With all the hype and discussions in the media surrounding the CFD auction allocation, you wouldn’t be blamed for thinking that was the only piece of news to impact the UK Renewable Energy market recently.
Yet, the introduction of the Infrastructure Act 2015 (which came into effect last month) contains some important provisions affecting the UK Renewable Energy market.
Three key effects of which include:
1. Community Electricity Right
Sections 38 and 39 of the Act lay the framework for the introduction of a right for:
- individuals resident in a community; and/or
- groups connected with a community,
to buy a stake in a renewable generating station (onshore or offshore).
At present, the Act sets out a framework pursuant to which the Secretary of State may introduce regulations, so the precise tools are yet to be determined. Nevertheless, there are parameters set out in Schedule 6 of the Act which will guide any future regulations. The principal provisions are as follows:
- The total installed capacity of the generating station must be greater than 5 MW for any right to arise;
- There will be specific parameters around who is to be considered an eligible “resident” (including a person’s age, length of residency and any criminal convictions) and a “community” (including the number of residents and the distance from the facility);
- Generation licence conditions may be amended so as to ensure the community right to buy is enforced;
- A “stake” may include shares, a royalty or a loan and the price of any “stake” must reflect a measure of fair value. There are also provisions dealing with how a fair value is determined by reference to the capital costs incurred by a developer (up to a maximum of 5%);
- It is yet unclear whether any regulations will only apply to new developments or whether the right to buy could be used to purchase a stake in existing operational assets; and
- There will be a set period in which a right to buy can be exercised and when/how a stake can be disposed of.
Key takeaway: This right gives effect to the UK Government’s first ever Community Energy Strategy, which promotes community shared ownership in local renewable energy assets. This will go some way to ensuring that local individuals can have a greater share in the financial benefits of renewable plants installed in the community.
2. Renewable Heat Incentive (RHI)
Section 51 of the Act makes amendments to the Energy Act 2008 (section 100) regarding the Renewable Heat Incentive (the principal mechanism encouraging the renewable generation of heat). The key amendments will allow:
- the Secretary of State to appoint an alternative delivery body to administer the RHI schemes (previously this role could only be performed by Ofgem); and
- the Secretary of State to make regulations enabling the owner of a heat generating installation to assign his payments to a person providing finance for the installation, and for payments to be made directly to that person from the scheme administrator.
Key takeaway: It is hoped the latter of these will increase RHI deployment by allowing consumers access to finance more cheaply and easily. However, DECC are currently publishing “Call for Evidence” papers on Third Party Finance Options so it is not yet known when such regulations will be passed and what they will look like.
3. Grid connection re-imbursements
Under the Electricity Act 1989, the Secretary of State may allow electricity distributor network operators (DNOs) to obtain payments from persons who benefit from an electricity connection previously paid for by another person, and for any payments received to be re-distributed to those earlier contributors.
This right only applied to grid connections with licensed DNOs and excludes grid connections made by independent connection providers (ICP) and independent distribution network operators (IDNO).
However, the Act now allows for the recovery of payments from those companies benefiting from an existing grid connection regardless of whether a DNO, IDNO or ICP made the first or second connection.
Key takeaway: Previously, the ICPs and IDNOs were disadvantaged as customers were deterred from contracting with them to provide a connection. This was on the basis that they would not be able to recover a proportion of their costs from companies who benefited from the existing (paid for) grid connection infrastructure at a later date. Now, the Act has opened up the market to ICPs and IDNOs which will hopefully create a fairer playing field and give customers more choice.