R (Tate and Lyle Industries Ltd) v Secretary of State for Energy and Climate Change
| Jurisdiction | England & Wales |
| Judge | Lord Justice Moses |
| Judgment Date | 02 November 2010 |
| Neutral Citation | [2010] EWHC 2752 (Admin) |
| Date | 02 November 2010 |
| Court | Queen's Bench Division (Administrative Court) |
| Docket Number | Case No: CO/5959/2009 |
[2010] EWHC 2752 (Admin)
IN THE HIGH COURT OF JUSTICE
QUEEN'S BENCH DIVISION
ADMINISTRATIVE COURT
Before: Lord Justice Moses
Case No: CO/5959/2009
Mr Michael Fordham QC and Ms Emma Dixon (instructed by Berwin Leighton Paisner LLP) for the Claimant
Mr Martin Chamberlain (instructed by The Treasury Solicitor) for the Defendant
Hearing dates: 6 th-7 th October, 2010
Lord Justice Moses:
This is an application for permission, and if granted, for judicial review of the Renewables Obligation Order 2009 and of a further decision made following an “Early Review” under the 2009 Order. Tate & Lyle Industries Limited and the new owner of its sugar business, T & L, (Tate & Lyle) contend that both in the Order and in the further decision following “Early Review” the Secretary of State has unlawfully allocated to Tate & Lyle only 1.0 Renewables Obligation Certificate per Megawatt hour (1 ROC/MWh) in relation to the category of Co-firing of biomass with CHP (combined heat and power).
The proceedings originally challenged the allocation in the Renewables Obligation Order 2009, after it had come into force on 1 April 2009, in proceedings commenced in June 2009. Following the Secretary of State's decision to undertake an Early Review, these proceedings were treated as stayed and subsequently amended to challenge the decision following the Early Review. None of this makes sense until the statutory scheme designed to stimulate the growth of electricity generation from renewable sources is understood.
The Renewables Obligation and Renewables Obligation Certificates
The United Kingdom is under an obligation to take appropriate steps to encourage greater consumption of electricity from renewable energy sources (see Article 3(1) Directive 2001/77/EC of 27 September 2001, this will eventually be replaced by Directive 2009/28/EC of 23 April 2009).
The Renewables Obligation was introduced into domestic statutes in 2002 as a means of stimulating the growth of electricity generation from renewable sources. It is a statutory obligation requiring designated electricity suppliers supplying electricity to customers to produce to Ofgem (the statutory Authority) a required number of Renewables Obligations Certificates (ROCs) in respect of the amount of electricity supplied by it during a specified period to customers in the relevant part of Great Britain (see s.32 Electricity Act 1989 as amended by the Energy Act 2008 with full effect from 1 April 2009). If electricity suppliers fail to present the required number of certificates, they may pay a “buy-out” price, which caps the cost of the system to suppliers and thus to electricity consumers, but which is set at a level which provides an incentive to acquire ROCs. The supplier may present some ROCs and make up the difference by paying the buyout price for each remaining ROC.
Certificates are provided to generators in respect of their generation of electricity in the wholesale market. The certificates are then sold to electricity suppliers to meet the suppliers' obligations. It is through the system of certificates that the Government provides financial support to generators using renewable sources. Generators using renewable sources face difficulties in the wholesale electricity market due to the relatively undeveloped state of their technologies compared to fossil fuel and nuclear alternatives, and to the high capital costs and long lifetime to reach maturity.
The subsidy, through ROCs, represents assistance from the Government to enable renewable technologies to compete in the market with unabated fossil fuel stations and in the longer term replace them with low carbon technologies to reduce the United Kingdom's carbon dioxide emissions. The Renewables Obligation Order 2002, (the first order made pursuant to s.32A of the 1989 Act) permitted electricity generated only from specified renewable sources to count towards discharging the renewal obligation (see s.32A(1)(b)). Thus certain types of technology such as simple combustion energy from waste and those using peat as fuel were excluded from the 2002 Order. It is important, however, to note that in contrast with the current regime under the 2009 Order, its predecessor, the 2002 Order, did not differentiate in the subsidy provided for each megawatt hour of electricity generated from the specified renewable sources. Each technology falling within the 2002 Order received a flat rate of 1 ROC per MWh regardless of the type of renewable technology employed.
