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Analysis of the DECC decision on solar subsidies in the UK

British Government’s decision upon the future of subsidies for UK Solar – URN 14D/322, and consultation URN 14D/372 on Grid Delay grace period & definitions of “other-than-stand-alone” FiT accreditable PV systems (published 2 October 2014)

 

General disclaimer: the following constitutes the written view of the author and in no way constitutes actual legal advice or a legal opinion and so no reliance may be placed upon the content hereinafter contained by any reader of this document in any way whatsoever. In the event that legal advice or opinion is sought, please contact the author of this opinion at the contact details below. The view below is expressly confined to matters as they stand at 9 October 2014, under the laws of England and Wales and in accordance with current publications from Her Majesty’s Department for the Energy and Climate Change as published at https://www.gov.uk/government/publications/electricity-market-reform-contracts-for-difference on 2 October, 2014.

 

Earlier this year we reported on the consultation paper URN 14D/114 and the proposal from the UK Government to change the subsidy regime from renewable obligation certificates (ROCs) to contracts for difference (CfDs) for large >5MW projects for solar as put simply the Government feels that Levy Control Framework does not have sufficient budget to allow for ROCs to instead phase out in 2017. On 6 September 2014, we reported on how to manage your CfD application given the Government’s update in URN 14D/328 . On the 2nd of October 2014, the present UK Government delivered its decision on the future for solar subsidies, for the short-term at least, given responses to their May consultation.
Key decisions:-

 

(a) From 1 April 2015, PV Plants with a generating capacity of larger than 5MW (so in effect anything above 5.01 MW), will not be able to receive accreditation for ROCs.

This in effect means that despite industry claiming that the pace of development, installation and then commissioning of larger than 5MW projects was more laboured than that of the predictions emanating from DECC, such projects from 1 April 2015 next year will only be able to be capable of having a PPA and a CfD if the relevant developer for the relevant project has managed their CfD process well and are fortunate enough to be selected under the £65m allotted for established renewable energy technologies .

 

(b) From 1 April 2015, PV Plants with a generating capacity of greater than 50kW and less than or equal to 5MW will be able to receive ROCs (from 1 April at the level of 1.3 ROCs) until (at this time) 31 March 2017.
The present Government have decided to allow sub-5MW, greater than 50kW, plants to be accredited for ROCs. FiT will be an alternative subsidy available for such plants falling within the relevant degression band.

 

(c) The Grace Period commencement date of 13 May 2014 as first mentioned in URN 14D/114 has changed in terms of its requirements (see our report on this precise point):-

 

a. Grid connection: there is now no need to provide a letter dated on or before 13 May 2014 (/later) from the DNO estimating Grid connection on/before 31 March 2016.
b. Planning: rather than planning permission having to be obtained by 13 May 2014, rather, the planning application ought to have been submitted for review by the relevant authority’s planning department on or before 13 May 2014.
c. Evidence of land rights: as most of the industry recognise option to lease agreements as evidenced by a restriction on the relevant title(s) affecting the site(s), the Government have acceded to include options as evidence of land-right.
d. Total spend of >£100,000 or have in place material equipment contracts on or before 13 May 2014: now there is no such requirement and as such the Government have stated that evidence of the relevant DNOCO and acceptance of that DNOCO were in place on or before 13 May 2014, the relevant planning application was submitted on or before 13 May 2014, and evidence of security of the site (a director’s certificate confirming that the intended project site is secured by way of freehold title ownership, leasehold ownership or that an option to lease agreement is in place) which the solar industry in the UK recognise as (“shovel-ready-site”) “project rights” as are sometimes sold pre-build under an asset purchase agreement/share purchase agreement as held by a relevant asset-SPV, are the rights that any developer must evidence to OfGEM were in place on or before 13 May 2014 so as to evidence that they can apply for the grace period to allow their plant to be commissioned by 31 March 2016 and still receive 1.4 ROCs for their plant.

 

(d) There will be no supplier or capacity cap instead of a CfD regime.

 

(e) There is no banding review of Solar PV (at this time); and, grandfathering of RO banding will continue beyond 1 April 2015 for all pre-1 April 2015 ROCs-accredited >5MW PV installations.

 

(f) For building mounted PV installations the Government has decided to:-

a. split the >50kW and stand-alone band into two separate bands,

b. link the tariff that applies to OTSA (see (g) below) that do not satisfy the energy efficiency requirement to the tariff rate for >250kW OTSA,
c. consult on how to define OTSA installations (see (g) below), and,
d. amend the proposed split for degression triggers to 65% for OTSA and 35% for stand-alone systems.

 

(g) The Government has issued a further consultation on 2 October, URN 14D/372, to elicit responses from interested parties on (i) a Grid delay grace period for new solar PV capacity above 5MW under the RO, and on, (ii) to alter the definition of “other-than-stand-alone” PV system installations under the FiT scheme: ALL RESPONSES TO BE HARDCOPY MAILED , OR SOFTCOPY EMAILED TO SolarPV.Consultation@decc.gsi.gov.uk, by 24 OCTOBER 2014.

 

Grid delay grace period

Examining the state of the Grid capacity local to the proposed site of a PV installation is something that all developers/EPCs/debt finance and equity investors examine when viewing a prospective PV ground-mount build, i.e. a planning permission may enable the installation of a 25MWp installed and commissioned, as well as accredited, PV plant, but can it export its total generated capacity to the Grid or must the generator cap the amount to be exported as the local Grid infrastructure cannot receive the total generated capacity? The Government on pages 7-9, from sections 1.3-1.8 have set out what they propose in terms of how the Grid delay grace period would operate.

