On 31 July 2013 the Department of Energy and Climate Change ("DECC") published its response to its consultation on a proposed notification process to enable developers to reserve capacity within a new non-legislative cap on the current level of support for new build biomass projects under the Renewables Obligation ("RO"). The outcome of the consultation signals potentially good news for some biomass projects that are able to reach financial close prior to 21 August 2013.
1. Clarifications to the notification process for dedicated biomass projects
In December 2012, DECC announced its intention to introduce a 400MW non-legislative cap on the amount of new build dedicated biomass plants accredited under the RO that will fall within the grandfathering policy. DECC stated it might consult on whether capacity above that threshold should be included. On 13 May 2013, DECC published a consultation on a proposed notification process for dedicated biomass projects seeking government support under the RO (the "Consultation"). Our E-Bulletin on the Consultation can be found here.
DECC's response to the Consultation (the "Response") sets out key changes to and clarifications in respect of the notification process.
2. A new timetable for the priority and standard notification processes
All eligible projects that reach financial close before the notification process opens on 21 August 2013 will be able to apply under the priority application process. DECC will administer this between 21 August 2013 and 10 September 2013. All priority applicants that meet the criteria will be given a place within the cap, even if, in aggregate, this exceeds 400MW.
In order to allow DECC to focus on assessing priority applications, those made under the standard notification process will not be assessed by DECC until 11 September 2013. Any received prior to this date will be treated as if received on this date so there is no advantage for early submission.
3. Decision to move to construction phase
Places will be allocated within the cap only to projects that have reached financial close and for which construction has either commenced, or a decision has been made to move into the construction phase.
"Financial close" must be evidenced by one or more unconditional commitments to fund totaling 100% of the then-estimated construction costs of the project. The only exception to this is that funding may be conditional upon "ordinary course conditions precedent". The meaning of this term is yet to be confirmed by DECC, but it is likely to be a reference to the usual terms and conditions associated with project finance of this kind. The investors and/or the board of directors are not required to commit to fund cost increases.
The decision to "move into the construction phase" is deliberately not defined by DECC as the "construction phase" will vary for different projects. However, in its Response, DECC has clarified that it may be evidenced by entering into a construction contract or ordering plant and equipment.
4. Capacity applied for must not vary
DECC has taken measures to ensure projects do not deliberately underestimate their generating capacity in order to get a place under the cap. If the capacity in the planning permission is higher than the capacity applied for, the application will be considered by DECC on the basis of the higher capacity. Further, if a project is allocated a place within the cap and subsequently accredits under the RO at a higher capacity, DECC will consider whether the allocation should be withdrawn and, accordingly, the project will be at risk of not being covered by the grandfathering policy. An applicant also cannot apply for a place in the cap at a capacity larger than is stated in the planning permission or consent, which DECC will check as part of the process.
5. Other evidence must be provided to support applications
DECC has provided further clarification in respect of some of the key supporting documents:
- projects that require planning permission (including consents under Section 36 of the Electricity Act 1989) must have the required permission in place at the time of making the application and the permission cannot be subject to pre-construction conditions;
there is no longer any requirement to provide:
- an environmental permit; or
- a copy of a grid connection agreement, however details of grid connection arrangements must be certified as part of the application process and so an arrangement must be in place where one is required for the project.
6. Projects will be ranked if the cap is exceeded
Once the cap has been reached, DECC will rank projects on a "first come, first served" basis. If places within the cap subsequently become available, DECC will offer the next project(s) in line a place within the cap – such projects will have 16 weeks to submit all the evidence required to show that the criteria for a place within the cap is met, in which case the project will be allocated a place within the cap.
7. Useful links