Government attempts to justify ‘grossly unfair’ early RO closure at Court of Appeal hearing

  • Royal Courts of Justice

    The government claimed the industry could not "legitimately expect" a policy to continue if there was an overspend in the LCF. Image: HM Government.

The government has attempted to justify the “grossly unfair” early closure to the renewable obligation (RO) last year at the Court of Appeal, claiming that any operation of the support mechanism was always subject to the “overriding risk” of the Levy Control Framework (LCF).

Yesterday Solarcentury, Lark Energy and others took their case to the Court of Appeal, attempting to overturn a decision reached by Mr Justice Green last year that the government, the Department of Energy and Climate Change and the secretary of state were justified in their actions of closing the support scheme early.

The RO was originally expected to run until 31 March 2017, with a grace period for eligible projects running for a further year. However this was closed two years prematurely to projects over 5MW in size as part of a cost-cutting exercise which DECC has repeatedly argued was necessary to protect bill payers.

The case was presented to Lord Justices Treacy, Floyd and Tomlinson, who will preside over the appeal and reach a majority verdict.

Representing the appellants, Michael Fordham QC stated that the “heart of the case” was the LCF, arguing that DECC’s interpretation of the mechanism and its use as a budgetary measure was important to the industry. “Absolutely central is which way round things are… [are] clear statements of policy qualified by the LCF, or the other way around? When you look at the Levy Control Framework, it is subject to keeping promises,” Fordham said.

The crux of the case hinged on terminology within the LCF that states that the government would “maintain levels of support where it has said it would”. Solarcentury and others subsequently argued that when DECC originally stated that the RO would close in 2017, there was a legitimate expectation that this would be the case.

Also challenged was the application of grace periods and that retrospective changes to the policy had been made setting deadlines that Fordham argued that “nobody could possibly meet”.

When the consultation on the early closure was released it set the date of its application for the same day, essentially cutting off any developer that had yet to receive planning permission.

Evidence provided by Solarcentury and Lark attempted to advise the court on the lead times associated with the development of solar farms and why the grace period deadline set by DECC was unmanageable, indicating that often developers did not submit planning applications until well into the development process and often by the time significant resources had already been invested.

In his closing argument, Fordham once again focused on the application of the LCF. “It [the LCF] is the answer to absolutely everything. It’s the only show in town. [It] explains why the announcements cannot be seen as tying the hands of the minister,” Fordham said.  

He then qualified this by stating that there was not just a legitimate expectation that the RO would continue until its original closure date of 2017, but that any suggestion that it would not would be tantamount to the government acting ultra vires (without authority).

However Lord Justice Treacy pressed Fordham on his need to prove that the changes were objectionably retrospective if they were to be unlawful. Fordham attempted to prove this by stating that the changes resulted in a penalising legal consequence. “You cannot set a deadline that people could not possibly have met… you have to give people a chance to meet guidelines you are laying down… this is grossly unfair and now routine at DECC,” Fordham argued.

DECC’s QC Robert Palmer took to the stand after a lunch adjournment and immediately set the case for the defence, hinging it on the argument that the LCF is not subject to its constituent parts. “Competing interests need to be balanced against each other. This includes investor confidence and the need to protect consumers’ electricity bills within the LCF as these pay for the subsidies supplied,” Palmer said, essentially arguing that an overspend projected in one area must be corrected to stop other technologies from missing out and/or bills increasing.  

Palmer noted that solar had experienced “unpredicted growth” and “outstripped expectations” in the years following the establishment of the RO. The policy therefore, according to DECC, had to change in order to “balance these interests”.

Tackling Fordham’s interpretation of the LCF’s commitment to keeping policy promises, Palmer claimed: “When the government says it will maintain support of existing investments, this means it will support projects already with some support.”

Palmer concluded that “no proper legitimate expectation can arise” from reading the LCF in context, and claimed that parliamentary statements referenced by the appellants did not express assurances that this would be the case. On the subject of the grace period deadline set at historic dates, Palmer said the government was “…simply drawing a line between when investment was made when they didn’t know when the shutters were coming down and those that continued knowing the deadline on 31 March 2015.”

Evidence was concluded within one day and the three Lord Justices retired to deliberate. A verdict is expected within the next three to four weeks. Should the government win the case Solarcentury and others will have exhausted their options, however in the event of a victory for the appellants the government will have the right to appeal the verdict.

Speaking to Solar Power Portal after the hearing, Solarcentury head of external affairs Seb Berry said: "The hearing focused on the central issue of whether the Levy Control Framework provides sufficient grounds in law to justify retrospective policy change. The practical and negative effect on investors of such change was a key theme of the hearing. It would be wrong for us to speculate on the outcome, which probably won't be known for several weeks, but the verdict may have significant consequences for the way in which DECC approaches future policy changes."

DECC has been approached for comment on the case, but has yet to respond.

Additional reporting by David Pratt.

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