 

In summary:

 

– The grace period for PV plants that are expected to be commissioned by 31 March 2015 would endure for three months as the Government believe that twelve weeks (so energised – commissioned and accredited by 30 June 2015) is sufficient to allow the DNO to deploy the necessary Grid Infrastructure to take on the expected additional capacity as set out under a relevant DNO connection offer letter with or with private independent connection provider (ICP) input via the developer/generator-owner’s project team.

 

– Application for a Grace Period for Grid Delay would need to be by 30 June 2015 as part of the “accreditation after delay”, with evidence of:

 (i) a letter from the relevant DNO to evidence that the estimated Grid connection date is 31 March 2015 or earlier: which if missed the Government expects will be resolved by the DNO within the 12 week Grid delay grace period; and,
(ii) the DNO connection offer (“DNOCO”), with acceptance of the DNOCO (presumably with the receipted invoice for a payment of the deposit); and,
(iii) a written declaration (e.g. by way of a sworn/solemnly declared affidavit) by the Generator that to the best of their knowledge the plant would have been finally commissioned had the connection been available at or before 31 March 2015; and,
(iv) a letter from the DNO confirming that Grid connection took place after the estimated Grid connection date of on or before 31 March 2015, and to the best of the DNO’s knowledge failure to connect the operational plant on or before 31 March 2015 was not due to any breach of either the generator OR the developer relating to the relevant Grid connection agreement.

 

– Importantly the Grace Period for Grid Delay would not apply otherwise for any other reasons and so from 1 April 2015 all plants accrediting on/after such date will receive the level of ROCs in force at that time, with the Government re-asserting in the consultation paper that CfDs can be applied for from 16 October 2014.

– The Consultation requests responses on whether there is a need for a Grid delay period, the adequacy of 12 weeks for a Grid delay grace period, on the evidence requirements for application for a Grid delay grace period and a request from the consultation responder to clarify how many projects in MW might benefit from the Grid delay grace period with the relevant responder evidencing such projects.

 

“Other-than-stand-alone” installations

For building-installed PV array, the Government is examining how “other-than-stand-alone” (OTSA) installations are defined as from their consultations, it seemed that there might be potential for nominal wiring through a created or amended structure might occur enabling an installation to meet the OTSA-definition and qualify for a higher FiT rate potentially by July-September 2015 if the degression-band split for FiT is decreed by Government.

 

The proposed criterion to be deemed an OTSA is in effect: “there must be potential for > or = to 10% of the relevant PV installation’s energy produced to be used in-situ on-site through either one/many buildings to which the relevant PV installation has been directly connected”.

 

The 10% criterion is the Government’s attempt to remove from developers the incentive to wire through adapted or purpose-built buildings to qualify for the OTSA FiT tariffs, with them reasoning that energy loss in transmission will be reduced, Grid-uptake pressure will be reduced, token loads will be ruled out/decrease. OfGEM have been cited in the consultation as being the relevant Government department to take on the challenge of monitoring whether an installations is an OTSA or stand-alone development.

 

The consultation applies to >250kW sized installations at present and the Government is consulting on whether economically it would be viable for developers to aim for an OTSA for a 50-250kW system.

 

The Government is proposing that for installations with a Tariff Date (for installations following a preliminary accreditation/pre-registration route, this would be the date on which OfGEM receives an application for pre-accreditation or a date for pre-registration, with the date for all other installations being the same as the Eligibility Date being either the later of the date of commissioning or when the application for ROO-FiT accreditation is received by OfGEM) of 1 July 2015 or before (which would include pre-accredited installations up to 1 July 2015 that are later fully accredited) would be assessed for the relevant FiT tariff as at their Tariff Date.

 

For already accredited FiT OTSA installations that are being extended, the “on-site-use-10%-requirement” will not be applied to it but this may be reviewed by Parliament.

 

The Government proposes the FiT degression changes to take place in early 2015 and so the on-site-use-10%-requirement test will apply to all OTSA applications from 1 July 2015 onwards for >250kW installations.

 

The Government is seeking responses on whether a relevant respondee agrees with the proposed amendment to the definition of an OTSA and the 10% on-site-use requirement, whether the 10% requirement should or should not apply to 50-250kW installations and whether 10% is appropriate as a factor to define an OTSA or whether declared net capacity (“DNC”) should be used instead of annual usage with respondees providing examples to aid Government’s understanding of why DNC might be appropriate.

 

[1] https://www.mybusinesscounsel.com/options-will-solar-developers-post-1-4-15-new-renewable-energy-laws-shape-future-growth/ (additional reports available at: https://www.mybusinesscounsel.com/category/legal/)

[2] https://www.mybusinesscounsel.com/applying-contract-difference-october-2014-allocation-framework-decc-paper-urn-14d328/

[3] https://www.gov.uk/government/news/300-million-budget-to-launch-uk-auctions-for-renewables

[4] See at FN1 above.

[5] https://www.mybusinesscounsel.com/urd-14d114-deadline-set-grace-periods-explored/

[6] https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/360279/Further_consultation_on_changes_to_financial_support_for_solar_PV_-_FINAL_-_141002.pdf (see at Page 5, using reference “URN 14D/372” with all responses to this consultation)

[7] See at FN6 above.

[8] See at 2.3 on page 10 (at FN6 above).

 

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To find out more on how My Business Counsel can assist you, please contact Bhalindra Bath who heads our Solar Team by calling 0203 507 0152 or emailing info@mybusinesscounsel.com