Following the commitment in last week's Queen's Speech to end new subsidies for onshore wind projects, it seems that DECC may be planning to reform the Renewables Obligation (RO) scheme, possibly by closing it to onshore wind schemes a year early (by 31 March 2016 instead of 2017). According to some sources, the Feed-in Tariff (FIT) for smaller wind projects may also be reformed. Details in relation to either of these reforms have not yet been published but are expected this week. This would most likely take the form of a consultation document similar to what we saw last year in relation to the early closure of the RO for large scale solar.
Recent Government energy policy including particularly Electricity Market Reform has been around increasing investor confidence so closing the RO and reducing the FIT for onshore wind would seem to fly in the face of that. Any move would be certain to impact on at least some onshore wind projects that are currently in development and the industry has understandably reacted nervously to this new development.
Another reason for the move could be that DECC have worked out that the projects that are already live or being built (over 9.5GW) plus those that already have planning permission (5.2GW) will be enough to meet the UK's climate change targets of 30% of electricity being generated from renewables by 2020, which envisages between 11 and 13GW of onshore wind power.
We don't yet know the detail of the reforms but, given the Government's recent experience with solar, it seems implausible that there would not at least be some sort of grace period afforded to developers who can demonstrate that they have made a significant financial commitment to a particular project. If that is right and if Government follows, as a minimum, what it has done on solar it is likely that projects that have already applied for planning permission, have a signed grid connection offer (if they need a connection) and a land ownership declaration may be able to still receive the RO (provided of course they commission by the original 31 March 2017 deadline).
If a grace period is available on those terms the reforms might not actually have such a drastic impact since any project that is looking to accredit under the RO must surely already have applied for planning, have an appropriate grid offer and have the necessary land rights if it is to be commissioned by March 2017. If there are more stringent rules around what must have been done or how much money must have been invested (as was originally proposed in the context of the solar consultation) then this could deliver a much more telling blow. A lot will therefore turn on the precise eligibility requirements for any such grace period.
Perhaps the biggest threat to projects though is not the direct impact of the reforms but instead the indirect effect that any continuing uncertainty is likely to have. Where this is likely to be felt most is on projects that are looking for external finance. The longer that the position remains uncertain; the less time projects will have to financially close and this will in turn eat into the contingency periods that funders are requiring in project programmes. This could potentially be fatal for some projects – at least in terms of accrediting under the RO. The only alternative would then be the Contract for Difference. But the availability of CfDs for such projects remains unclear following the Government's pledge to end new public subsidy for onshore wind farms.
Scotland and Wales
The Government are in talks with the devolved administrations on the subsidy changes so there is an even bigger question mark over what might happen in Scotland and Wales. However the SNP are very much in favour of more Scottish onshore wind farms so don't be surprised if the RO continues for Scottish wind farms - which are, of course, the vast majority of those in the pipeline. It may come down to how much of a majority the Tories can command in Parliament to pass the necessary legislation, which could be a new Act or secondary legislation under an existing Act.