Government sets out plans for “clearly defined and limited” Renewables Obligation ‘grace periods’

Out-Law News | 13 Nov 2013 | 1:18 pm | 2 min. read

The Government has set out its proposed approach to closing the Renewables Obligation (RO), which will end for new generating capacity on 3 March 2017.

It is consulting on “clearly defined and limited grace periods”, which would allow projects commissioned after this date to benefit from the previous arrangements in limited circumstances or where financial commitments have already been entered into. The RO is to be replaced by new contracts for difference (CfDs), which will be created by the Energy Bill.

“As we have stated previously, our position is that, in general, operators of projects which have commissioning dates on or close to 31 March 2017 have the option of applying for a Contract for Difference, which would give them clear assurance of receiving support even if the project suffers unexpected delay,” said the Department for Energy and Climate Change (DECC) in its consultation paper.

“It is not the Government’s goal to ensure that the Renewables Obligation and the CfD offer the same level of assurance against the risk of delay throughout the transition period … While we appreciate that the RO closure date is a more significant deadline than developers have previously experienced within the RO, because developers have known about this date for several years, we remain minded to keep grace period eligibility minimal,” it said.

The short DECC consultation, which closes  on 28 November, sets out four "clearly defined and limited" proposed ‘grace periods’. A 12-month period could apply to address “radar and grid connection delays” where a project was  scheduled to commission on or prior to  31 March 2017. Similarly, a 12 month period could also apply where projects could demonstrate that  “substantial financial decisions and investments” had been taken before 31 July 2014. To be eligible, these projects would have to undergo a notification process by 31 July 2014.

The same 12-month period would also apply to projects which have signed investment contracts under the Government’s FID Enabling, “should these contracts fall away or be terminated under certain specific circumstances”. An 18-month grace period would apply to projects allocated a place within the 400MW dedicated biomass cap.

In July, DECC consulted on the transitional arrangements that will apply between the introduction of the CfDs from mid-2014 and the closure of the RO in 2017. New generating capacity will be entitled to apply for either scheme during this transitional period, or to apply for an investment contract under Final Investment Decision (FID) Enabling. All applications will be subject to the rules of the scheme in question, and to confirmation that the project is not receiving support under one of the other schemes. The RO will continue to provide support to accredited projects over a 20-year period at levels applying when the scheme closes.

CfDs are long-term contracts that will provide stable revenues for investors in low carbon energy projects, and will be made available for nuclear and Carbon Capture and Storage (CCS) as well as renewable energy generation. Payments made under the CfD regime will be calculated with reference to a technology-dependent ‘strike price’ and a market reference price. The payments are intended to replace existing subsidies and incentives, and will also protect consumers by enabling the system operator to ‘claw back’ money if the market price is higher than the strike price.

The Government intends to produce a Renewables Obligation Closure Order, coming into force in Spring 2014, subject to the outcome of its consultation. The proposals are also subject to Parliamentary  approval of the Energy Bill, which is currently before the House of Lords. Separate proposals will be published in Northern Ireland due to ongoing reforms to the Single Electricity Market, meaning that the transition period in Northern Ireland will be shorter than in the rest of the UK.