Panel beating

The Government’s handling of the FIT rate reduction has damaged the renewables market

The proposal to pay a lower feed-in tariff (FIT) to those who install solar photovoltaics (PV) panels with an eligibility date after 12 December 2011 – before the modification to the FIT regime comes into effect in April 2012 – was always doomed to fail. It was a knee-jerk reaction to a higher than expected take-up of solar PV installations, and was clearly at odds with the general principle against retrospective effect, as well as the Coalition’s stated aim to be “the greenest government ever”.

This attempt to reduce the FIT rate not only affects the solar PV industry, but also renewables generally, and has lessons for future government consultations.

The Department of Energy and Climate Change (DECC) published a consultation paper on 31 October 2011 proposing to amend the FIT regime and lower the tariff from 1 April 2012. But the new 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 new rate to installations with eligibility dates from 12 December. In addition, the six-week notice period between the publication of the consultation and 12 December (intended to allow time for the completion of planned installations) was counter-productive as 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 the DECC’s appeal was refused by the Court of Appeal, Lord Justice Moses holding that the DECC could not alter the tariffs retrospectively. 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 around £100bn in investment in the next decade. The key to persuading the financial markets to support that is regulatory certainty. It is the way the DECC sought to impose a retrospective change and then defended it in 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 with the considered changes to the Renewables Obligation, which supports larger renewables projects. In that case, the new contracts for difference will be available from 2014, with a period where investors can choose between regimes until 2017. If the DECC must alter the rate of return for investors in renewable energy generation, giving investors time to adjust their plans is the better model to follow.

This case also emphasises the underlying legal principle; Parliament can pass legislation with retrospective effect (such as certain sections of the Human Rights Act), but only if it is 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 interpreted by the courts to allow government to ­impose retrospective changes.