UK: Eversheds Clean Energy Bulletin

Last Updated: 25 May 2010
Article by Michelle T. Davies

Coaltion: Programme for Government

1.

The Policy in Summary

The clean energy policy of the Conservative/Liberal Democrat Coalition is to continue the development and installation of clean energy services, together with continued investment in reducing emissions and increasing efficiency. These goals will be achieved through a number of ways, from promoting existing technologies to providing greater financial support in relation to projects of both a British and international focus. The Government has highlighted the following energy and climate change priorities in their recently published document - 'The Coalition - Our Programme for Government':

 

1.1.1

increasing the target for energy from renewable sources;

 

1.1.2

continuing public sector investment in carbon capture and storage ("CCS") technology for four coal-fired power stations, and ensuring that new coal-fired power stations are equipped with sufficient CCS to achieve a newly created emissions benchmark;

 

1.1.3

establishing a 'smart grid' and the distribution of smart meters;

 

1.1.4

establishing a full electricity feed-in tariff system, combined with the retention of Renewables Obligation Certificates ("ROCs");

 

1.1.5

retention of energy performance certificates, but removing the need for Home Information Packs;

 

1.1.6

promoting the use of marine sources to produce energy and anaerobic digestion to produce energy from waste;

 

1.1.7

developing an offshore electricity grid to provide infrastructure for a growing offshore wind market;

 

1.1.8

restructuring of energy markets to deliver security of supply and investment in low carbon energy;

 

1.1.9

creating a green investment bank, together with financial products allowing individuals' investment opportunities in clean energy;

 

1.1.10

promoting international sources of funding for climate change matters;

 

1.1.11

supporting an increase in the EU emission reduction target to 30% by 2020;

 

1.1.12

introducing a floor price for carbon, together with increased pressure on the European Union to move towards full auctioning of Emissions Trading Scheme permits;

 

1.1.13

encouraging energy efficiencies in both the private and public sector;

 

1.1.14

presenting strategic energy policy to Parliament on an annual basis to guide investment in the sector; and

 

1.1.15

encouraging community-owned clean energy schemes, and allowing communities that host renewable energy projects to keep the additional business rates generated.

2.

Some Comments

2.1

Funding - 'Green Investment Bank' and Private Sector Investment in Clean Energy

 

2.1.1

The Green Investment Bank is intended to be a public-private funded entity providing financial assistance for clean energy schemes. The intention of the Green Investment Bank would be to put Britain at the heart of financial provision for energy services and manufacturing. The Government's proposals are similar to the role played by KfW in Germany and as such are not unprecedented.

 

2.1.2

According to pre-election Conservative proposals, the Green Investment Bank would consolidate the many disparate sources of funding for clean energy currently in operation, and act as a focal point to attract clean energy investment. It is not clear how the Green Investment Bank will operate in detail but there has been some discussion of it acting as an aggregator of renewable energy assets (most likely operational) and providing capital release for the lending banks by acquiring the project debt and re issuing this via the capital markets.

 

2.1.3

It is not clear to what extent the Green Investment Bank will complement the offering of the commercial lending banks for construction finance. It is our understanding that it is not intended that the bank will compete with the lending banks. What is clear is that many in the sector would welcome the Green Investment Bank initiating and strengthening investment in areas where there is a perceived or actual risk which is prejudicing funding by traditional lenders.

 

2.1.4

The Conservatives have also made proposals to attract private investment in the form of 'Green ISAs' and Green Bonds'.

2.2

Carbon Pricing

 

2.2.1

Carbon pricing is to be reformed to provide a floor price for carbon, such price being set by the Treasury according to Conservative plans published in March 2010. The rationale behind this scheme is to ensure a predictable long-term carbon price so that more reliable revenue information can be made available to potential investors, therefore providing incentives for future generation. This predictability is absent from the current system, so any reform which could provide more accurate estimation of revenue will no doubt prove attractive to investors and funders. Any changes to the current schemes to provide for such a minimum would be made in a revision to the administration of the Climate Change Levy.

