Solar, So Good
Last week was an exciting week for energy lawyers. It saw the Court of Appeal reject DECC's appeal against an earlier High Court ruling, which decided that quick and drastic cuts to solar feed-in tariffs (FiTs) proposed in a now infamous consultation late last year were illegal.
The court ruled that DECC's controversial plans to effectively back date deep cuts to solar PV tariffs went beyond its powers in the Energy Act 2008. The ruling confirms that, once the eligibility date for a solar installation has been reached, the tariff rate then applicable is 'locked in' for the 25 year period, subject only to adjustments for RPI.
Interestingly (for those that way inclined and with time on their hands to read the judgement) the Court of Appeal applied a very strict approach to the use of statutory powers, and the question of retrospective effect in particular, and took a slightly different tack to that adopted by the High Court in its earlier decision.
Based on this latest decision, solar PV projects that weren't registered by DECC's proposed cut off date of 12 December may now still qualify for the higher 43p/kWh tariff for the full 25 years - although they will have to move quickly as DECC plans a revised cut off date of 3 March after which newly registered projects will get the reduced 21p rate.
But this depends if DECC appeals. Its grounds for appeal were somewhat sparse last time around, so it will be interesting to see what they could come up with for the Supreme Court. If leave to appeal is granted and DECC wins an appeal, projects registered after 12 December may only get the reduced 21p rate after all (with a modest concession for projects registered by 3 March which can get the higher rate until the end of March).
The rules underpinning renewable energy incentives are complicated at the best of times, but this is getting ridiculous.
In reality, DECC has won the battle, if not the court case, since this ongoing uncertainty has essentially dampened down demand for solar PV projects since last December. This was, of course, the intention of the consultation process - and with a few more weeks still to run until 3 March, this is probably why DECC has announced it is keeping its options open and seeking permission to appeal.
However, it may not be winning the war. This whole saga has put at risk investor confidence in the UK renewable energy sector - at a time when vast amounts of private sector cash is needed to decarbonise our power sector. The government needs to be instilling certainty in the market, not fostering high degrees of political risk. It set the FITs levels too high in the first place, and has clumsily tampered with the rules ever since to close loopholes and reset levels as the market has reacted, quite legitimately, to the opportunities presented.
The legal issues at stake in this litigation were not about reduced FITs levels as such; no-one has really argued with a straight face that solar PV tariff levels haven't needed to come down. The controversy has been around the terms and content of DECC's consultation back in October on tariff reductions, specifically around principles of fairness and retrospectiveness. What has angered many is that without explanation the government ignored its own guidance on the length of consultation periods - this was only 8 weeks, compared to the 'normal' 12 - and with the date of applicability of reduced tariffs preceding the end of the consultation period, the outcome was effectively a foregone conclusion.
The government must work with the UK renewable industry, not against it. At this year's Renewable Energy Almanac event, held last week at SGH Martineau's Birmingham office, speakers and delegates from across the sector - including leading developers and funders, both bank and private equity - expressed willingness and enthusiasm for playing their part in the decarbonisation of our power sector.
And it's clear that the solar PV sector may be down but it's certainly not out. Regardless of the outcome of the current legal shenanigans, we will see massive public sector roll out later this year, including Birmingham's own Energy Savers programme, despite substantially reduced subsidy levels from April Crucially, subsidy levels are dropping across Europe, and as a result we can expect to see wholesale prices from the world's leading solar PV manufacturers fall still further, as manufacturers, developers and installers alike revisit and re-shape their business models.
It was also clear from our Almanac event last week that 2012 may see many developers and funders moving on from solar PV to seek the next renewables 'gold rush', and for our own region here in Birmingham biomass and biogas have a lot to offer.