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You are here: BAILII >> Databases >> England and Wales Court of Appeal (Civil Division) Decisions >> Solar Century Holdings Ltd & Ors v Secretary of State for Energy And Climate Change [2016] EWCA Civ 117 (01 March 2016) URL: https://www.bailii.org/ew/cases/EWCA/Civ/2016/117.html Cite as: [2016] EWCA Civ 117 |
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ON APPEAL FROM THE HIGH COURT OF JUSTICE
QUEEN'S BENCH DIVISION
ADMINISTRATIVE COURT
MR JUSTICE GREEN
Strand, London, WC2A 2LL |
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B e f o r e :
LORD JUSTICE TREACY
and
LORD JUSTICE FLOYD
____________________
(1) SOLAR CENTURY HOLDINGS LIMITED (2)LARK ENERGY LIMITED (3) TGC RENEWABLES LIMITED (4) ORTA SOLAR FARMS LIMITED |
Appellants |
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- and - |
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SECRETARY OF STATE FOR ENERGY AND CLIMATE CHANGE |
Respondent |
____________________
Robert Palmer (instructed by The Treasury Solicitor) for the Respondent
Hearing date: 2 February 2016
____________________
Crown Copyright ©
Lord Justice Floyd:
The renewables obligation scheme
"(iii) The RO scheme in a nutshell
15. The RO scheme provides financial incentives for the creation of generation capacity from renewable sources. It does this in the form of Renewables Obligation Certificates ("ROC"). These are certificates issued to operators of accredited renewable generating stations in respect of the eligible renewable electricity that they generate. Under the RO scheme licensed electricity suppliers are required to submit a specified number of ROCs to the Gas and Electricity Market Authority ("Ofgem") for each megawatt of electricity that they supply during the period from 1st April to 31st March or, alternatively, pay a penalty. The RO scheme has been the main support mechanism used by the Government for large scale renewable electricity since 2002. …
(v) Eligibility for ROCs
17. To be eligible within the RO scheme electricity must be generated by a station that has been accredited by Ofgem as capable of generating renewable electricity in respect of which ROCs may be issued. The RO scheme is hence a demand led scheme with all generation satisfying the relevant conditions being accredited. For solar PV it is a relevant condition that the generating station must exceed 50 kilowatts in size. Generators are issued with ROCs by Ofgem according to the amount of eligible renewable electricity generated. They may sell their ROCs to suppliers, which allows them to receive a premium in addition to the wholesale electricity price. The price of a ROC is determined by the market, there is no fixed rate. The number of ROCs that an electricity supplier is required to submit for each megawatt of electricity they supply is known as the "Renewables Obligation" or "RO". The level of this is determined by the Secretary of State by 1st October in each year preceding the start of each obligation period.
18. The Secretary of State is required to calculate the level of the obligation in accordance with a formula set out in subordinate legislation. This includes a requirement to estimate the amount of renewable electricity likely to be supplied during the relevant obligation period and having regard to that estimate to calculate the number of ROCs likely to be issued."
Contracts for difference
The Levy Control Framework
"1.3 The implementation of the control framework will be consistent with relevant legislation, regulations, the Treasury guidance – Managing Public Money – and Government policy announcements. The Government remains committed to maintaining support levels for those existing investments where it has said it would do so and not to making retrospective changes." (underlining added)
"3.1 Should exogenous factors or updated analysis result in forecasts or actual spend that is greater than the agreed cap, then the Treasury will need to be satisfied that there is a robust, agreed plan in place to bring spend down to within the cap…
3.2 Where forecast or actual spend exceeds the agreed cap, then the presumption will be that the Treasury will deny any changes to policy that do not seek to bring the forecast down, even if such changes are cost-neutral."
"3.4 Where spend exceeds or is projected to exceed the range of acceptable headroom, DECC will rapidly agree with the Treasury a plan for bringing spending back down to the agreed profile. This plan will set out the adjustments that DECC proposes to make to its policies to reduce their spend, and the impact by year of taking action. The departments recognise the duty to follow statutory and other requirements before making adjustments and the need to maintain levels of support where it has said it would do so." (underlining added)
"The cap will not increase in line with changes in forecast tax and spending due to non-policy reasons (including forecast error), for example, higher than expected deployment of renewable energy installations..."
Key events and statements
"seek to minimise uncertainty and delays to planned investments by establishing appropriate grandfathering arrangements. Feed-in-tariffs could be generally introduced from 2013 once legislation has been passed, but accreditation under RO could also continue until 2017 to minimise the risk of disruption for developers…".(underlining added)
"Another benefit of a FIT over a low-carbon obligation is that the investor gets certainty when they sign the contract about the level of support they would receive, rather than the support level being set after construction, once the installation is built and connected to the grid, i.e. with the ROCs generators are exposed to the policy risk that the level of support changes in between an investment decision and the project being accredited under a[n] obligation based scheme."
