inconsistent, unpredictable policy and will damage investor confidence in support mechanisms similar to the RO.

In July 2015 DECC announced its intention to extend the LCF past 2020, arguing it would continue to form ‘a basis for electricity investment into the next decade’. Nevertheless, the Court of Appeal has allowed DECC to go back on such promises, and the renewables market is unlikely to take much comfort from DECC’s announcements going forward.

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.

For a PDF of this blog click here

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CASE CONCERNING RENEWABLES OBLIGATION SCHEME FOR LARGE SCALE SOLAR COMES INTO THE UK COURT OF APPEAL ON 2 FEBRUARY

This article is intended to provide a summary of the background to and issues at stake in the case of Solar Century Holdings Limited, Lark Energy & Others versus the Secretary of State for Energy and Climate Change in which Prospect Law represents the appellant solar companies. The case is due to be heard by the Court of Appeal on 2 February 2016 and, whichever way the judgment goes, it is likely to have implications for the conduct of UK government policy relating to subsidy schemes for renewable energy installations and for the future of the UK’s solar industry.

The History of the Case

1. This appeal concerns a Government subsidy scheme, the Renewables Obligation (“RO”) for incentivising large scale renewable electricity generation, including solar PV
(photovoltaic) projects, in the UK. Under this scheme qualifying projects are granted certificates (“ROCs”) which are sold to generate income in addition to the sale price of the electricity.

2. The appellants are all UK solar industry businesses developing solar PV projects in the UK that would ordinarily be supported by the RO Scheme.

3. On 13 May 2014 the Department of Energy and Climate Change (“DECC”) released a consultation paper which proposed to close the RO to solar PV projects over 5MW in size (“large-scale solar”) on 31 March 2015. Before this consultation the scheme was due to close to all projects on 31 March 2017 – i.e. the proposal was to close the scheme for large-scale solar 2 years early.

4. The main controversy of this consultation was that the notice given was unreasonably short (9 months from the consultation – where most large-scale solar projects have a longer development time than this), and that only projects that met certain arbitrary ‘grace period’criteria as of the date of the consultation would get extra time to deliver. Any new legislation introducing such a closure (following the Government decision on the issue, which came out on 2 October 2014 – 6 months before the closure) would have a back-dated effect on projects (i.e. would have a retrospective effect).

5. Owing to the potentially substantial investment at risk on projects already under development the appellants issued a claim for Judicial Review challenging the legality of the consultation.

The Decision of the High Court

6. The Judicial Review was heard before Mr Justice Green in the High Court in June 2014, with the decision of the Court released in November 2014 ([2014] EWHC 3677 (Admin)).

7. The Judge granted permission for the Judicial Review to be heard, but dismissed the application. The Judge acknowledged the “need for operators to have a secure and stable legal and investment environment in which to plan”, that “projects can involve a significant lead time from first investment to accreditation” and that “clear and repeated representations were made by Government to the effect that the scheme would remain in place until 2017”.

8. Nevertheless, the Judge also ruled that the Levy Control Framework (“LCF”), the Government’s self-imposed cap on funding for renewable energy schemes, “acts as an all pervasive proviso or caveat to any exercise of the statutory power” and that whilst the proposed changes included “a degree of retrospectivity” this was fair in the circumstances.

9. The over-arching rationale being, put simply, that the Government’s justification of defending the LCF cap levels was important enough to make the approach of the Government lawful.

10. The appellants do not agree with this, and have appealed this decision.

The Points on Appeal

11. Permission to appeal was granted by Lord Justice Bean of the Court of Appeal in early 2015.

12. The appellants’ main argument is that the LCF clearly states that investor confidence is paramount to the operating of renewables subsidy schemes and that retrospective changes will not be made to such schemes. With such statements and assurances clearly set out in the LCF it is difficult to believe that the LCF should be interpreted in the solar development and investment community as “an all pervasive proviso”.

13. There are also arguments in relation to the purpose of the legislation introduced to allow the closure of the RO and that the test for the lawfulness of retrospectivity in secondary legislation (i.e. a statutory instrument) is not whether such changes are ‘fair’, but whether the Secretary of State has the power to make such retrospective changes.

