Understanding the Renewables Obligation Certificate cuts to solar subsidies

23rd September 2015

The Department of Energy and Climate Change (DECC) has recently announced further measures to reduce its support for renewable energy, to curb what it predicts will be an overspend of £1.5 billion by 2020 over the Levy Control Framework budget. This follows cuts that have recently been made in the onshore wind sector, along with other reductions in renewables budgets.

The DECC’s cuts are currently under review; and therefore the true nature and timelines for the subsidy cuts will only become apparent after the plans are finalised later this year. The proposals will affect small solar farms of up to 5MW (megawatts), as they will no longer receive certain subsidies (Renewables Obligation Certificates (“ROCs”)) after 1 April 2016. Also solar energy projects under ROCs previously benefitted from a “grandfathering” policy, which guaranteed the same level of ROCs for the duration of the project. Under the current proposals, grandfathering for new solar projects of up to 5MW and below would be removed for any projects that are not accredited on or before 22nd July 2015. This creates uncertainty as to the level of return that will be received for the life of a project and dissuades investment.

Grace periods are offered for developers who have obtained preliminary accreditation for the ROC on or before 22nd July or who have made significant financial commitments to projects before this date. Additionally, the grace period will be extended to people who have experienced grid connection delays beyond their control. This “grace period” extends until 31 March 2017, giving ROC projects currently in the pipeline time to complete and qualify for ROCs. Such “grace period” developments would also be exempt from the removal of grandfathering.

There will also be cuts to the alternative Feed-in Tariff “FiT” scheme, which is a tariff paid for energy generated on-site and a tariff for unused electricity exported to the grid. The DECC proposes to severely reduce the generation tariff, but not the export tariff, to remove pre-accreditation (so that right up to the point that Ofgem receives an application for full accreditation (which can only be when the plant is up and running) an installer will not know which FiT band will apply) and to introduce a deployment cap for each FiT band per quarter after which no generation tariff at that band will be paid in that quarter. There is also the prospect that the entire FiT scheme could be scrapped as early as January 2016 if the DECC believe that all these measures will not be enough to keep spending under the £100 million budget.

The purpose of the solar subsidies was primarily to support the sector until it can operate independently at “grid parity”, which was expected to occur in the next few years. However, DECC is concerned that the subsidies are adding to the cost of consumers’ bills unnecessarily, (most reports estimate this to be no more than £20 on a family bill annually) and that far more solar projects have taken advantage of both the ROC and FiT schemes that initially anticipated. The Energy Minister Amber Rudd has stated her support for energy sources such as nuclear power, as this is not “intermittent” like solar or wind energy.
Consultation (and lobbying by the renewable energy industry) continues in relation to these proposed cuts and we await further developments with interest. It is however certain that the renewable energy industry faces challenging times.

If you wish to discuss any of the issues raised in this article or would like assistance with updating your terms of business please contact Jenny Harbord, Senior Associate and Head of Renewable Energy on 01872 226994 or jenny@murrellassociates.co.uk or Melanie Brown on 01872 227066 or melanie@murrellassociates.co.uk.

The information provided in this article is for general information purposes only and does not constitute legal or other professional advice and cannot be relied upon as such. Any law quoted in this article is correct as at 23 September 2015. Appropriate legal advice should be sought for specific circumstances before any action is taken. Copyright © Murrell Associates Limited, September 2015.