Renewables

There have been many headlines about the damaging impact of DECC’s announcement last Thursday to close the Renewables Obligation (RO) to onshore wind one year early. So what exactly did the statement say? That the RO will be closed to onshore wind in 2016, one year early, and that projects which already have planning consent, a grid connection agreement and land rights are to be protected.

‎On the face it, many of the projects which would be affected by Picture of a wind turbine farm on a hillthe early closure of the RO will be saved by the protective measures (although of course the detail could contain some surprises) – which suggests that the direct impact of this announcement will not be as damaging as feared. DECC has said today that 2,500 turbines which would have been built will no longer be built as a result of the early closure. I have no alternative figures to offer, but perhaps these figures include turbines currently constrained by radar requirements, some of which may not have been built in any case. Nonetheless, it seems to me, that, of far greater significance is the upcoming announcement on the CfD. The RO was ending in any case – it is CfD policy which will determine the real impact on the onshore wind sector in the UK.

Until the CfD announcement is made, we don’t know what the future holds for onshore wind. ‎There was a (tantalising) clue in the statement by Amber Rudd. In announcing new legislation to implement the RO policy, she said that Government already has “the tools” to implement its policy for the CfD. This doesn’t sound like the Government plans to legislate, whether by primary or secondary legislation. To our minds this implies that DECC plans to use the powers conferred on the Secretary of State under the Contract for Differences Allocation Regulations 2014.

These regulations give the Secretary of State three powers (or tools) which could be used to ‘control’ onshore wind development. First, she can set an administrative strike price for onshore wind, for example at the forecast market price, implying no subsidy. Second, she could impose limits on a technology, including onshore wind, by setting a ‘maxima’ level for that technology in the CfD budget allocation. Third, she also has the power to define – or redefine – the so called budget ‘pots’ (yes, that term is used in the legislation).

As such, Amber Rudd has the power to set an administrative strike price, a maximum limit or a restricted budget for onshore wind, without passing new legislation or consulting with the devolved governments or industry. If she uses those powers to ensure no onshore wind farms secure a CfD, then the recent headlines warning of the potentially damaging impact of DECC’s announcement would indeed be justified. If she permits some onshore wind development, then the news may be disappointing but not destructive for the industry.

Yet perhaps there are clues in her statement which suggest she will not seek to prevent all onshore wind deployment. We think it is stretching her powers to set a budget or maximum deployment level at zero, or a price at close to zero. We don’t think these powers were conferred to give the Secretary of State the ability to exclude an eligible technology, and if she attempts it, she will almost certainly invite legal challenge. Does she want that? The evidence from the RO policy suggests not. She will implement the early RO closure by passing primary legislation in Parliament. Contrast this with the general RO closure, which was made by secondary legislation, and the early closure of the RO to solar, which was implemented by secondary legislation. As a result we will have the unusual situation of secondary legislation amended by primary legislation.

Why? There is only one reason I can think of – to avert legal challenge. It is much harder, if not impossible, to challenge legislation passed through Parliament. Our guess therefore is that she will not set a maximum allocation of zero for onshore wind when the CfD budget allocation is announced. We will know soon enough, the budget announcement for the next CfD round is due to be published in July. The industry waits nervously.

Keith Patterson

Partner at Brodies LLP
Keith is a Partner in the Energy & Infrastructure Team and Co-Head of the Renewables Group. He advises developers, investors, lenders and public sector bodies on developing and financing low carbon projects, as well as M&A deals in the sector.
Keith Patterson

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