14. The appeal is due to be heard by the Court of Appeal on 2 February 2016.

The Wider Implications

15. We have already seen further DECC consultations with similar retrospectivity in relation to (1) further changes to support under the RO and (2) changes to the Feed-in Tariff (“FIT”) scheme, a sister scheme to the RO that support smaller renewables projects. In each changes are proposed, usually at short notice, with some aspects to take effect from the date of the consultation, not the date of the new legislation, all justified by seeking to protect the self-imposed LCF caps. These ‘consultations’ force those in the renewables sector to take action on the basis of these consultations as if they are final decisions. According to the latest Ernst and Young Renewable Energy Country Attractiveness Index reports, this is very damaging to investor confidence in the UK market.

16. If it is held that budgetary concerns override legitimate expectations, protection from retrospectivity and other such concepts that investors rely upon to allow them to make investment decisions, then the implications could extend even further than just the renewable energy industry.

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.

For a PDF of this blog click here

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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.

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ONSHORE WIND SUPPORT UNDER THE RO TO END ON 1 APRIL 2016

 

The Department for Energy and Climate Change (DECC) has formally announced on its website its intention to close the Renewable Obligation (RO) to onshore wind projects as of 1 April 2016 – just over 9 months away.

This has been widely foreseen by the industry, and was the subject of a news post on Prospect’s site of 11 June 2015.

The DECC announcement (link below) does not give specifics, however it talks of grace periods for projects that have a grid connection agreement, planning consent and evidence of land rights.

This is very similar to the initial grace period offerings in the consultation to close the RO to large-scale solar PV generators published in May of last year, which were the subject of a Judicial Review (JR) challenge by a consortium of industry stakeholders in a case run by Prospect Law.  The JR challenge against the solar consultation is currently awaiting a hearing in the Court of Appeal.

We will know more when the consultation on this proposal is published, but it is fully expected that DECC will continue with its retrospective approach that any grace period requirements are met on the date the consultation is published, as was seen with both the May 2014 solar PV consultation and the December 2014 biomass conversion consultations. The legality of this approach remains highly controversial and subject to future legal rulings.

Prospect Law are speaking to a number of onshore wind industry stakeholders in relation to this latest announcement about possible court action by way of a JR challenge.

We will write more when the details become available.

https://www.gov.uk/government/news/changes-to-onshore-wind-subsidies-protect-investment-and-get-the-best-deal-for-bill-payers

For a PDF of this article, click here

For more information, please contact Edmund Robb on 07930 397531, or by email on: er@prospectlaw.co.uk.

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Stories linking DECC to RO cut for onshore wind

 

There have been reports in both the Financial Times and the Daily Telegraph over recent days (see the links below) that DECC is briefing on plans to remove the RO for onshore wind earlier than expected and possibly on 1st April 2016.

No official announcement has been made as yet and we will certainly watch the situation as it develops over the coming days, not least to observe whether DECC opts for a similar style of “consultation” and “grace period” for its onshore wind strategy which it passed through on ROs for large scale solar (and indeed for changes to the rules for biomass conversion in December 2014).

The large scale solar RO announcement was the subject of a Judicial Review challenge by Prospect Law acting on behalf of four solar companies in the High Court [2014] EWHC 3677 (Admin). The case is currently before the Court of Appeal and is due to be heard in the coming months.

http://www.ft.com/cms/s/0/71680764-09d9-11e5-a6a8-00144feabdc0.html#axzz3cfPqLnmb

http://www.telegraph.co.uk/news/earth/energy/renewableenergy/11641088/Wind-farm-subsidies-facing-the-axe.html

Introduction to Prospect Law and Prospect Energy

Prospect Law is an energy specialist law firm which is based in London and the Midlands of the UK. It is a sister company of Prospect Energy Ltd which is a technical consultancy company. The two firms provide advice on energy development projects and energy related litigation for clients in the UK and internationally.

For more information, please contact Edmund Robb on 07930 397531, or by email on: er@prospectlaw.co.uk.