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Government's onslaught against the renewables industry continues...

The government recently released consultations on the early removal of Renewables Obligation (RO) support for solar PV up to 5MW and the removal of pre-accreditation from the FIT scheme. In a further blow to the sector, the government has decided that support rates under the RO for biomass co-firing and conversion projects would, subject to specific exceptions, no longer be covered by the grandfathering policy. 

Although 63% of those who responded to the consultation disagreed with the proposals to withdraw grandfathering, the government is pressing ahead with its proposals. Respondents expressed concern that withdrawing grandfathering would have a detrimental effect on investor confidence across the renewables and wider energy sector, both in the long and short-term. There was particular concern that the timeframe for the changes, and the very limited exceptions to them, would harm some developers who had already made plans and invested in conversions but did not meet the criteria required to qualify for a grace period.

However, whilst noting these concerns, the government has proceeded largely along the lines set out in the December 2014 consultation. Its view seems to be that Contracts for Difference (CfDs) could be used for biomass conversions in the future. Whilst CfDs provide earlier certainty of support levels than RO and greater stability of revenue streams, there is no guarantee that a developer will be successful in its bid for a CfD. In addition, developers will have no certainty as to the overall ‘pot’ of support that will be made available by the government.

Biomass co-firing and conversion stations and units are also eligible to bid for support under the capacity market mechanism, which will begin in 2018/2019. However, this is not much comfort to developers with plans for new biomass conversion and co-firing stations and combustion units in the lead up to 2018.

What is grandfathering?

If a generating station is accredited and receiving support under the RO, grandfathering means that the level of support it receives remains the same for the duration of its support under the RO scheme.

Which stations will be affected?

  • New biomass conversion and co-firing stations; and
  • Generating stations which are already receiving RO support and move for the first time into the mid-range co-firing, high-range co-firing or biomass conversion bands.

In all of these cases, the withdrawal of grandfathering will apply from 12 December 2014.

Where additional capacity is added to an accredited generating station, the original capacity of which is covered by the previous grandfathering policy, the additional capacity will not benefit from the grandfathering. However, the original capacity will retain its grandfathering rights.  

If a station or combustion unit which benefits from the grandfathering policy is combined with a station or unit which does not benefit from grandfathering to create and enlarged station or unit, the total combined capacity of the new enlarged unit will not benefit from grandfathering. 

Are any stations excluded?

The changes will not apply to:

  • dedicated biomass with or without CHP. However, grandfathered support for new build dedicated biomass without CHP accredited after August 2013 is subject to a cap of 400 MW of support under the RO. The government has issued guidance on how to apply for a place within the 400 MW cap.
  • biomass technologies which deploy at a small scale (eg energy from waste, advance conversion technologies, anaerobic digestion, sewage gas and landfill gas) which have already received RO support under the biomass conversion bands before 12 December 2014.
  • stations or combustion units that had already received RO support under the mid-range or high-range bands prior to 12 December 2014.
  • the grandfathering policy on biomass sustainability which is set out in the government response to the consultation on proposals to enhance the sustainability criteria for the use of biomass feedstocks under the RO.

When will the changes take place?

The changes will take effect from 12 December 2014 (which was the date on which the consultation was issued). There are some exceptions, intended to take account of the fact that developers may have, as at 12 December 2014, made significant financial investments in a project. However, these exceptions are limited:

  • Any station or combustion unit that is the subject of an investment contract awarded through the Final Investment Decision Enabling for Renewables (FIDeR) process and was, at 12 December 2014, awaiting State Aid clearance, will have until 31 March 2017 to terminate their investment contract, convert under the RO and benefit from grandfathering.
  • Any station or unit which has added capacity and moved into the mid-range or high-range co-firing bands and generated electricity eligible for those bands in any month before 12 December 2014 will have until 12 December 2015 to move to full conversion and retain grandfathering policy at that band.

Contributor: Alexandra Holsgrove Jones

This publication is intended for general guidance and represents our understanding of the relevant law and practice as at August 2015. Specific advice should be sought for specific cases. For more information see our terms & conditions on www.TLTsolicitors.com


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