Bond Pearce

The government's attempt to amend the FiT tariff with retrospective effect was never likely to succeed, but what does it mean for other renewables subsidies?

The proposal to apply a lower FiT rate to Solar PV installations with an eligibility date on or after 12 December 2011, before the modification to the FiT regime came into effect, was always doomed to fail. This knee-jerk reaction to a higher than expected takeup of Solar PV installations was clearly at odds with the general principle against retrospective effect (unless clearly stated in legislation) and the coalition's stated aim to be "the greenest government ever". 

This attempt to reduce the FiT rate impacts not only on the Solar PV industry, but renewables more generally and has lessons for future government consultations. 

DECC published a conusltation paper on 31 October 2011, proposing to amend the FiT regime and lower the FiT tariff from 1 April 2012. However, the new lower rate would then be applied to Solar PV installations that became eligible for FiTs after 12 December 2011. This proposal was clearly open to challenge on the basis of its retrospective application of the April 2012 rate to installations with eligibility dates from 12 December 2011. In addition, the six week notice period between the publication of the consultation and 12 December (intended to allow time for installation of planned installations) was counterproductive since it encouraged a rush of entrants into the market trying to take advantage of the higher rate. 

Inevitably, the proposal was challenged in the courts by Friends of the Earth and other stakeholders in the Solar PV industry. The challenge was upheld at first instance and DECC’s appeal was refused by the Court of Appeal, Moses LJ holding that DECC could not retrospectively alter the FiT tariffs.  It is unclear why the Secretary of State thought it necessary to appeal the decision since the consultation had already had the desired effect; activity in the Solar PV market was reduced.  

The renewables market needs approximately £100bn in investment over the next decade and the key to persuading the financial markets to support that investment is regulatory certainty. It is the way DECC has sought to impose a retrospective change and then defended that change in front of the courts twice (and possibly for a third time) that unnerves investors, as much as the change itself.  

The handling of this proposal was in stark contrast to the considered changes to the Renewables Obligation, which supports larger renewables projects.  In that case, the new contracts for differences will be available from 2014 with a period where investors can choose between regimes until 2017.  If DECC must alter the rate of return for investors in renewable energy generation, then giving investors advance notice and allowing them time to adjust their plans is a better model to follow.  

This case also re-emphasises the underlying legal principle; parliament can pass legislation with retropsective effect (such as certain sections of the Human Rights Act) but only if it is expressly stated in the legislation that this is the intended effect.  In all other cases, whether relating to renewable energy or other sectors, legislation will not be read by the courts to allow the government to impose retrospective changes to pre-existing arrangements. 

As first published in The Lawyer