On 17 December 2015, the last day of Parliament and the same day as the result of the FIT review, DECC confirmed that the Renewables Obligation (RO) would close to solar projects from 1 April 2016 and also published a consultation on the levels of support under the RO going forward, known as 'banding'. The headline points are:
- The RO will close to solar projects of 5MW or below from 1 April 2016
- As expected, there will be grace periods (as for large scale solar last year) until 31 March 2017 for projects that are :
- already pre-accredited; or
- which suffer from grid connection delays; or
- that had made a 'significant financial commitment (more on which below) by 22 July 2015
- The level of support under the RO will no longer be guaranteed for 20 years (i.e. 'grandfathering' will be removed) EXCEPT in the case of (i) projects accredited on or before 22 July 2015 and (ii) projects which meet the 'significant financial commitment' grace period requirements referred to above.
- The level of support under the RO will reduce from 1 June 2016 to 0.8 ROC/MWh (i.e. there will be a banding reduction, as expected). However, this banding reduction will not apply to projects accredited on or before 22 July 2015 and projects which meet the 'significant financial commitment' grace period requirements referred to above. Projects which meet the significant financial commitment grace period requirement will instead receive the RO banding levels in place prior to these latest changes in banding levels (ie 1.3 ROCs/MWh where accreditation is pre 1 April 2016, and 1.2 ROCs/MWh where accreditation is from 1 April 2016 to 31 March 2017).
Demonstrating Significant Financial Commitment
As set out above, where projects not accredited as at 22 July 2015 can nevertheless show they had made a 'significant financial commitment' on or before 22 July 2015 they qualify for:
- an extra 12 months (to 31 March 2017) to apply for ROCs;
- a grandfathered level of support; and
- an exemption from the 1 July 2016 reduction in banding levels.
The criteria for demonstrating 'significant financial commitment" are therefore crucial for the value, and investability, of unaccredited solar projects of up to 5MW.
Under the legislation proposed by DECC in its consultation response, to show that they had made a significant financial commitment, developers must provide the following evidence to Ofgem at the point they apply for accreditation:
- A grid connection offer and acceptance, both dated no later than 22 July 2015
- A Director’s Certificate confirming that, as at 22 July 2015, the developer or proposed operator of the station owns the land on which the station is to be situated OR has an option or agreement to lease the land OR is party to an exclusivity agreement in relation to the land
- A valid planning application has been received by the relevant planning authority no later than 22 July 2015. A letter or email from the local planning authority should be sufficient evidence of this.
It is the third requirement, for a valid planning application, which is going to cause most concern as this places a higher burden than was originally envisaged In contrast, the first two requirements are in line with what was originally proposed by DECC (and in line with the equivalent over 5MW grace period). It is clear that DECC have made this amendment in respect of the planning application requirement because of the number of planning applications which were made on 22 July 2015 as a result of the publication of the original consultation. The requirement for a "valid" planning application means that projects looking to demonstrate significant financial commitment will need to re-evaluate their planning application to check whether the updated grace period requirement is in fact fulfilled.
We are conscious the various grace periods and grandfathering/banding protections are fairly complicated. We have therefore produced the following handy flow chart to explain how important the significant financial commitment is and how it fits in with the other two grace periods for pre-accreditation and grid connection delay.