The Court of Appeal has rejected a challenge to the Secretary of State's decision to terminate a Government scheme supporting the use of renewable electricity sources earlier than planned. In (1) Solar Century Holdings Ltd (2) Lark Energy Ltd (3) TGC Renewables Ltd (4) ORTA Solar Farms Ltd v Secretary of State for Energy and Climate Change [2016] EWCA Civ 117 four companies challenged the Government's ability to change its policy in this way.  The Court of Appeal held that the Government had the power to close the scheme, the grace period was fair, and there was no legitimate expectation created by the Government as to the closure of the scheme.

Key points: 

  • The Government could formulate and reformulate its policy as rational grounds existed for doing so.
  • A legitimate expectation claim requires the demonstration of a clear and binding assurance as to future conduct. No such assurance existed here either in pre-legislative statements or subsequent representations.
  • The grace periods were not unfair by reason of retrospective operation, even though the effect of the changes was to "alter the rules of the game after investors had started playing it", since the legal nature and effect of past acts had not been altered.   

1. Background

In August 2014 four companies (the "Companies") engaged in the installation of large scale solar photovoltaic (PV) systems ("solar farms") launched a judicial review challenge against the Government's proposals to close the Renewables Obligation ("RO") scheme early. 

In 2011 the Government proposed replacing the RO scheme by a scheme based on Contracts for Difference ("CfD") and in July 2013 the Secretary of State stated that the RO scheme would close to new capacity on 31 March 2017.  This was achieved by inserting new provisions into the Electricity Act 1989 (s.32LA and s.32LB), conferring power on the Secretary of State to make a renewables closure order.  However, after a further consultation, the Secretary of State later declared that the RO scheme would close 2 years earlier on 1 April 2015, given effect to by the Renewables Obligation Closure (Amendment) Order 2015.  This included a grace period to protect those companies who could demonstrate significant financial commitment to proposed projects at the date of the consultation being published. The High Court rejected the Companies' initial judicial review challenge, and they then appealed to the Court of Appeal.

The Companies argued that:                                     

  • The Renewables Obligation Closure (Amendment) Order 2015 was ultra vires.
  • The early closure of the scheme was an unjustified breach of their legitimate expectations arising from clear and unequivocal representations by the Government that the scheme would not close until 2017.
  • The operation of the grace period was retrospective and therefore unfair.

2. Decision

The Court of Appeal concluded that there was no breach of legitimate expectation, misuse of power or any public law unfairness.  When rational grounds existed, the Government was entitled to formulate and reformulate policy, unless to do so would amount to an abuse of power.

Legitimate Expectation

There was no legitimate expectation created that the Government would not change its policy in regard to the March 2017 closure date.  The various documents made it clear that although the Government was seeking to ensure a stable investment environment, there were specific caveats which should have made it apparent that if the Government's cap on spending for energy and climate change goals was threatened by increased uptake in the scheme, the closure date may well be brought forward.

Furthermore, it was clear that the Government, when referring to 'maintaining support for existing investments', intended to include projects that had already been accredited, rather than projects 'in the pipeline' towards accreditation.

There were therefore no clear or binding assurances, to Parliament or otherwise, that the scheme would remain open until 2017.

Ultra Vires

The Government did have the power to close the scheme under s.32LA; the language used in the legislation was wide enough for the Renewables Obligation Closure (Amendment) Order 2015 to close the scheme 'to electricity generated after a specified date'.  There was nothing to suggest that the specified date had to be on or after 1 April 2017.  

Grace Period

The High Court judge had accepted that there was an element of retrospectivity in the changes. However the Court of Appeal did not agree with this conclusion since, although past acts now had different consequences to those contemplated at the time, the legal nature and effect of those acts had not been altered by the legislation.  The Court of Appeal considered there had been no modification of an accrued entitlement. 

Although when considering the fairness and rationality of the Government's decision it was relevant to consider that the effect of the changes was to "alter the rules of the game after investors had started playing it", this was only one factor in the overall assessment of fairness. Furthermore, regarding the amount of investment required to qualify for the grace period, the Government had the right to draw a line somewhere. In addition the consultation process had been procedurally fair, and had resulted in the grace period being relaxed.

This decision can be contrasted with Secretary of State for Energy and Climate Change v Friends of the Earth and others [2012] EWCA Civ 28 regarding the effect of the RO provisions under the feed-in tariffs (FITs) scheme. In that case variation of the FIT rate removed the owner's entitlement to FITs payment at a fixed and pre-determined rate and, therefore, did have a retrospective effect.

3. Comment

The decision to disallow the appeal for judicial review and some of the comments in the judgment on the issues of legitimate expectation and retrospectivity suggest an increasing sympathy for the Government's scope to change its policies. The Government has wide powers to formulate and reformulate policy, and can make dramatic alterations to schemes based on a variety of factors. Any company considering challenging such changes should be aware of the courts' reluctance to curtail the Government's freedom regarding decision making in this area.