Tag: Renewables Obligation

Part Three: An Overview of the Legal Mechanisms for Challenge and Redress by Those Potentially Affected by the Early Closure of the Renewables Obligation

In the first two parts of this series, we considered how the RO operates, possible plans to close the RO in 2016, and the potential impact of those plans upon the onshore wind industry. In this final post, we outline two possible legal avenues for challenge and redress by those who may be affected by the early closure of the RO: through the national courts and under international investment treaties.

windmill vertical

The first possibility is to challenge the Government’s actions through the national courts. This route recently has been used by the solar industry, with mixed results. In 2012, the Supreme Court refused the Government’s appeal to cut solar feed-in-tariffs before the completion of a consultation on the matter. However, in November 2014, the High Court refused an application for judicial review against the Government’s decision to close the RO to ground and building mounted solar photovoltaic capacity above 5 megawatts in 2015 rather than 2017.

Affected investors could also consider commencing international arbitration proceedings under an investment treaty. If successful, an investor could obtain compensation for the loss of their investment as a result of measures introduced by the Government. However, this option would only be available to foreign investors from member States that have an investment treaty in place with the UK, and who have made a qualifying investment in the UK, as defined by the applicable treaty.

A number of European states, including Spain, are currently being sued by foreign investors under the Energy Charter Treaty as a result of changes to national solar subsidies. Marcus Trinick QC, representing Renewables UK, has warned Energy Minister Amber Rudd to “be aware of the dangers of state aid discrimination and look at what is happening in international energy arbitration across Europe. In such a position we could not afford not to fight, especially if action is taken to interfere retrospectively.”

Media reports suggest that, given the extent of industry opposition, DECC is delaying an announcement to allow for further refinement of the proposed measures and their impact, in order to reduce the scope for legal challenges. Marcus Trinick QC has emphasised the need for dialogue between the industry and the Government before action is taken, which could reduce the risk of legal challenges arising.

The message from industry representatives is clear: the early closure of the RO would be a major blow to the future of onshore wind in the UK, which could spark a legal battle with the UK Government. As Maf Smith, deputy chief executive of RenewableUK, has stated, “[t]he industry will fight against any attempts to bring in drastic and unfair changes utilising the full range of options open, including legal means if appropriate.”

Part One: An Overview of the Renewables Obligation and Plans for Its Early Closure

Part Two: How Would the Renewables Obligation’s Early Closure Affect the UK Onshore Wind Industry?

ARTICLE BY William Lowery & Catherine Karia of Covington & Burling LLP

© 2015 Covington & Burling LLP

The Uncertain Future of the UK Renewables Obligation: A Three-Part Series

In early June 2015, the UK Department for Energy & Climate Change (“DECC”) was expected to announce plans to close the existing subsidy scheme for onshore wind, the Renewables Obligation (“RO”), to new generating capacity a year earlier than expected. This announcement has been delayed amid concerns that it could spark potential legal challenges from the industry and lead to a dispute with the Scottish Government over the future of onshore wind.

In this three-part series, we outline how the RO operates, the potential impact of the early closure of the RO upon the onshore wind industry, and the possible routes for challenge and redress for industry participants who may be affected.

Part One: An Overview of the Renewables Obligation and Plans for Its Early Closure

How does the RO operate?

The RO is designed to support renewable electricity projects in the UK. It obliges UK electricity suppliers to source a proportion of the electricity that they supply to customers from eligible renewable sources. The RO is currently set to close to all new generating capacity of any technology on 31 March 2017.

Ofgem, which administers the scheme, issues Renewable Obligation Certificates (“ROCs”) to electricity generators for the eligible renewable electricity they generate.  The ROCs are sold, either directly or indirectly, to electricity suppliers, who can use the ROCs to demonstrate their compliance with their annual obligations (i.e., “redeem” the ROCs against their RO). If a supplier does not present sufficient ROCs to meet its RO, it must pay a penalty known as the buy-out price. The funds collected by Ofgem from the buy-out price are redistributed on a pro-rata basis to suppliers who redeem ROCs.

What are the proposed changes to the RO?

Before winning the UK general election, the Conservative party pledged that it would end “any new public subsidies” for onshore wind farms on the basis that they “often fail to win public support and are unable by themselves to provide the firm capacity that a stable energy system requires”.

DECC is expected announce that it will close the RO to new generating capacity in April 2016, instead of April 2017. Such a move has been described as “going further” than the Conservative party’s pre-election pledge, by ending an existing subsidy a year earlier than expected. At present, DECC has reportedly declined to confirm the precise nature of the proposals.

The majority Conservative Government disclosed in late May 2015 that it would “be announcing measures to deliver this soon”, after conducting a consultation with the devolved administrations (Scotland and Northern Ireland) over the nature of the changes. However, at the time of writing, an announcement has not yet been made.

The basis for delaying the announcement of these measures appears to be twofold.

First, the Conservative Prime Minister, David Cameron, and Scottish First Minister and SNP leader, Nicola Sturgeon, have opposing opinions over the future of onshore wind. While Cameron has stated that “enough is enough” for onshore wind subsidies,  Sturgeon has demanded a veto on the Conservative’s plans. Energy Minster Amber Rudd stated that the consultation with devolved authorities would continue “until we have arrived at a firm policy”, and MPs would have to “bear with us a little longer”.

Second, trade bodies representing the onshore wind industry have vocally opposed the Conservative’s plans, due to their potentially significant effect on the future of onshore wind in the UK. The possible impact on the industry is considered in part two of this series.

Part Two: How Would the Renewables Obligation’s Early Closure Affect the UK Onshore Wind Industry?

Part Three: An Overview of the Legal Mechanisms for Challenge and Redress by Those Potentially Affected by the Early Closure of the Renewables Obligation

ARTICLE BY William Lowery & Catherine Karia of Covington & Burling LLP
© 2015 Covington & Burling LLP