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Court wrangle for Drax over renewable energy subsidy

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Note: since this piece was posted DECC has won its appeal against Drax (7 August 2014) and the power generator has abandoned further legal action (with its share price duly dropping). See “The Court of Appeal judgment” below.

Shares in UK energy company Drax leapt more than 40p after it won a High Court victory against the Department of Energy  and Climate Change (DECC) over renewable energy subsidies (14 July 2014). It is the second court win against DECC mishandling of the green energy business sector announced within days. (See previous post)

DECC had failed to accept one of Drax’s biomass conversion projects as eligible for a subsidy scheme involving contracts for difference (CfDs), intended to provide certainty on prices for renewable generation.

Mrs Justice Andrews ruled that: “When properly understood, Drax’s application did satisfy the Key Criterion [for the CfD subsidy] and no decision maker, properly informed, who accepted that Drax was telling the truth …  could have concluded that it had failed to do so or that the information given by Drax was insufficient to satisfy him that it passed the test.” She added: “The matter will have to be remitted to DECC for reconsideration in the light of this judgment.”

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Contractual rights are property rights: Government blunder on feed-in tariffs

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The UK Government faces a bill for up to £200m in compensation to green energy installers that suffered losses as a result of former energy secretary Chris Huhne’s 2011 announcement on proposed cuts in environmental subsidies. The announcement led to many organisations and individuals dropping plans to install solar power with feed-in tariff (FIT) equipment that feeds electricity generated by small-scale solar panel systems into the grid, producing a payment.

A legal ruling in the High Court (Breyer Group plc & Others v DECC issued 9 July 2014 ) is the second time in a week that the government has been show to have fallen foul of the principle that the law should not be retrospectively changed if it damages people’s interests. (See the Poundland case: UK Human Rights Blog)

Are contracts property?
The High Court established in its ruling on preliminary legal issues that pre-existing contracts to supply the solar micro-generation equipment constitute “property” for the purposes of protection of property rights under the European Convention on Human Rights. Furthermore, Huhne’s announcement, which proposed bringing forward a reduction of the subsidised payment, constituted an “interference” with those property rights. This should potentially be compensated, said Mr Justice Coulson.

The 31 October 2011 announcement that cuts in the feed-in payment might be brought forward amounted to a retrospective change in legislation without passing new legislation through Parliament. “The proposal would have taken away existing entitlements without statutory authority.” The announcement damaged businesses and hit consumers who had planned to install the equipment on the basis of the higher payments. As such it breached ECHR Article 1 Protocol 1 (A1P1) on protection of property rights regarding contracts concluded on or before the day of the announcement.

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