2.3

Feed-in Tariffs ("FITs")

 

2.3.1

The policy document states:

"We will establish a full system of feed-in tariffs in electricity – as well as the maintenance of banded Renewables Obligation Certificates."

This is consistent with the Conservative Party's approach on Feed in Tariffs versus ROCs which it first publicised in the January 2009 policy paper, A Low Carbon Economy.  It stated in this document that it was widely believed that "the current Renewable Obligation Certificates regime has generated undue returns for some onshore wind generators and this has been matched by under-rewarding incentives for offshore wind."

 

2.3.2

The 2010 Conservative Party energy policy green paper was also clear and included a pledge to introduce FITs for future rounds of investment.  This document made specific reference to FITs applying to round three projects.

 

2.3.3

Whilst the statement made in the Programme for Government document is not entirely clear, it is likely that FITs will apply to round three and the larger infrastructure projects although there is a possibility that it will apply to all technologies other than onshore wind. It is expected that existing projects will continue under the ROC regime.

 

2.3.4

However, the fact that FITs could also apply to new projects generally (albeit the view is that they may not apply to onshore wind), may have a wider impact on the market including on the liquidity of the PPA market.

 

2.3.5

The introduction of the FITs should in theory enable these projects to access the debt and equity markets more easily and to secure improved terms.  The concern is that the change itself will cause general uncertainty as to the stability of the UK regulatory regime and could potentially set back the development of some key projects including the round three projects, impacting on the 2020 timetable.

Offshore Energy Grid

 

2.3.6

The Government will build an offshore power distribution grid, which may serve both offshore wind and tidal power facilities. The construction of this grid should reduce one of the barriers to further development of offshore technologies. Details of the proposal are brief, so that a detailed plan may be subject to influence from stakeholders. In addition, the impact this will have on the current OFTO regime is uncertain but comes at a timely point when many offshore developers are expressing concern about the structure and operation of the OFTO process and assets.

2.4

Planning Matters

 

2.4.1

The Government also proposes a number of changes to planning matters which, while not specifically related to clean energy, will have an impact on the implementation and feasibility of clean energy projects, and will likely concern developers, investors and funders alike.

 

2.4.2.

The proposals include:

   

2.4.2.1

local councils regaining their decision-making powers on planning matters after the abolition of Regional Spatial Strategies;

   

2.4.2.2

the abolition of the Infrastructure Planning Commission, to be replaced by a more accountable system for major infrastructure projects, most likely being incorporated into the Planning Inspectorate which reports directly to ministers; and

   

2.4.2.3

a consolidated national planning framework to be submitted to Parliament containing national priorities in relation to economic, environmental and social matters.

 

2.4.3

One matter that is not contained within the policy document is the possible introduction of a third party right of appeal against planning decisions although it is not clear if this relates to decisions made at the local level or to national appeals.. This increases a project's vulnerability to challenge and, accordingly, could impact investor and funder confidence. Clearly this proposal is only likely to relate to applications made under the Town and Country Planning Act 1990 as opposed to IPC applications under the Planning Act 2008.  Nevertheless, consenting strategies may, subject to the issue of associated development, envisage applications being made under the 1990 Act for onshore works.  Clearly, this is a potential threat.  The Republic of Ireland has third party rights of appeal which have proved problematic in terms of investor confidence.  The Scottish Government was persuaded to step down from its initial proposal for third party rights of appeal, and therefore any proposals by the UK Government would be without precedent within the UK.

 

2.4.4

What precisely the new Government will do about IPC is uncertain in detail.  It is likely that a Planning Bill will be introduced in the first year of the new Parliament.  That Bill is likely to provide for a number of changes, including the possible absorption of the IPC into the Planning Inspectorate.  The practical consequences may well be that for major infrastructure projects the decision maker will, once again be the Secretary of State.  What is tolerably clear is that the rules and procedures associated with a promotion of Development Consent Orders under the Planning Act 2008 will remain in place.  It is also understood that the framework of National Policy Statements will be preserved.

For further details of Eversheds' clean energy and sustainability team, please contact Michelle Thomas at michellethomas@eversheds.com michellethomas@eversheds.com or call 0845 498 7553.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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