DECC releases its Impact Assessment on the closure of the Renewables Obligation for onshore wind

The Government is committed to delivering on its manifesto pledge of ending new subsidies for onshore wind projects by closing the window on the Renewables Obligation (RO) to new onshore wind from 1 April 2016 (a year earlier than planned). The proposed amendments to the Electricity Act and the Renewables Obligation Closure Order necessary to bring this pledge into effect (contained in the Energy Bill) was debated before the House of Lords on 14 September 2015, although industry remains concerned that an amendment to clarify grace period qualifying criteria has not yet made it to the debating room floor. Shadowing the passage of the Bill, the Department of Energy & Climate Change (DECC) published its Impact Assessment (IA) on the RO closure on 8 September 2015 (available here).

The Government argues that, in the absence of intervention, onshore wind could add to the over-allocation of renewable energy subsidies under the Levy Control Framework (LCF), which sets limits on the overall costs of DECC's levy funded policies (including ROs, FiTs, and CfDs). The IA sets out the opposing policy options: i) do nothing; or ii) close the RO to new onshore wind from 1 April 2016, subject to a grace period for projects which, as of 18 June 2015, already had planning consent, a grid connection offer and acceptance or confirmation that no grid connection is required, and evidence of land rights for the project site. The grace period will allow qualifying projects until 31 March 2017 to apply for RO accreditation.

In essence, the Government's view is that the Contracts for Differences (CfD) scheme is a more cost-effective mechanism to support renewable energy generation than the RO and that, consistent with DECC's 18 June 2015 announcement, there is now enough onshore wind in the pipeline (subsidised either by the RO or CfD regime) for onshore wind to play its role in meeting the UK's renewable energy commitments. The result of DECC's announcement however has been to deter investment by funders in all onshore wind projects even those that would otherwise qualify for the RO under the grace period as lenders are concerned about regulatory and political risk. It is also worth noting that the CfD scheme has not run as smoothly as the Government or industry would have liked and that the scheduled CfD auction round for October 2015 has been postponed with the Government yet to set out its plans for future allocation rounds.

DECC's conclusions naturally support the early closure option, although the IA itself remains subject to further updating once DECC has had the opportunity to review industry feedback and evidence provided during its "engagement exercises" earlier in the year. The Government will also need to publish its proposed grace period amendments and ensure that they are subject to the same level of scrutiny and debate by the House of Lords to satisfy calls for certainty by industry.