Tate & Lyle Sugars Ltd v Secretary of State for Energy & Climate Change and Another

JurisdictionEngland & Wales
CourtCourt of Appeal (Civil Division)
JudgeLord Justice Elias,Lord Justice Aikens,Lord Justice Longmore
Judgment Date03 Jun 2011
Neutral Citation[2011] EWCA Civ 664
Docket NumberCase No: C1/2010/2717/QBACF

[2011] EWCA Civ 664





CO 5959/2009

Royal Courts of Justice

Strand, London, WC2A 2LL


Lord Justice Longmore

Lord Justice Aikens

Lord Justice Elias

Case No: C1/2010/2717/QBACF

Tate and Lyle Sugars Ltd
The Secretary of State for Energy and Climate Change & Anr

Mr Michael Fordham QC and Ms Emma Dixon (instructed by Berwin Leighton Paisner Llp) for the Appellant

Mr Martin Chamberlain (instructed by Litigation & Employment Group, Treasury's Solicitors Department) for the Respondent

Hearing date: 17 May 2011

Lord Justice Elias

Countries across the world are seeking to reduce the level of carbon dioxide emissions into the atmosphere. One way of doing this is to encourage the growth of electricity generation from renewable sources rather than using fossil fuel. An EU Directive, Directive 2001/77/EC on the promotion of electricity from renewable energy sources in the internal electricity market, set a target of delivering 10% of electricity from renewable sources by 2010.


The Government introduced the Renewables Obligation Order in 2002 to give effect domestically to the Directive. Active financial support is needed to encourage generating stations to use renewable sources because otherwise the costs will be too great to attract the appropriate investment.


This is an appeal by Tate & Lyle, the owner of a large sugar business, who have adopted an unusual technology, using renewable sources, and have sought to take advantage of the Government subsidies. They allege that the Secretary of State has unlawfully allocated to the technology they have employed a lower subsidy than he ought to have done. They took proceedings for judicial review before Moses LJ, sitting as a judge in the Administrative Court. The judge dismissed their application and they now appeal to this court.

The background.


I will summarise the essential background facts but only in so far as it is necessary to understand the issues in this appeal. A much more detailed exposition is to be found in the judgment of Moses LJ below.


The Renewables Obligation was first introduced in 2002. The domestic scheme works as follows. Licensed electricity suppliers have to produce to Ofgem, a regulatory body, a certain number of Renewables Obligation Certificates. These certificates are provided to renewable energy generators and they can be sold to electricity suppliers to meet the suppliers' obligations to produce a specified amount of their output using renewable sources. If the suppliers fail to provide the required number of certificates, they must pay a "buy out price" with respect to the shortfall, which is akin to a fine. This caps the cost of the system as far as suppliers are concerned and since the price ultimately is paid by the consumers, it caps the cost to consumers also.


As originally devised, certain technologies were deliberately excluded from the scheme, such as those using peat as fuel, because it was not considered desirable to encourage their use. Otherwise the original scheme provided the same support for all technologies. It is measured by paying an amount of subsidy for each megawatt hour of electricity generated from eligible sources. The 2002 scheme allocated one renewables obligations certificate per megawatt hour (1.0 ROC/MWh).


The Renewables Obligations Order 2009 altered the system of subsidy by differentiating for the first time between different technologies and subsidising some more than others. This was because following an Energy Review in 2006, the Government had decided to promote the development of some of the more expensive renewable technologies and these required higher subsidies to encourage investment. Accordingly, the 2009 Review adopted a system known as 'banding' which involves placing different technologies in different bands. The rate of subsidy varies so that some technologies receive only 0.25 certificates per megawatt hour (0.25 ROC/MWh), whereas others receive up to 2 ROC/MWh. The ultimate holder (normally the supplier) is paid a particular sum of money for each ROC.


The particular technology adopted by Tate & Lyle involves a system which is described as co-firing of biomass with combined heat and power ("CoCHP"). The co-firing means that it uses both renewable and fossil fuels; the reference to biomass is to products of animal and plant (in this case the biomass currently being used is wheat husks purchased for the purpose and stored in biomass fuel storage silos); the reference to CHP identifies the fact that the generator provides not merely electricity but also heat, and so it is a combined heat and power station (hence CHP). In general this will result in a higher subsidy than would otherwise be paid because CHP stations usually make more efficient use of the energy content of fuel than stations which produce power alone.


When identifying the band of a particular technology the Minister must have regard to certain specified matters. This is an obligation imposed by section 32D of the Electricity Act 1989 which in turn was substituted by section 37 of the Energy Act 2008. It took effect on the 1 April 2009. Section 32D(4) provides as follows:

"Before making any banding provision, the Minister must have regard to the following matters:

(a) the costs (including capital costs) associated with generating electricity from each of the renewable sources or with transmitting or distributing electricity so generated;

(b) the income of operators of generating stations in respect of electricity generated from each of those sources or associated with the generation of such electricity;

(c) the effect of paragraph 19 of Schedule 6 to the Finance Act 2000 (c.17) (supplies of electricity from renewable source exempted from climate change levy) in relation to electricity generated from each of those sources;

(d) the desirability of securing the long term growth, and economic viability, of the industries associated with the generation of electricity from renewable sources;

(e) the likely effect of the proposed banding provision on the number of renewable obligation certificates issued by the Authority; and the impact this will have on the market for such certificates and on consumers;

(f) the potential contribution of electricity generated from each renewable source to the attainment of any target which relates to the generation of electricity or the production of energy and is imposed by, or results from or arises out of, a Community obligation."


It is to be noted that it is not simply costs and revenue which are material, but also other factors, including the need to meet any Community obligations and also the desirability of encouraging certain technologies more than others.


The Minister assessed the CoCHP technology used by the appellant as justifying 1 ROC/MWh. He did this in part by assessing costs without having available any very precise criteria. He took as a starting point the cost of a new station for dedicated biomass and then discounted capital expenditure. That approach was a matter of contention and the appellant submitted that the Minister ought to have obtained detailed and specific information about the cost of the particular technology from Ernst & Young, who had provided detailed costing information in respect of many of the technologies that were subject to assessment. The appellant considered that it had been unfairly treated as a result of the principles adopted by the Government to assess its costs, and it commenced judicial review proceedings to challenge the analysis.


In fact this application was overtaken by events when the Department discovered in the course of preparing for the judicial review proceedings that the figures it had deployed to assess costs were erroneous and gave too low a figure. Once apprised of this error, the appellant submitted that if the costs had been properly calculated it would inevitably have led to the assessment of their technology as falling within the 1.5 ROC/MWh band.


In view of this, the Secretary of State decided to carry out an early review pursuant to Article 33 of the 2009 Order. Article 33 provides, so far as is material, that a banding provision may be reviewed in one of two ways. The first is a general review of all technologies at four-yearly intervals commencing in October 2010. The second, under Article 33(3), empowers the Secretary of State to review "all or any of the banding provisions at any time if satisfied that one or more of the following conditions are satisfied". There are then set out various grounds on which a review can be carried out including the following, which relates to changes in costs:

"(e) the costs of generating electricity in any of the ways listed in the first column of Part 2 of Schedule 2 are significantly different from the costs of generating electricity in that way to which the Secretary of State had regard when making the banding provisions".


In this case a full review of the CoCHP technology was conducted pursuant to that paragraph. The Secretary of State commissioned some consultants to advise on the relevant costs. That resulted in an alteration of the costs from the figures used for the original assessment. More significant was the fact that, in conducting the review, the Secretary of State had regard to the up to date information on the revenue side. Since the wholesale electricity price had increased substantially from the price when the original assessment was made, this improved the...

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