Renewables

Picture of a wind turbine farm on a hillA series of stories has appeared in the Telegraph since the Queen’s Speech (click here to read the key article in the series) which point to DECC preparing to announce an early end to the RO for onshore wind.

The move, if implemented in the way implied by the Telegraph story, would mirror the early closure of the RO to PV. In closing the RO to PV early, secondary legislation was passed amending the original order closing the scheme in 2017, bringing forward closure to 2015. In the case of PV, some safeguards for well advanced projects were put in place.

Those schemes where a ‘significant financial investment’ had already been made and those subject to grid delays were to some extent protected from the effects of early closure and given additional time to commission their projects.

However, the date by which significant financial commitments had to made was not the date of legislation but the date on which the consultation to close the RO early was announced. In other words, by the time of the formal announcement of the consultation it was too late to take mitigating actions to ensure you met the criteria for significant investment.

The same approach could be taken for onshore wind to close it in April 2016. It is likely any such action will lead to developers seeking legal redress, so it may not happen.

However, the Government may be taking the view that it will win any legal action or that it is worth the risk for the perceived political benefit.

So what should developers do? The catch 22 is that until the consultation developers will not know the criteria needed to pass the ‘significant investment’ test, but by the date of publication, it will be too late to meet them!

There are a numbers steps a developer can take to try and ensure that it meets the test for significant financial investment, depending on the status of their project. It may also be possible to apply for a CfD in Round 2 (unless that is closed too). Time is short so it may be worth starting preparation now for a CfD application as a fall back strategy.

There are many people and small businesses (as well as the large utilities) who would lose a lot of money which they have already invested if the RO is closed to onshore wind. An argument could have been made a few years ago that running the RO and the CfD in parallel for 4 years did not make sense.

However, as of now, if a developer has an onshore project capable of being commissioned by April 2017, there is no doubt they have been working on the project for years and spent considerable sums doing so. Unlike solar, you can’t develop a wind farm in 12 or 18 months. In that context you would expect most schemes to meet a reasonable significant investment test, but then, what would be the point of early closure? All of which points to quite a stringent test.

One point to remember is that the secondary legislation bringing forward the closure of the RO will require the approval of the House of Lords as well as the Commons, and that may not be so easy to obtain.

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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