"It is essential that the period of transition between the current and new market arrangements runs smoothly and allows investment to continue. As such, we support the principle of no retrospective change for low carbon investments and have listened to industry views on the best way to transition to a new mechanism. Therefore:
- to ensure ongoing Renewables Obligation (RO) stability, existing accredited generation will continue to be supported under the RO;
- once the FiT CfD is introduced and until 31 March 2017, to provide flexibility new renewable generation will have a one-off choice between the RO and FiT CfD;
- the RO will close to new accreditations on 31 March 2017. No generation will be able to accredit under the RO from that date; and
- we will grandfather RO support for all technologies at the rate applicable on 31 March 2017."
"The Electricity Market Reform consultation document set out proposals for a transitional framework from the current RO system to FiT CfD. The aim of our proposals was to protect existing investments under the RO, and provide investors with confidence that projects under development would not be delayed and that investment would be able to continue in the transition period."
"Q. Under what circumstances will there be policy changes as a result of this framework and will industry be consulted on policy changes?
Where a policy is forecast to overspend against the envelope, DECC will have to develop plans to bring spend back within the cap, taking into account impact on energy bills and progress towards our targets. How and how quickly these changes are implemented will depend on the various factors pertaining to the policy at the time; however, DECC will follow all required procedures such as statutory consultation and Parliamentary scrutiny".
and:
"Q. What happens if DECC thinks spend might be on course to exceed its envelope?
If we think that spend might be on course to exceeding its envelope (either in the short term or at some point in the future) we will consider making an adjustment to the policy, taking into account the impact on energy bills and progress towards our targets. Decisions on adjustments will be taken by Ministers at the appropriate time and will be judged on a case by case basis. A core principle through all of this is that the Government policy is to maintain support levels for those existing investments where we have said we would and not to make retrospective changes for these investments.
If Ministers take a decision to adjust a policy DECC will follow statutory and other required procedures. " (underlining added)
"This consultation seeks views on policy and processes for the transition period, from mid 2014 to 31 March 2017, during which the RO and CfD will both be open for applications from new renewable generating capacity.…
On 31 March 2017, the RO will close to new capacity…"
"My Lords, Amendment 66 provides the Government with the power to close the Renewables Obligation to new capacity. As noble Lords know, this closure is planned for 31 March 2017 as part of the transition to contracts for difference. We have previously considered that the Renewables Obligation could be closed using existing powers within the Electricity Act 1989. However, we have now concluded that a specific power in this Bill will put the closure arrangements on a more reliable and transparent legislative basis.
To ensure that consumers and industry have confidence that closure will take place consistently across the UK, the amendment provides the power for the Secretary of State to close the RO in England, Scotland and Wales. It enables the Northern Ireland Executive to make similar provision for the Northern Ireland Renewables Obligation. To give industry early certainty on the way in which Government proposes to use this power, we intend to publish this week detailed proposals on RO grace periods for those projects that are delayed due to circumstances beyond their control. These proposals will include a 12-month grace period for projects subject to current investment decisions, giving developers making such decisions this winter substantial reassurance that their investments are not at undue risk from the RO closure date".
"33. The EMR White Paper proposed that the transition phase would end on 31 March 2017, after which the RO would be closed to new generating capacity. The RO would continue to operate for the generating capacity which accredited under it before it closed to new generating capacity.
282. Subsection (1) inserts new sections 32LA and 32LB to the Electricity Act 1989 to confer a power on the Secretary of State to make a renewables obligation closure order. The closure order will prevent renewables obligation certificates from being issued under any renewables obligation order (whether made by the Secretary of State or by the Scottish ministers) in respect of electricity generated after a specified date (section 32LA(2)). Different closure dates may be specified for different cases or circumstances (section 32LA (3))."
"This is more than we can afford and would have adverse consequences for Government's management and use of the LCF as a whole. The proportion of the LCF which is available for deployment under CfD's would be reduced, as a higher proportion of the LCF would necessarily be allocated to the RO to cover the costs of the additional solar projects. Government's view is that the CfD is a more cost-effective mechanism than the RO. Because the CFD provides for early certainty of support levels than the RO and greater stability of revenue streams by providing a fixed strike price, investors are protected from wholesale price volatility and should therefore be able to reduce the cost of capital, making the development of low carbon generation cheaper for both investors and consumers."
The judicial review proceedings
The decision under challenge
"10. We have considered very carefully the arguments presented on both sides of this question. We acknowledge that bringing forward closure of the RO for large scale solar PV projects represents a change of policy from that previously announced and given effect in the RO Closure Order 2014, and that the majority of respondents are against us doing so. We have taken into account the fact that large-scale solar PV developers expected that the RO would remain open until 31 March 2017. However, we cannot ignore the very clear evidence that large-scale solar PV is deploying faster than can be afforded and, in addition, that there is significantly more potential deployment of large-scale solar PV than estimated when we published our consultation less than five months ago, and the heightened risk that this poses to the LCF. The position of large-scale solar PV developers who have made significant financial commitments in reliance on their expectation of the previously adopted closure date is addressed by our proposals for a grace period, as discussed on the question four below.
11. The Government has therefore decided to close the RO to new solar PV projects above 5 MW in scale from 1 April 2015, and to additional capacity added to existing accredited stations from that date, where the station is, or would become, above 5 MW."
