Power politics: the end of subsidies for onshore wind farms?

Ahead of the recent election it was no secret that the Conservatives wanted to see a cut in taxpayer support for the development of wind farms. What did come as a surprise was the recent announcement by the Westminster Department of Energy and Climate Change (DECC) that the main form of subsidy for wind farms would suddenly be closed in March 2016.

Renewable Obligation Certificates, or ROCs, have been around for some time now and typically make up about half of the revenue of a large wind farm (the rest being from the sale of electricity). Opponents of the scheme argue that it is too generous and encourages the over-development of wind farms which would not otherwise be financially viable. As a result DECC was already in the process of closing the ROC scheme and replacing it with a new support scheme in the form of government backed contracts for difference, or CFDs. However, the handover between the schemes was not scheduled to take effect until March 2017.

The announcement of the early closure will have surprised investors and developers, and possibly panicked those who have already committed funding to projects which have not yet begun construction, and hence could miss the cut-off date for ROCs once they are finally built. In these cases the effects could be disastrous where a wind farm is built later than scheduled and cannot generate enough electricity to make a return for its investors without ROCs.

So what is the implication of this announcement for Northern Ireland? The immediate answer is not much. Energy policy is a devolved matter to the Assembly and so DECC has no jurisdiction to impose an early closure in Northern Ireland, as it has in Scotland. Instead energy policy decisions rest with the Department of Enterprise, Trade and Investment (DETI) and Minister Bell has pledged in a recent press release that he does not intend to follow DECC's lead and close the NI ROC scheme early.

This approach is not surprising. For a variety of reasons the CFD scheme has not yet been introduced to Northern Ireland (having been introduced in Great Britain in 2014 to allow for an orderly handover from ROCs in 2017). Closure of the NI ROC scheme next year would result in there being no subsidies available for Northern Irish wind farms until CFDs are finally brought in, which may still take some time (possibly October 2017, more likely October 2018). Clearly this would not be a desirable situation for an industry which relies on a stable regulatory regime to attract outside investors.

This however may not be the end of it. While DECC does not have the power to impose closure of the NI ROC scheme it does have responsibility for funding it. Therefore it remains to be seen whether DECC could or will use this as influence to encourage an earlier closure in Northern Ireland.

In addition to all of this DETI is currently in the process of introducing a grace period scheme to allow wind farms which miss the 2017 cut-off date to still qualify for ROCs. The scheme which has been proposed is that wind farms which are constructed after 31 March 2017 because they are waiting on NIE to build a grid connection, will be given until March 2018 to begin generating power and still qualify for ROCs.

This legislation is modelled on the current scheme in Great Britain and was supposed to be laid before the Assembly before recess this summer as part of the wider ROC closure order, which would include the provisions covering when the NI ROC scheme will close. This will not now happen before summer and the latest indication from DETI is that it is now proposed to be considered in September instead. It will be therefore interesting to see whether DETI has a change of heart over the summer or if it will hold firm on a 2017 closure date as originally planned.

For more information on this article, please contact Mark Stockdale.