Government Attacks Feed in Tarriff Extension Loophole

"They thought it wasn't all over, it is now"

The fast-track feed-in tariff (FITs) review of large-scale solar farms has led to reduced subsidies forcing many developers to abandon plans for projects which could not be completed by the 1 August deadline.

However, under the current legislation for FITs[1], solar PV developers who were able to install a system and obtain accreditation before 1 August  appear to be allowed to install extended capacity within 12 months, which would also receive the higher, pre-deadline FITs. This effectively backdates the enlarged project to the higher tariff and has been regarded as something of a loophole which several developers have sought to rely on.

Whilst some solar PV developers decided not to progress projects after the announcement of the fast-track review which led to the expected lower bands and rates, others decided to push projects through rapidly, installing what they could before 1 August, with the possibility of extending those capacities after the deadline, receiving the higher rate FITs for the whole installation.

Government action on Articles 15 and 16 was anticipated once it became apparent that there was a significant amount of subsidy which would end up being allocated to extensions. There was some fear that attempts would be made to make an instant change by amending non-statutory guidelines, however the Department of Energy and Climate Change (DECC) opened a consultation on 27 July 2011 in order to shut this loophole by changing the current extension rules in the legislation itself so that extensions to existing projects count as new developments.

In the statement DECC said, "We have become increasingly aware some large-scale PV developers are intending to exploit a technical loophole in the FITs legislation on extensions to benefit from pre-fast track tariffs post 1 August 2011. This consultation seeks views on the proposed treatment for extensions to ensure the fast-track review is implemented as intended."

DECC wants to make these changes as soon as possible. However, the deadline to respond to this consultation is 31 August 2011, so it cannot implement these changes until after then. If the expected rule change on extensions is proposed immediately after the consultation period there will be at least 21 days before the statutory instrument can change.

At a briefing in Cornwall on the day after the announcement, Rachel Solomon, Head of FITs at DECC, said the plan by solar developers to rely on the current legislation was "entirely logical" , removing some of the uncertainty around the current regime. She said the original announcement which had stated the changes would be effective from 31 October 2011 was a mistake that had now been corrected.

Ian Holyoak, Head of Energy & Renewables at Michelmores Solicitors in Exeter, was surprised that the DECC had not addressed this loophole when they undertook the main fast-track review, " The announcement gives clarification on two elements- first, there is scope to extend before the legislation changes, which should be 21 September 2011 at the earliest. Secondly, it is inevitable there will be changes to prevent developers using the extension route through to 1 August 2012, as some had hoped".

Ian Holyoak is a partner within the Commercial Team at Michelmores and advises regularly on domestic and international trade. For further information, contact Ian at ian.holyoak@michelmores.com or on 01392 688688.

To view the consultation released on 27 July 2011 please visit the DECC link: https://econsultation.decc.gov.uk/decc-policy/fits_extensions_to_installations/consult_view

 [1] Articles 15 and 16 of the Feed-in Tariffs (Specified Maximum Capacity and Functions) Order 2010