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-

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