We announced last week that the Government were clarifying how onshore wind project developments would be able to qualify for a "grace period" for Renewables Obligation accreditation after the deadline date of 31 March 2016.
The Government has now published its proposed amendments to the Energy Bill, which set out in detail the length of, and eligibility criteria for, the relevant grace periods. These amendments will be debated by the House of Lords this week.
The proposed amendments mean that the Energy Bill itself will set out the grace periods that will apply, rather than leaving the detail to be worked out in later regulations, as was originally the intention. This means that the relevant grace periods will come into force as soon as the Act is passed – so no need to wait for a subsequent commencement order. This is good news for the industry as it means there is more certainty sooner. However the fact the Bill is still making its way through Parliament of course means that there is still some risk that the criteria could be amended. This risk of material amendment clearly dimishes significantly as the reading of the Bill progress. Nevertheless, the Government have acknowledged the potential issues this uncertainty can cause for projects and proposed additional measures to legislate for it, as we will explain below.
There are three different grace periods potentially available to projects. The circumstances in which these apply are now referred to as "conditions" and there are different extensions to the deadline accreditation date depending on which condition or conditions apply.
The conditions are:
The 'approved development condition'
This is what was often previously referred to as the 'early closure' grace period. Projects meet the 'approved development condition' if they provide Ofgem with the following documents with their application for accreditation:
- Evidence that on or before 18 June 2015 planning permission was:
- granted; or
- refused but granted on appeal after that date; or
- applied for but not dealt with within the statutory timescales and permission was granted after that date following an appeal; or
- not required
- A grid connection offer and acceptance of that offer dated on or before 18 June 2015 (or a declaration that no grid works were required)
- A declaration of land rights as at 18 June 2015
This largely follows what the Government had originally indicated in June, but it now helpfully includes some extra leeway for projects whose planning permission had been unlawfully refused or delayed. It is not clear how many projects this impacts, but clearly some must have been in this position otherwise this wording would not have been added after DECC's various consultations with the industry.
The 'investment freezing condition'
The 'investment freezing condition' is new. This potentially offers protection to projects that have not been able to secure finance because of the uncertainty surrounding the grace period. The condition is met if the following documents are provided to Ofgem with the application for accreditation:
- A declaration by the operator of the station that, to the best of the operator's knowledge and belief, as at 1 May 2016:
- The relevant developer required funding from a recognised lender (i.e. a provider of debt finance which has been issued with an investment grade credit rating by a recognised credit agency – these terms are defined in the Bill) before the station could be commissioned;
- A recognised lender was not prepared to provide that funding until enactment of the Energy Act 2016, because of uncertainty over whether the Act would be enacted and its wording if enacted; and
- The station would have been commissioned on or before 31 March 2017 if the funding had been provided before enactment of that Act
- A letter or other document, dated on or before 1 May 2016, from a recognised lender confirming that the lender was not prepared to provide funding in respect of the station until enactment of the Energy Act 2016, because of uncertainty over whether the Act would be enacted and its wording if enacted
This 'investment freezing condition' only applies if the 'approved development condition' also applies. It gives a further nine-month grace period on top of that and on top of any grid/radar delay grace period that might also apply. Frustratingly, what this does not seem to cover (currently at least) is where finance for a project has been delayed but still provided before enactment of the Energy Act as has been the case with a number of projects since 18 June.
The grid and radar delay condition
This grace period is very familiar by now. The wording used is the same as for the large-scale solar PV grace period (see regulation 5 of the Renewables Obligation Closure Order 2014) and gives an extra 12 months on top of the other two grace periods (where they apply) for projects which suffer grid connection or radar works delays which are not the generator's fault.
Final accreditation dates
Its easy to confuse how long a project might benefit from any combination of grace periods so we have summarised them below:
- Last date to accredit in order to receive ROCs - 31 March 2016 - grid and radar delay condition not met; investment freezing condition not met; approved development condition not met;
- Last date to accredit in order to receive ROCs - 31 December 2016 - grid and radar delay condition met; investment freezing condition not met; approved development condition not met;
- Last date to accredit in order to receive ROCs - 31 March 2017 - grid and radar delay condition not met; investment freezing condition not met; approved development condition met;
- Last date to accredit in order to receive ROCs - 31 December 2017 - grid and radar delay condition not met; investment freezing condition not met; approved development condition met;
- Last date to accredit in order to receive ROCs - 31 March 2018 - grid and radar delay condition met; investment freezing condition not met; approved development condition met;
- Last date to accredit in order to receive ROCs - 31 December 2018 - grid and radar delay condition met; investment freezing condition met; approved development condition met.
While some uncertainty will remain until the Energy Bill is enacted and thereby the relevant provisions become law, the publication of these amendments gives some welcome assurance to those who had already made significant financial commitment on onshore wind projects only to have the deadline for subsidy abruptly brought forward to 31 March 2016. The addition of a further 9 month's grace for project's suffering from "investment freezing" is also a helpful recognition by the Government that the uncertainty created during periods when the Government's minded-to position is not pinned down in legislation leads to genuine delays in projects reaching financial close.
The impact of this new grace period seems likely to open the door for additional projects to qualify that might have been shelved following the announcement. Somewhat perversely though, it does not appear to provide any relief for those projects that suffered delays to their programme due to the announcement but were nonetheless able to close before the Energy Bill becomes law. There is, one supposes, a chance that this omission might yet be corrected as the Energy Bill passes through Parliament. Until then, and in any event, it will be interesting to see if project developers and their funders choose to sit it out and not financially close their projects until the Energy Act is enacted on the basis they will stand to benefit from an additional 9 months' grace.
While these grace periods will undoubtedly help a number of consented projects, the future position for onshore wind subsidy in this country continues to look bleak. The Government remains tight lipped on the timing and budget for CfD allocation, but the messaging to date has suggested that no money will be made available for onshore wind (outside the Scottish Islands at least). Similarly, at a smaller scale, the renewables industry awaits with trepidation the outcome of the FiT review which at best appears likely to hugely reduce the amount of FiT support available.