In GB, the Feed in Tariff (FiT) scheme operates as a green subsidy which was introduced under the Energy Act 2008 to encourage the installation of small scale 'green' generation units. Under the scheme, electricity suppliers are required to make payments to eligible generators at a specified tariff, which is set depending on the technology utilised and the tariff year in which the specific installation is accredited.
Solar photovoltaic (Solar PV) systems were considered as having high installation costs compared with other low carbon technologies and, as a result, greater financial incentives were designated to encourage the uptake of these systems under the FiT scheme. This provided installers with a guaranteed rate of return to offset the capital outlay required.
After the FiT scheme was introduced, the popularity of Solar PV systems exceeded expectations and the costs associated with the manufacture of the generation apparatus began to fall dramatically. These factors caused the Government to review the affordability of the FiT scheme with regard to Solar PV as the generous support payments coupled with the lower capital costs of installation made these systems even more attractive.
Round One – Support cuts for large scale Solar PV
In March 2011, the GB Department of Energy and Climate Change (DECC) published a consultation paper in which it was proposed that the assistance given to installations at the larger end of small scale generation would be cut dramatically (those with an output between 50kW and 5MW). The support rate was proposed to be cut back by up to 70% for the largest non-domestic installations.
Before a modification can be made, section 42 of the Energy Act 2008 requires the Secretary of State to consult the holder of any licence being modified, the Gas and Electricity Markets Authority and any other party whom it considers appropriate. This would include any amendments to the FiT tariffs for installations already accredited.
At the consultation stage, a commitment was made that any changes made would apply only to those who were new entrants and would not affect those installations already accredited. The consultation ran until 6 May 2011 and changes were to take effect from 1 August 2011. This allowed a short time frame for new installations to be accredited to take advantage of the higher support rate.
During the consultation process, it was stressed that the majority of new installations were small scale domestic based which would not be affected by the new banding at all and that a key objective in reducing the larger scale support was to ensure that funding was not distorted from the smaller scale installations and other supported technologies.
Round Two - Support cuts for smaller scale Solar PV
October 2011 saw a further DECC consultation being published which proposed a significant tariff cut for smaller scale Solar PV installations. This would see a 50% reduction in support for installations with an output capacity of below 4kW. The consultation period was due to last until 23 December 2011.
In the consultation, DECC proposed that the support cut would take effect on Solar PV systems from 1 April 2012. Critically, however, the reduction would apply to all new Solar PV installations with an accreditation date on or after 12 December 2011. Existing generators with an accreditation date before then would remain unaffected.
What was envisaged was that any installation accredited between 12 December 2011 and 31 March 2012 would be paid the higher tariff on a transitional basis before moving to the lower tariff on 1 April 2012.
The consultation paper stated that the 12 December 2011 reference date (being 6 weeks after the publication of the paper itself) was 'consistent with the Government's commitment that tariff changes will not be made retrospectively for installations already accredited to receive FITS.'
This would give those prospective FiT generators who had incurred or committed expenditure 6 weeks to complete their installations and have them accredited to take advantage of the higher tariff rate on an ongoing basis.
Predetermined decision
Although the DECC consultation paper called on consultees to provide their views on a range of matters, including the 12 December 2011 implementation date, the fact that the consultation closed nearly 2 weeks after the implementation of the new support regime would appear to be an indication that the decision to forge ahead with this policy had been already made.
In fact, the day after the DECC consultation was published the following unambiguous statements were made in the House of Commons:-
"Q from Mr.George MP: Will he [Mr. Barker MP] keep the cut-off date under review, with the intention of perhaps extending it?
Mr.Barker MP: No, I am afraid that that would deliver the most terrible uncertainty to business. It has to be clear that there is a cut-off date. We mean what we say, I am afraid."
The beginning of the challenges
This position was challenged by Friends of the Earth and two Solar PV installation and supply companies. Permission to seek judicial review was granted on 16 December 2011 on a limited number of grounds focusing on an argument that the statutory scheme for modifying FiTs would not allow such a retrospective change. On 21 December 2011, the Administrative Court upheld the appeal and decided that section 42 of the Energy Act 2008 set out a clear and mandatory procedure for modifying FiTs, and that such modifications would only take effect after the exercise of that procedure.
The process involved a consultation, followed by a draft licence modification to be laid before Parliament, followed by parliamentary approval (or the lack of disapproval) and finally by the making of the modification.
It was held that this statutory scheme did not contemplate, let alone permit, a modification which would take effect from a date prior to that modification being made. By proposing to do so, the Secretary of State would make a decision which would be unlawful.
Contingency plans
Although DECC sought permission to appeal against the Administrative Court's decision, it also announced that new FiTs for Solar PV installations with an accreditation date on or after 3 March 2012 would be reduced from 1 April 2012. Draft modifications to the standard licence conditions to this effect had been laid before Parliament.
This modification represented the government's contingency position if an appeal to the Court of Appeal was unsuccessful. The government also made it clear that if it was successful in an appeal to the Court of Appeal, it would introduce the new lower support tariffs from the 12 December 2011 as originally proposed.
Further appeals
The Court of Appeal gave its decision to the appeal1 on 25 January 2012 and upheld the position that the proposal to cut the FiT for Solar PV installations before its consultation on that proposal closed was unlawful.
The Court of Appeal's decision was on a different basis to that of the Administrative Court. It considered that the central question was whether or not Parliament had conferred a power on the Secretary of State to modify FiTs retrospectively under section 41 of the Energy Act 2008. It concluded that no such power was given to introduce a modification that had retrospective effect by reducing FiTs fixed by reference to an installation becoming eligible prior to the modification occurring.
The Court of Appeal refused DECC permission to appeal this decision to the Supreme Court, however, DECC did lodge an application to do so on 21 February 2012. On 23 March 2012, the Supreme Court refused DECC's permission to appeal against the Court of Appeal decision, finally bringing an end to the uncertainty for those involved in the Solar PV industry. The result This decision means that DECC has been defeated in its desire for retrospective amendment to Solar PV FiT levels, with eligible Solar PV installations, registered for FiTs between 12 December 2011 and 2 March 2012, receiving the original FiT rate, rather that the new rate proposed by the government.
Footnotes
1 Secretary of State for Energy and Climate Change v Friends of the Earth and others [2012] EWCA Civ 28
This article contains a general summary of developments and is not a complete or definitive statement of the law. Specific legal advice should be obtained where appropriate.
