Onshore wind in Great Britain: closing the Renewables Obligation

Since 2002 the Renewables Obligation (RO) has underpinned the economics of wind energy in Great Britain. The early closure of the RO to new onshore wind farms divided Parliament but the Energy Act 2016 (the Energy Act) has now finally been entered on the statute books.  The legislation was controversial with challenges to Parliamentary protocol resulting in delays to its enactment. However, now that the Energy Act has been passed, industry will be focusing on delivering capacity within the grace periods afforded to it under the legislation.

The closure framework

Due to the delays in achieving Parliamentary approval, the RO closure date was delayed from April 1, 2016 to May 12, 2016 (the date that the Energy Act was passed). However, in spite of this, the Government proposals have largely been implemented according to the original Government drafting. Many developers will now be looking closely at the grace period provisions to ensure that their projects may still be able to gain support under the RO.

A grace period is available to safeguard investments which were sufficiently mature on June 18, 2015 (the date on which the Secretary of State announced the intention to close the RO to new onshore wind farms). The specification of a cut-off date which has already passed as the date by which an investor must have satisfied the various grace period conditions was recently upheld by the Court of Appeal¹, which found that it was not retrospective legislation as it did not involve the modification of any accrued entitlement. An extension of time to accredit under the RO is also given to those projects affected by delays outside their control to grid connections or radar mitigation solutions, or which could not secure funding due to the uncertainty resulting from the legislative process.

The grace period conditions are (in broad terms):

• The approved development condition which is met where planning permission, grid connection and land rights were in place on or before June 18, 2015.
• The grid or radar delay condition which is met where the generating station would have been commissioned by a specified date but suffered a grid connection or radar mitigation delay (that was not due to a breach by the developer).
• The investment freezing condition which is met where the generating station would have been commissioned by March 31, 2017 if funding had been provided before the Royal Assent date but the developer of the project was unable to secure financing during the passage of the legislation through Parliament due to the uncertainty over whether the Energy Act would be enacted or its wording if enacted.

These grace periods can be used independently or in certain combinations (see table below), allowing developers up to January 31, 2019 to gain accreditation under the RO (assuming all three grace period conditions are met).

Parliamentary controversy

The Conservative Government pledged in its 2015 election manifesto to “end any new public subsidy” for onshore wind and, since coming to power in May 2015, has introduced a raft of measures to control spending on renewable energy, cutting support for solar photovoltaic as well as for onshore wind. However, both Labour and the Liberal Democrats considered that the proposal to close the RO to new accreditations of onshore wind farms was a liberal interpretation of the manifesto commitment. As a result, they refused to approve the RO closure provisions of the draft Bill when it was debated in the House of Lords in autumn 2015, breaking with the constitutional convention whereby the House of Lords will not oppose legislation implementing an election manifesto pledge.

When the Energy Bill returned to the House of Lords in April 2016 (now including the RO closure provisions which the House of Commons had approved), the Lords sought a concession so that developers who had planning committee approval but had not yet received the full planning permission on June 18, 2015 would still be eligible for the approved development condition grace period. The Government rejected this change however and eventually, the House of Lords relented.

Meeting the grace period conditions

E-Serve, the arm of Ofgem which administers the RO, will be taking the important decisions about whether projects meet the conditions and can gain support under the RO. Ofgem’s final guidance on the administration of the RO closure regime for new onshore wind will now come under close scrutiny by developers, their funders and potential project purchasers.

A particular area of concern for industry has been around variations to planning permissions. The Government has taken steps to allay industry fears that variations to planning permission will invalidate a project’s eligibility for a grace period. The Energy Minister has made a statement in the House of Commons following which Lord Bourne (Conservative) wrote to Lord Wallace (Labour) to clarify that “where consent is granted for development on or before 18 June 2015 and is subsequently varied as provided for by statute (for example under section 96A or section 73 of the Town and Country Planning Act 1990), the development will continue to fall within the grace period (assuming other eligibility requirements are met)⁴.” However, because Ofgem will not confirm that a project is eligible for a grace period until it applies for full accreditation (when the project has been commissioned), developers, investors and funders will be exposed to some residual risk, particularly if variations result in significant increases in installed capacity. In addition, Ofgem’s E-Serve functions are likely to be transferred to another body in the future, whose approach to the exercise of discretion in interpreting the Energy Act provisions cannot yet be known.

Existing investments

Despite the changes underway, onshore wind projects which were accredited under the RO before the date that the Energy Act was passed will continue to receive Renewable Obligation Certificates for their output at a level which is grandfathered for a period of 20 years from the date of accreditation (in most cases).

If you would like to discuss any of the issues raised by this article with members of our team, please do not hesitate to get in touch.

This briefing has been prepared on the basis of the latest published draft Energy Bill 2015/16 and amendments thereto. The final text of the Energy Act 2016 is expected to be published in the coming days.