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DETI response to consultation on proposed early closure for NIRO to onshore wind in 2016

On Friday 4 March DETI published its long-awaited response to its consultation on proposed early closure of Northern Ireland Renewables Obligation (NIRO) to onshore wind in 2016. The outcome shows little variation from the consultation proposal except for a possible lifeline for some projects that experienced delays in funding and for small wind projects, the latter of which is not without its own difficulties.

In line with the consultation proposals published on 30 September 2015, the response makes it clear that new large scale (5MW and above installed capacity) and existing large scale generating stations adding additional capacity from 1 April 2016 will not benefit from NIRO unless certain eligibility criteria are met.

It is intended that the legislation implementing the decisions in this response will come into operation in March 2016 and will be set out in a Renewables Obligation Closure Order (Northern Ireland) 2016.

The winners

In order for a generation project to claim NIROCs after 31 March 2016, the eligibility requirements which a project must be able to demonstrate at the time of accreditation are as follows:

  • Relevant planning permission dated on or before the relevant grace period eligibility date (30 September 2015 for non-cluster connecting generating stations and 30 October 2015 for cluster connecting stations); 
  • A grid connection offer and acceptance of that offer, both dated no later than either 30 September or 30 October 2015 (depending on connection type) or confirmation that no grid connection is required; and 
  • A declaration confirming that, as at 30 September or 30 October 2015, the developer or proposed operator of the station owns the land on which the station is to be situated or has an option or agreement to lease the land or is party to an exclusivity agreement in relation to the land. 

Projects meeting these requirements will be able to connect up to 31 March 2017. They will then also be able to connect up to 31 March 2018 if they can demonstrate that the project would have connected by 31 March 2017 but for grid connection or radar delays outside of their control. 

These eligibility criteria are more or less identical to those in the consultation, but without the need to provide a "Director's Certificate" to demonstrate ownership of the development. 

Questions had been raised by consultees on whether amendments to existing planning permissions granted after the eligibility date would allow a proposal to qualify for NIROCs if the original planning permission was granted (and other criteria met) before the 30 September/30 October 2015 cut-off. DETI's response is less than helpful; it states that it will not legislate on this point and "it will be up to developers to satisfy Ofgem at the time of accreditation that the evidence they have provided for the approved development condition relates to the station their accreditation application is for".  

This potentially introduces risk and uncertainty into whether an amended development will be accredited (or risks clawback of NIROCs if Ofgem later concludes that accreditation was invalid). Unfortunately each development where amendments to planning on potentially eligible projects have been granted and implemented will need to be carefully considered on its own facts as to whether there is any risk to accreditation. 

The losers

A number of consultees raised further scenarios for which they considered grace periods should be given. DETI was largely unsympathetic. 

Many consultees requested that applications that were in appeal at the 30 September/30 October 2015 eligibility date should benefit from an extended grace period, as has been proposed in GB. This would be on the basis that, had the application not been refused, it would have qualified first time around. 

Unfortunately DETI has taken the view that if a project is undergoing a planning appeal it is likely to have an associated grid connection offer date which falls after the relevant grace period eligibility date (30 September/30 October 2015). Therefore, even if the project is successful in appeal, it would not meet the non-planning eligibility criteria. Projects currently awaiting a decision from the Planning Appeals Commission will therefore be excluded from the NIRO.

If the project is operating as an off-grid connection then a declaration from the generator, along with other evidence that the projects meets the other eligibility criteria, will be required. However, zero connections are still required to undergo the normal grid connection application process, so this type of project will still need to have an accepted grid connection offer for zero export in order to qualify for the grace period eligibility criteria. 

Projects with shared grid connections, or scenarios where a grid connection is made but the generation station will not be commissioned and accredited under the NIRO until after 31 March 2016, will not be given any special dispensation. Unless the project meets the criteria set out above it will not be eligible for accreditation. 

"Investment freeze"

DETI has thrown a potential lifeline to some projects; the Energy Bill in GB has introduced an investment freezing grace period for projects which met the approved development grace period criteria but have not been able to secure financial investment during the period between the 18 June 2015 announcement by the Secretary of State on closure of the RO and Royal Asset of the Energy Bill. 

As the 18 June announcement also led to investor uncertainty in NI, onshore wind projects in NI will be afforded the same consideration if they have experienced delays in reaching financial close. The grace period for NI will be determined by the time between DECC's 18 June announcement of its intention to consult on closure of the NIRO and the implementation of the NI legislation – this equates to nine months. In order for projects to satisfy the investment freeze condition they must also demonstrate that they meet the all the other grace period conditions. 

