For solar photovoltaic (PV) projects of 5 MWs and below and for additional capacity added to a project which does not take it above 5 MWs in total, the Government has decided:
- to close the RO from 1 April 2016;
- that the closure will be subject to grace periods for projects which are affected by grid delay or which, on or before 22 July 2015, had preliminary accreditation or had made a significant financial commitment;
- to end grandfathering (a fixed rate of support from the date of accreditation) under the RO for projects in England and Wales with an accreditation date falling on or after 23 July 2015 unless they meet the criteria for the significant financial commitment grace period (described in more detail below); and
- that there is sufficient evidence of cost reductions for solar PV and has launched a technology-specific banding review for projects in England and Wales only.
Since the Government launched the original consultation on 22 July 2015, developers have rushed to build out their projects before the proposed RO closure date. Now that the decision is confirmed and with legislation is expected to hit the statute books by 1 April 2016, analysis of whether the grace period criteria have been met will become increasingly important for investors whose projects are on the margins.
Changes to grandfathering
Grandfathering is defined by DECC as “a statement of policy intent that once a generating station is accredited and receiving support under the RO at a certain level (or band), the level it receives […] would not change for the lifetime of its support under the RO.”
Whilst the announcement to end grandfathering for solar PV of 5MWs and below is disappointing for some investors, it does not affect projects that:
- were accredited on or before 22 July 2015; or
- meet the significant financial commitment criteria on or before 22 July 2015.
Other projects however will only obtain the rate of support which applies at the time of accreditation until the implementation of any proposed reduction in support. Therefore, projects accrediting after 22 July 2015 which did not meet the significant financial commitment criteria on or before that date, will not be grandfathered even if such projects either:
- accredit in the period from and including 23 July 2015 to the closure date of 1 April 2016; or
- accredit after the closure date of 1 April 2016 by virtue of being eligible for the preliminary accreditation or grid delay grace periods.
Changes to banding
The Government has also launched a consultation on a reduction in support for all solar PV projects located in England and Wales, whether ground or building-mounted, of 5 MWs and below (or additional capacity where the total installed capacity does not exceed 5MWs) with an accreditation date of 23 July 2015 onwards. These changes do not apply in Scotland or Northern Ireland as banding levels are devolved matters and the Scottish Government and Northern Ireland Executive have elected not to undertake a banding review. The consultation closes on 27 January 2016, with changes expected to be implemented by 1 June 2015.
Affected projects would receive the lower band of 0.8 ROCs/MWh, effective from 1 June 2016. This means up to a 46% reduction in the level of support when compared to existing ROC bands for solar PV (see table below).
| ||Ground-mounted||Building-mounted||Proposed Down-Banding|
|2016/17 (ROCs/MWh)||1.2||1.4||0.8 (effective from 1 June 2016)|
To try to maintain investor confidence, an exception is proposed where a project has met the significant financial commitment criteria, whether they accredit under the RO before or after the implementation of the banding review. All generating stations accredited on or after 23 July 2015 will need to provide the evidence detailed below to retain their level of support.
Why is evidence of a significant financial commitment important?
Meeting the criteria for a significant financial commitment on or before 22 July 2015 will be particularly important for investors. This will allow a project to:
- accredit under the RO until 31 March 2017, 12 months after the closure date on 1 April 2016 (the significant financial commitment grace period criteria);
- secure grandfathered support under the RO for 20 years (the grandfathering exemption criteria); and
- be insulated from any down-banding implemented as a consequence of the December 2015 consultation (the banding reduction exemption criteria).
The evidence required to demonstrate a significant financial commitment broadly comprises:
- a grid connection offer and acceptance dated on or before 22 July 2015 (or a declaration that no grid works are required);
- a director’s certificate confirming land rights were held by the developer or the operator on or before 22 July 2015; and
- confirmation that a valid planning application had been received by the relevant planning authority no later than 22 July 2015 (or a declaration that no planning permission is required).
Litigation has already been announced in relation to the removal of grandfathering on the grounds that the UK government had given “clear and unambiguous assurances that it was committed to the principle of grandfathering”.
Separately, litigation commenced by Solar Century relating to the early closure of the RO to large scale solar PV will go to appeal in early February 2016. The outcome of the case will be important for small scale solar PV generators who will be interested in any ruling that the Government acted beyond the scope of the powers conferred under the Energy Act 2013 and contrary to developers’ legitimate expectations based on previous policy statements.