Feed-in tariff cuts – the legal angle

The government’s appeal against the High Court ruling, which stated its early cuts to the Feed-in Tariffs (FiTs) were illegal, has been thrown out. The Court of Appeal ruled that the government’s controversial plans to effectively back date deep cuts to solar PV feed in tariffs were unlawful.The proposed cuts would have gone beyond DECC’s powers in the Energy Act 2008. This week’s  ruling confirms that, once [more] the eligibility date for a solar installation has passed, the feed in tariff rate then applicable is “locked in” for the 25 year period, subject only to adjustments for RPI.

However, the ruling may have come too late for many, as the impact of the Government’s flawed consultation has already had far-reaching implications for the energy, construction and investment markets, say lawyers and sector experts.

According to Andrew Whitehead, senior partner and energy lawyer with UK firm SGH Martineau “The ruling was hardly unexpected, although the judgement is an interesting read. The Court of Appeal appears to be applying a very strict approach to the use of statutory powers here, 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.

Whitehead continues, “Nonetheless, this whole saga has put at risk investor confidence in the UK renewables 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. “Putting aside all of this, 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 most recent consultation back in October on tariff reductions, specifically around principles of fairness and retrospectivity. What has angered many is that without explanation the government ignored its own guidance on the length of consultation periods – the period here was only 8 weeks, compared to the “normal” period of 12 weeks – and, with the date of applicability of reduced tariffs preceding the end of the consultation period, the outcome was effectively a foregone conclusion. “In its earlier decision, the High Court was sympathetic and expressed its reasoning in the main on grounds that the proposed retrospective change was not consistent with the statutory purpose of the FITs scheme, namely encouraging the take up of low-carbon generation. As I say, the Court of Appeal has taken a slightly different line and simply declared that there is no basis in the primary legislation for modifying FITs rates with retrospective effect.  “In its press statement following the judgment, DECC has indicated it intends to seek leave to appeal to the Supreme Court. This will dismay the solar industry. The Government’s grounds for appeal were pretty thin first time around, and it’s hard not to view any further appeal as a last ditch attempt to keep the lid on demand until the new eligibility cut-off date for the higher tariffs of 3 March.”

Partner and head of the firm’s investment funds team, Kavita Patel, added: “With developers and funders now looking to April and beyond, it is unlikely that many of the larger projects that were abandoned back in early December will be resurrected, so to that extent the damage has been done. Let’s hope some lessons have been learned here. Great care needs to be taken when setting the right tariff levels, and if the market is misjudged there is no carte blanche to side step proper due process in the interests of finding a quick fix.”

The construction industry is one which has seen much publicised repercussions since the Government began to reduce the solar tariffs.

Michael Craik, partner in the firms’ construction team, said: “The Government’s decision to make hefty cuts to the solar FiTs might have made sense to HM Treasury but it was another bad day for the construction industry which has been struggling since 2008. The solar PV sector was seen by many construction companies (both large and small) as one of the few areas where a return on investment could be made. It was also one where jobs were deemed to be ‘secure’. Sadly, this latest consultation process blew this away and many jobs with it, including thousands at Carillion to name just one. “We will all be watching with interest to see if activity levels and investment in solar renewables projects can recover”.

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