As part of the Energy Review 2006, the Government decided to promote the development of the more expensive renewable technologies. It determined to provide levels of support differentiated according to different renewable technologies, a system known as “banding”. Different technologies were allocated different rates of ROC per MWh. It is that process of distinguishing between different renewable technologies for the purposes of allocating different rates of ROC per MWh which lies at the heart of these proceedings.
Essential Facts
After a period of consultation following the 2006 Energy Review, the Renewables Obligation Order 2009 came into force on 1 April 2009. Tate & Lyle was allocated 1 ROC per MWh in respect of the technology it used, co-firing of biomass with CHP (“CoCHP”). Following discovery of an error in the Government's prediction of the costs of such technology, the Secretary of State ordered an Early Review pursuant to the 2009 Order. On 31 March 2009, the Government maintained its decision to allocate, in respect of CoCHP, 1 ROC/MWh. That allocation is the source of this dispute.
Tate & Lyle produces 1.1m tonnes of sugar per year at its Thames refinery at Silvertown. It has installed four dedicated biomass boiler houses supplying 70% of the refinery's energy requirements. These boilers, from about October 2010, will use regular biomass, currently wheat husks, purchased for the purpose and stored in biomass fuel storage silos. The decision to invest £81.1m in a CoCHP plant was made in December 2006. Tate & Lyle's dedicated boilers using regular biomass feed its steam turbine in parallel with existing fossil fuel (gas) boilers. Thus the generation process falls within the definition of “Co-firing of biomass” (within the meaning of Part I Schedule 2 of the 2009 Order). The generator also produces combined heat and power, making use of the heat given off in generation of the electricity (CHP). Thus the whole process of generation falls within the description “Co-firing of biomass with CHP” (called CoCHP, and defined in Part I of Schedule 2 of the 2009 Order). It is not required to produce ROCs to Ofgem because it supplies the electricity on site to itself, or single consumers (Class C (2) Schedule 4, Electricity (Class Exemptions from the Requirement for a Licence) Order 2001).
Tate & Lyle contends that the Secretary of State, having erred in his original allocation under the 2009 Order, has maintained and aggravated that error following his Early Review. It estimates a loss of £1.5 m per year, attributable to a failure to allocate 1.5 ROC/MWh.
The Process Leading to Banding in the 2009 Order
The first stage in the process leading to banding started with an Energy White paper dated July 2006 and a consultation document from the DTI called “Renewable Energy” dated October 2006. This was followed by a consultation paper entitled “Reform of the Renewables Obligation”, dated May 2007. That consultation paper was accompanied by a report commissioned from Ernst and Young and a report on the impact of those proposals by Oxera Consulting Limited.
The 2007 report commissioned from Ernst & Young, produced an estimate of “levelised costs” per MWh for each technology at four key periods, 2006, 2010, 2015 and 2020. The levelised costs were presented as a range to illustrate variation in costs due to a number of factors, varying according to each technology and reflecting uncertainty in relation to emerging technologies (3.2). They reflected the amount of electricity revenue per MWh needed throughout the life of the technology to make the respective technologies commercially viable (see Executive Summary). The report predicted levelised costs by reference to specific technologies. For example, onshore wind was divided into four sub-sets (large and small high-wind and large and small low-wind). It noted that in relation to immature technologies without commercially operational projects, the range of costs represented a view of what was anticipated as well as a level of uncertainty. It stated that the majority of the projects were expected to be around the “medium level as opposed to the extremes” (see page 4 of Executive Summary). A 15% pre-tax real cost of capital was adopted for dedicated biomass (page 22). The report arrived at a list of twenty technologies using renewable sources.
The report from Oxera Consulting Limited considered the likely impact of changes on the basis of Ernst & Young's report. In particular it reviewed the different banding options. It considered the rate of ROCs per MWh in respect of each individual technology (see s.5, page 18). That breakdown demonstrates that in respect of some technologies the number of ROCs needed in order to break even was substantially greater than the number...
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