This means that projects will get a further extension in certain circumstances; 

  • 1 April 2017 to 31 December 2017 for projects which meet the 30 September/30 October 2015 grace period conditions and investment freezing conditions but do not require the grid or radar delay grace period. 
  • 1 January 2018 to 31 December 2018 for projects which meet the 30 September/30 October 2015 grace period conditions, the investment freezing condition and their grid connection estimated date was before 1 January 2018.

In order to satisfy the investment freezing condition a project will need to provide a declaration stating that, as at the date of coming into operation of the Renewables Obligation Closure Order (NI) 2016:

  • funding from a recognised lender was required before the station could be commissioned or additional capacity could form part of the station;
  • the recognised lender was not prepared to provide funding until the Renewables Obligation Closure Order (Northern Ireland) 2016 was made because of uncertainty over whether the Order would be made or its wording if made; and
  • the station or the additional capacity would have been commissioned on or before 31 March 2017 if the funding had been provided before the Renewables Obligation Closure Order (Northern Ireland) 2016 was made.

In addition the operator of the project must secure a document, dated within 28 days of the commencement of the Renewables Obligation Closure Order (NI) 2016, from a recognised lender. This letter must confirm that the lender was not prepared to provide funding until the Order is made due to the uncertainty over whether the Order would be made or its wording if made. 

Small scale wind

A particular issue in Northern Ireland is the number of sub-250kW wind turbines that have planning approval but have faced significant delays in obtaining grid connections from NIE. Under the rules proposed in the consultation, these would face exclusion from the NIRO under the same conditions as large scale wind. 

Whilst the grace periods would still apply, many considered that a large number of projects were unfairly excluded due to matters outside their control. Indeed this has been the subject of judicial review proceedings brought by the developer, Simple Power and the Ulster Farmers' Union. 

DETI has provided a form of grace period, but whether it is of any value is another matter. Small scale (up to and including 5MW installed capacity) onshore wind and existing small scale generating stations adding additional capacity will remain eligible for NIRO beyond 31 March 2016. 

However DECC has made it clear that for any NIROCs issued to such projects after 31 March 2016 where the above grace periods do not apply, DECC will proceed with "backstop" regulations (available through enabling powers in the Energy Bill) to restrict GB suppliers from being able to redeem NIROC's that DECC consider ineligible. 

This means that such NIROCs could only be sold to NI suppliers which would raise problems for small scale generators in demonstrating whether their NIROCs were eligible in the GB market or not. As there is an oversupply of NIROCs for NI suppliers such certificates may have little or no value. The practical issue of distinguishing "NI-only" NIROCs from those valid in GB is also a significant concern. 

In practice this could create significant problems for investor confidence in NI projects and could make the trading of NIROCs prohibitively complex. DETI has proposed a further round of consultation to deal with small scale wind, but any project connecting after 31 March 2016 that does not meet the grace period criteria could be at significant risk of obtaining NIROCs that have limited if not negligible value. Whether any developer will take the risk remains to be seen. The knock-on effects for the remaining NIROC market must also be carefully considered by DETI. All things considered, this seems like a hollow victory for small-scale wind developers. 

Conclusions

With the exception of the investment freeze grace period, the proposals for closure of the NIRO to onshore wind remain largely unchanged from the consultation document published in September 2015. In DETI's defence, it has been hamstrung by DECC's proposals for GB, given that DECC has been very clear that it will not meet any extra costs for extension of the NIRO in NI beyond that which has been granted in GB. 

However, the length of time that DETI has taken to reach this conclusion, given that the closure is less than a month away, is disappointing and has undoubtedly harmed the NI renewables industry due to the extended period of uncertainty that has arisen. The investment freeze grace period is helpful in this respect, but the damage has been done and investors have started to look elsewhere. 
Undoubtedly small scale wind developers have suffered, perhaps disproportionately.The extension of the NIRO in the circumstances that DETI has proposed offers little benefit but generates substantial uncertainty and in all likelihood unacceptable financial risk. Even though NI has devolved energy policy, DECC firmly holds the purse strings, and given the Westminster Government's intention to roll back renewables subsidies, it was in reality inevitable that NI would not, on this occasion, be seen as a special case. 

The consultation response can be viewed here.

This publication is intended for general guidance and represents our understanding of the relevant law and practice as at March 2016. Specific advice should be sought for specific cases. For more information see our terms & conditions.

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