Time to say grace? DECC sets out its proposals for RO grace periods

21st November 2013

With the Renewables Obligation (RO) scheme of support for new schemes to be phased out by 31 March 2017 and the replacement Contracts for Difference scheme coming into effect next year, there will be a period of time in which developers will have a choice of which scheme to seek support under. For those that elect to seek support under the RO, generally speaking the facility must be commissioned and accredited by 31 March 2017 otherwise it will have to seek support under the Contracts for Difference scheme. However, the Government has recognised that there may be some reasons outside the developer’s control that a project may be delayed beyond 31 March 2017 and so has issued a consultation on what grace periods will be available in such circumstances.

The Government’s position is that, in general, operators of projects which have commissioning dates on or close to 31 March 2017 have the option of applying for a Contract for Difference, which would give them clear assurance of receiving support even if the project suffers unexpected delay. Because developers have known about this date for several years, DECC remains minded to keep grace period eligibility minimal. It recognises that there are certain specific challenges which developers are experiencing at present, which it believes can best be addressed via more substantive grace periods, but proposes to target grace periods directly at those challenges, and where appropriate, rather than considering more extensive grace periods in general.

“Clearly defined and limited grace periods”
DECC is proposing to offer four forms of clearly defined and limited grace period, as follows:

• a 12-month grace period to address radar and grid connection delays (which were not due to the developer), where the project was scheduled to commission on or prior to 31 March 2017
• a 12-month grace period for projects which have signed Investment Contracts under FID Enabling, should these contracts fall away or be terminated under certain specific circumstances. Initially, DECC is proposing that this is limited to termination due to lack of State Aid approval, in recognition of the fact that developers are likely to be making their choice of scheme in advance of the investment contracts receiving State Aid clearance and at a time when EMR has not yet been implemented in full
• a 12-month grace period for projects able to demonstrate that substantial financial decisions and investments have been taken prior to 31 July 2014 (i.e. in the period prior to the launch of the CfD scheme), where the project is scheduled to commission on or prior to 31 March 2017. To be eligible these projects will have to undergo a notification process by 31 July 2014
• an 18-month grace period for projects allocated an unconditional place under the 400MW dedicated biomass cap, in recognition of the fact that some projects had their timetables delayed while the detailed policy arrangements in relation to the 400MW cap were put in place.

The consultation sets out the Government’s reasons for proposing these forms of grace period. It also details the steps a developer must take, and the evidence it must provide, in order to benefit from the relevant grace period.

Our view
The consultation is to be welcomed, as it provides further detail on one of the key issues associated with the phasing out of RO support for new projects, and replacing that with support under the Contracts for Difference scheme. While the circumstances giving rise to the right to claim one of the grace periods is very limited, developers will no doubt welcome the certainty and will be able to plan accordingly. Those that are still to let construction contracts for their projects will be able to include some of these grace periods in those contracts, in particular the evidence requirements, and tie the contractor as closely to the support scheme as possible.

Next steps
The period for responding to the consultation is short, and closes on 28 November 2013. DECC expects to publish its response to the consultation towards the end of the year.

Subject to the responses received to this consultation, the Government’s aim is to implement the proposals via a Renewables Obligation Closure Order 2014, anticipated to come into force in Spring 2014. Of course, like all other aspects of Electricity Market Reform, the proposals are subject to the Energy Bill, which is currently before Parliament, Parliamentary approval of the Order, and any State Aid clearances that may be required.

Further information
The consultation can be found on the DECC website here.

For more details of the Renewables Obligation, Electricity Market Reform or energy projects more generally, please contact Ben Sheppard.