Renewables finally back on track with new bandings: the winners and losers

20.10.11

 

The long wait is over. Today, the Government has published proposals to revise bandings under the Renewables Obligation (RO) with the aim of further supporting renewable energy.

Deputy Prime Minister Nick Clegg has commented that today's announcement makes clear the Government's commitment to supporting long-term investment in the UK's renewables industries. Chris Huhne, Secretary of State for Energy and Climate Change, has highlighted the potential of the renewables industry to create multi-billion pound investment in the UK.

This is exactly what the industry has been waiting for, given that uncertainty over banding has stalled investment. Today's banding review proposals will impact upon, and need to be considered by, all those engaged in the renewables sector. In essence, the consultation invites comments on the Government's proposed level of support under the RO for the period 2013-2017. The consultation applies to England and Wales only and the consultation document is available on the Department of Energy and Climate Change (DECC) website. The closing date for the consultation is 12 January 2012.

Today's announcement is highly significant. The RO is the key financial mechanism pursuant to which the Government incentivises the generation of large-scale renewable energy via payment premiums. Support is given by way of Renewables Obligation Certificates (ROCs), whereby each form of renewable electricity technology is able to claim a certain number of ROCs. In relation to government subsidy, Mr Huhne has stated today that where new technologies desperately need help to reach the market, such as wave and tidal, the Government is increasing support. But, where market costs have come down or will come down, it is reducing the subsidy.

According to the DECC, "Banding reviews ensure that as market conditions and innovation within sectors change and evolve, renewables developers continue to receive the appropriate level of support necessary to maintain investments."

The practical impact of the new banding proposals is that by 2017, the UK should be 70% of the way towards generating the electricity needed to meet its 2020 renewable energy target. In addition, the new proposals are expected to be less costly than the existing incentives.

Inevitably the banding proposals would create winners and losers when compared to the existing bands. For example, there would be a slight increase in support for offshore wind and banding for onshore wind would only be reduced by 10%. However, support for landfill gas has effectively disappeared. ROC levels for energy from waste with Combined Heat and Power have been halved. Also, there are some definition changes affecting biomass and solar photovoltaic receives a small stepped reduction between 2015 and 2017.

On a final note, the approach to the timing of the application of the proposed new banding regime, i.e. the grandfathering effect, is not as generous as in previous years. In most cases, the cut-off is accreditation before 1 April 2013. For those projects using technologies which face a downgrade, we would no doubt see a surge in commissioning for that period.

 

Key Contact

Derek Goodban, partner, +44 (0)121 685 2710, derek_goodban@wragge.com

Maxine Symington, director, +44 (0)121 629 1808, maxine_symington@wragge.com

This alert may contain information of general interest about current legal issues, but does not give legal advice.

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