ProjectsGeneral government authorisation
What government authorisations must investors or owners obtain prior to constructing or directly or indirectly transferring or acquiring a renewable energy project?
The Planning Act 2008 sets out the regime for planning authorisations for energy infrastructure projects in England and Wales which fall within the category of ‘nationally significant infrastructure projects’. Such projects require the issuance of Development Consent Orders (DCO). The applicable thresholds to determine whether a renewable project is a nationally significant infrastructure project is more than 50MW onshore and more than 100MW offshore. Applications for DCO are made to and publicly examined by the Planning Inspectorate, which then makes a recommendation to the Secretary of State for the Department for Business, Energy and Industrial Strategy (BEIS). On a successful application, the DCO is awarded by BEIS.
In addition, consent under section 36 of the Electricity Act 1989 is needed for offshore generating stations with a generating capacity of more than 1MW, but less than or equal to 100MW (section 36, Electricity Act 1989). Projects with a generating capacity of 50MW and less in England and Wales are consented under the Town and Country Planning Act 1990.
Depending on the type of plant, further authorisations such as relating to health and safety, environmental or nuclear specific matters may also be required from the appropriate regulator.Offtake arrangements
What type of offtake arrangements are available and typically used for utility-scale renewables projects?
We have already mentioned the three main types of offtake arrangements used for utility-scale renewables projects and the offtake counterparties: licensed suppliers (utility companies) under negotiated power purchase agreements; the Low Carbon Contracts Company within the scope of the Contracts for Difference (CfD) arrangements; and commercial power purchase arrangements with corporate entities. In addition to those arrangements, the government has introduced the Offtaker of Last Resort (OLR) scheme, which aims to promote the availability of power purchase agreements (PPAs). It is intended as a last resort to help renewable generators who cannot get a power purchase agreement through the usual commercial means and is part of the government’s wider programme on Electricity Market Reform, which we have discussed above. The OLR scheme is only available to eligible CfD generators and provides an alternative route to markets for them by facilitating a backstop power purchase agreement between the generator and a licensed supplier under which the licensed supplier will buy the electricity purchased under the backstop power purchase agreement at a specified discount below the market reference price. In February 2020, Ofgem published the levelisation schedule for the year running from April 2020 to March 2021.Procurement of offtaker agreements
How are long-term power purchase agreements procured by the offtakers in your jurisdiction? Are they the subject of feed-in tariffs, the subject of multi-project competitive tenders, or are they typically developed through the submission of unsolicited tenders?
The approach taken by UK offtakers and suppliers alike varies on the circumstances, depending on the nature of the project, the market generally or a range of other factors. Often offtakers choose to tender competitively, approaching multiple suppliers, allowing themselves optionality. Alternatively, and commonly used in the UK where a large number of applicants is expected, a ‘restricted procedure’ is used, a two-stage bidding process whereby suppliers respond to a notice in the Official Journal of the European Union, where large-scale public contracts are published. Bidders through this process will go through a pre- qualification stage initially, before being shortlisted and then selected following a second stage (if successful). For more complex long-term PPAs, a competitive dialogue or negotiation procedure may be used. With this type of procurement, a supplier will respond to an invitation to tender (or other call to competition), with selected bidders invited to further negotiate elements of their bid. Following these subsequent negotiations, bidders will then submit a revised tender, tailoring their bid to the purchaser once they have better visibility on their requirements.
Behind the dynamic between supplier and offtaker is the interplay between generator and supplier, and in particular, the OLR scheme, which is a government scheme that aims to promote the availability of power purchase agreements (PPAs). This operates alongside the CfD regime, which is one of the key policy measures to incentivise new low-carbon electricity generation. The provision of CfDs is intended to stabilise revenues for investors in low-carbon electricity generation projects such as renewables, by helping developers secure the large upfront capital costs for low-carbon infrastructure. For generators who may otherwise struggle to get a PPA, the OLR scheme is available to eligible investment contract CfD generators. The Ofgem scheme allows for a backstop power purchase agreement between the generator and a licensed supplier, achieved through a competitive auction process. The benefit for the purchaser is that they will be able to purchase at a specified discount below the market reference price, while the benefit for the generator is that they have a route to market, a genuine ‘last resort’.Operational authorisation
What government authorisations are required to operate a renewable energy project and sell electricity from renewable energy projects?
A generation licence is required for the sale of electricity and this stipulates compliance with the relevant industry codes. In particular, all licence holders (for example, transmission, generation, supply and distribution) must be registered within the Balancing and Settlement Code.
Certain environmental, health and safety, and electricity quality measures must also be in place for the construction and operation of systems that generate and supply electricity (Electricity, Safety, Quality and Continuity Regulations 2002 (as amended)). These will depend on the relevant renewable project in question.Decommissioning
Are there legal requirements for the decommissioning of renewable energy projects? Must these requirements be funded by a sinking fund or through other credit enhancements during the operational phase of a renewable energy project?
Sections 105 to 114 of the Energy Act 2004 introduced a decommissioning scheme for offshore wind and marine energy installations. Under the terms of the Act, the Secretary of State may require a person who is responsible for one of these installations to submit (and eventually carry out) a decommissioning programme for the installation.
The Department of Energy and Climate Change stated that it believed that by imposing a legal obligation on businesses to prepare and carry out a decommissioning programme - and potentially requiring them to provide financial security - it had reduced the risk of businesses defaulting on their decommissioning liabilities, while maintaining a fine balance so as not to hinder the development of offshore renewable energy installations.
Sections 69 to 71 of the Energy Act 2008 introduced three new provisions into the offshore renewables decommissioning regime. These provisions did not change the overriding policy governing the decommissioning of offshore renewable energy installations, but were intended to help provide greater clarity to developers, and greater protection to taxpayers. In summary, the Energy Act 2008 introduced the following changes:
- information requirements: the Secretary of State was given greater powers to request information from developers when taking a decision on whether or not to approve a decommissioning programme. The requested information could be operational or financial;
- parent and associate companies: the Energy Act 2008 introduced provisions seeking to ensure a clearer legal framework for the rights and obligations of those companies associated with a developer of an offshore renewable energy installation. The provisions clarified that where a developer of an offshore renewable energy installation is directly controlled by another company, such as a parent or associate company, the Secretary of State has the discretionary power to issue them with a decommissioning notice; and
- Insolvency protection: provisions were introduced to measure ring-fencing of amounts set aside for decommissioning purposes with a view to ensuring that such funds are insolvency remote.