Government defeated in efforts to reduce solar Feed in Tariffs

Yesterday, the Court of Appeal issued their judgement on the action brought by Friends of the Earth and others ("the Applicant") against the Secretary of State for Energy and Climate Change ("SSECC") in relation to their proposals for the Feed-in-Tariff ("FIT") for photo-voltaic ("PV") installations following the hearing on Friday 13 January.

The essence of the case comes down to a relatively simple point. The Applicant contended that the FIT Scheme was such that when an installation becomes eligible for its FIT it has a fixed rate of return, subject to changes in the Retail Price Index for the 25 year period applicable to each installation.

SSECC contended that it had statutory power to vary the FIT not just for new installations but also for installations which became eligible for FIT prior to any modification of the level of the tariff.

In other words PV installations which were eligible for FIT could have their level of FIT altered after they had become entitled to it. 

The proposal by the Department for Energy and Climate Change ("DECC") applied to PV installations which became eligible for FIT on or after 12 December 2011 who would receive the present higher FIT for a short period of time (the few months between 12 December 2011 and 1 April 2012) when they would drop down to a substantially lower figure after 1 April 2012.

There was no suggestion that schemes which were eligible prior to the 12 December 2011 would be affected.

The Court of Appeal found that the statutory framework for the FIT scheme for PV, which is contained within various provisions of the Energy Act 2008 and a number of statutory instruments, provides for eligible installations to receive a pre-determined rate of FIT. That rate is determined by the date the installation becomes eligible for FIT and, the Court found, was fundamental to the Scheme.

The reason for this was that "it provides an assurance as to the rate of return to an owner who has paid a capital sum prior to the installation coming into operation". This was subject only to fluctuations or adjustments in accordance with RPI (which the Scheme does provide for).

The Court found that the proposals of the legislation would have the effect of imposing a retrospective change to the FIT for schemes which were eligible for FIT before those changes came into effect and that the Energy Act and associated legislation did not give the Secretary of State the power to do this.

The fact that the Secretary of State had published a warning in the proposals, intended to alert parties who were planning to make a capital commitment to the purchase of a PV installation that the higher rate would only be available for a limited period, did not alter the fact that there was no power to introduce a retrospective modification to the FIT, nor was there power to provide for the level of FIT (save for RPI fluctuations) to change once an installation was eligible.

Whilst this does represent a victory for the Applicant, it may prove to be relatively hollow. DECC has already put new proposals before Parliament to reduce FITs applying the new rates from 1 April 2012.

However, the proposals provide for a similar process as the original proposals in that, schemes with an eligibility date before 3 March 2012 will receive the higher rate for their 25 year eligibility period but schemes with an eligibility date after 3 March 2012 will receive the higher rate until 1 April 2012 and then the lower rate thereafter.

On the basis of the decision of the Court these proposals are also unlawful as they will provide for a FIT rate change after an installation is eligible. 

It will be interesting to see how DECC responds but is seems clear that they will, at some point, reduce FITs for PV installations. Whilst there will have been substantially more warning than with the original proposals, the impact on the PV industry is likely to be just as serious.

Posted on: 26/01/2012

This article is for general guidance only. It provides useful information in a concise form. Action should not be taken without obtaining specific legal advice.

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