"The Government has decided to provide a grace period designed to protect projects with significant financial commitments have been made on or before 13 May 2014, i.e. the day on which we published our consultation. We have also decided to maintain 13 May 2014 as the date by which significant financial commitments must have been made."
- "A grid connection offer and acceptance of the offer, both dated no later than 13 May 2014;
- A Director's Certificate confirming ownership of the land, the lease of the land or an option to lease or to purchase the land as of 13 May 2014; and
- Confirmation that a planning application had been received by the relevant planning authority in respect of the project on or before 13 May 2014."
Solar farm investment
The grounds of attack on the decision
i) the decision to implement an early closure of the RO scheme by statutory instrument was ultra vires the powers granted by sections 32 LA and LB of the Electricity Act 1989 because the statutory power was for the purpose of preserving the 2017 closure date and not for extending it, ("issue 1");
ii) the pre-legislative statements that the RO scheme will run until 2017 amounted to the type of assurance which would bind the executive and early closure violated those assurances, ("issue 2");
iii) the statements made by the Government from 2010 onwards that the scheme would not close before 2017 were clear and unequivocal representations giving rise to a legitimate expectation which was not thwarted by any policy consideration, ("issue 3");
iv) the periods of grace are retrospective in effect and therefore unfair in a public law sense, ("issue 4").
The judgment of Green J
"… [to] address the two technical matters identified early on as to the extent of the ability to close RO schemes in their entirety, and, as to the geographical extent of the powers. Those two matters were specifically identified as the reasons why the new statutory powers were introduced. It is not possible, in my view, to discern as a mischief or purpose that the statutory amendments were designed to ensure the continuation of the RO scheme until 2017. Indeed it is hard to see why Parliament would need to enact any new measure to preserve in force a scheme until 2017, for which an existing power had already been exercised."
"First, I do not construe the Explanatory Notes as creating any form of assurance…. Second, equally I do not construe the statement of the Minister in Parliament as creating any form of representation which could be elevated into an assurance… And further as to the statements made in White Papers and consultation documents these would… carry materially less weight than Explanatory Notes or a direct statement by a sponsoring Minister. But in any event these admittedly clear statements of intent were not and could not be construed as "assurances". They reflected the policy of the moment which whilst firm was always capable of reversal and the constraints in the LCF represented inescapable context."
"The risk was that if uptake for support led to increases in expenditure beyond the agreed HM Treasury limits that the scheme might (or even would) be curtailed in order to bring expenditure back under control. As such no operator could expect that the system would inevitably or necessarily last until 2017. Put another way, the highest that the legitimate expectation can be put is that the scheme would not be closed absent an increase in expenditure under the scheme which would put the Treasury cap at risk."
"… a degree of retrospection that applies to [the claimants] in that when they embarked upon their present investments they thought they could plan the pace of expenditure in such a way that they would, in due course, become accredited before the 2017 closure date. I accept therefore… that the change in the rules has exerted a retrospective impact which is more than de minimis."
Discussion
Issue 3: legitimate expectations
"43.Authority shows that where a substantive expectation is to run the promise or practice which is its genesis is not merely a reflection of the ordinary fact (as I have put it) that a policy with no terminal date or terminating event will continue in effect until rational grounds for its cessation arise. Rather it must constitute a specific undertaking, directed at a particular individual or group, by which the relevant policy's continuance is assured. Lord Templeman in Preston referred (866 – 867) to "conduct [in that case, of the Commissioners of Inland Revenue] equivalent to a breach of contract or breach of representations"".
Issues 1 and 2: misuse of statutory power and clear assurances
"32LA Renewables obligation closure order
(1) The Secretary of State may make a renewables obligation closure order.
(2) A renewables obligation closure order is an order which provides that no renewables obligation certificates are to be issued under a renewables obligation order in respect of electricity generated after a specified date.
(3)Provision made under subsection (2) may specify different dates in relation to different cases or circumstances.
(4)The cases or circumstances mentioned in subsection (2) may in particular be described by reference to—
(a) accreditation of a generating station, or
(b) the addition of generating capacity to a generating station."
Issue 4: unfair grace periods
"It is important to grasp the true nature of objectionable retrospectivity, which is that the legal effect of an act or omission is retroactively altered by a later change in the law. However the mere fact that a change is operative with regard to past events does not mean that it is objectionably retrospective. Changes relating to the past are objectionable only if they alter the legal nature of the past act or omission in itself. A change in the law is not objectionable merely because it takes note that a past event has happened, and bases new legal consequences upon it."
"Modification of the FIT Payment Rate, in respect of installations becoming eligible prior to the modification, would have a retrospective effect. Because the Scheme fixes a rate by reference to the year the installation becomes eligible, reduction of that rate ... would all have a retrospective effect… That entitlement arises on the eligibility date. Any modification of the rate … takes away the owner's entitlement under the Scheme to payment at that fixed and pre-determined rate."
Conclusion
Lord Justice Treacy:
Lord Justice Tomlinson