Contracts for Difference Round 2: what next for island wind in Scotland?

In November 2016, the UK Government released details of the second Contracts for Difference (“CfD”) auction. £290m of government-backed contracts will be up for grabs by developers of renewable energy technologies. As those in the industry will know, CfDs are long term contracts that provide stable and predictable incentives to private companies which invest in low-carbon generation. However, absent from the technologies favoured by the latest round are onshore wind projects on Scottish islands (Orkney, Shetland and the Western Isles), despite a 2013 consultation which suggested such projects should benefit from additional support in future rounds.

As a result, developers of island wind who had previously expected to benefit from this CfD round, particularly those with pipeline projects currently on hold, will not be eligible to bid for government support. We have set out some thoughts in this e-Alert on the options available to such developers.

Legal challenges based on ‘legitimate expectations’

The political landscape has shifted since the last consultation on island wind– with the Conservatives’ 2015 manifesto promising to “end any new public subsidy for [onshore wind]”. This included the closure, earlier this year, of the Renewables Obligation (the “RO”) in relation to onshore wind, a year earlier than originally planned. We commented in our earlier Law Now that the prospects of a successful legal challenge to this closure were slim.

In the Solar Century Holdings case, developers had sought to challenge the early withdrawal of the RO to solar photovoltaic projects, arguing that they possessed ‘legitimate expectations’ that CfD support would continue and that they had relied on those expectations. That challenge failed – and failed also on appeal – as there was no “specific undertaking, directed at a particular individual or group, by which the relevant policy’s continuance is assured”. Instead, the court found that the Government’s previous statements on the continuance of the RO applied only to existing investments (already in receipt of the RO and which would be grandfathered under the Government’s planned changes), and not pipeline projects. More recently, the Court of Appeal in Infinis Energy Holdings Limited rejected a claim for judicial review on similar grounds, this time in respect of the removal of the of the exemption for renewable source electricity from the Climate Change Levy.

These previous legal challenges to other changes in renewables policy suggest that there are limited prospects in seeking a review by the courts of a policy decision by the Government on subsidies, incentives, or other schemes. In order to be successful, a developer would have to prove that there was (i) a specific undertaking; (ii) directed at a particular individual or group; (iii) by which the policy’s continuance is assured; and (iv) on which they had relied. Any challenge is likely to fall at more than one of these hurdles.

Although there may have been assurances that projects on the Scottish islands would be treated more favourably than others on the mainland for future CfD allocation, the results of the previous coalition Government consultation are unlikely to amount to a “specific undertaking”. Further, even if there had been an undertaking that a category of technology would be able to participate in the auction, it does not necessarily follow that any particular project would be successful in its bid to benefit. Proposed potential strike prices for future rounds are also unlikely to be considered statements by which the inclusion of island wind in future CfD rounds “is assured”.

Political options: two avenues

In the circumstances, developers of island wind may need to focus their efforts on lobbying for the support needed to get projects up and running. Whilst the announcement on CfD funding may be disappointing, the UK Government is consulting further on whether remote island wind projects should be treated differently from mainland wind in the future, and what form any support should take. The consultation seeks views on:

• whether non-mainland onshore wind should be considered a separate technology from onshore wind more generally;
• what specific barriers/costs/issues are associated with non-mainland onshore wind; and
• if there are specific challenges for non-mainland onshore wind projects, what other measures outside of the CfD scheme could be adopted by the Government, or others, to remedy those challenges.

Responses to the consultation are due by 31 January 2017.

The particularly Scottish nature of island wind may also provide an extra layer of political recourse for developers. A debate in the Scottish Parliament on 6 December 2016 entitled “Support for Scotland’s Renewables”, signals that the Scottish Government is also open to suggestions as to how it can “use those powers at its disposal to […] ensure that the sector has the financial and political support that it requires.”

Given the unlikelihood of success in any sort of legal challenge to decisions by the UK Government relating to renewable funding schemes, it is likely that a detailed response to the consultation, along with appeals to the Scottish Government, will be the most effective route for those seeking to ensure support for island wind projects in the future.