The Secretary of State for Energy and Climate Change v Friends of the Earth and Others

JurisdictionEngland & Wales
CourtCourt of Appeal
JudgeLord Justice Moses,Lord Justice Richards,Lord Justice Lloyd
Judgment Date25 Jan 2012
Neutral Citation[2012] EWCA Civ 28
Docket NumberCase No: C1/2012/0023

[2012] EWCA Civ 28

IN THE COURT OF APPEAL (CIVIL DIVISION)

ON APPEAL FROM THE HIGH COURT QUEEN'S BENCH DIVISION,

ADMINISTRATIVE COURT

The Honourable Mr Justice Mitting

CO/10734, 11055, 11091/2011

Royal Courts of Justice

Strand, London, WC2A 2LL

Before:

Lord Justice Lloyd

Lord Justice Moses

and

Lord Justice Richards

Case No: C1/2012/0023

Between:
The Secretary of State for Energy and Climate Change
Appellant
and
Friends of the Earth and Others
Respondent

Mr Jonathan Swift QC, Mr Paul Nicholls and Mr James Cornwell (instructed by The Treasury Solicitor) for the Appellant

Mr Sam Grodzinski QC (instructed by Asserson Law Offices) for the Respondent

HomeSun Holdings Ltd, Mr Richard Drabble QC and Mr Duncan Sinclair (instructed in house) for the Respondent Friends of the Earth, Mr Edmund Robb (instructed by Prospect Law) for the Respondent Solar Century Holdings Ltd and for three interested parties, and Mr James Burton for the remaining interested parties

Hearing date: Friday 13 th January, 2012

Lord Justice Moses
1

In April 2010 a scheme, known as the FIT Scheme, was introduced to enable electricity supply companies to make payments to small-scale producers of low-carbon electricity. The purpose of the scheme was to encourage members of the public and the community to become involved in the low-carbon generation of electricity by specified types of technology. The system of Feed-in Tariffs (FITs) is designed to provide support and to encourage small-scale low-carbon generators. The sources of such generation were, for example, biomass, wind and solar photovoltaic (solar PV).

2

The Feed-in Tariff comprises two elements, only one of which is relevant to this appeal. The first is a "generation tariff", that is payment for the amount of electricity produced by the small-scale low-carbon generator, even if that electricity is used by the person who generated it. This application for permission (to be followed by an appeal, if granted, which I shall refer to as the appeal) concerns the generation tariff. The second element is "the export tariff" when payment is made for the amount of electricity exported into the grid. That tariff is not relevant to this appeal.

3

The electricity supply companies pay the Feed-in Tariff to generators of small-scale low-carbon electricity accredited by the Gas and Electricity Markets Authority (the Authority). But the cost of the Feed-in Tariff is passed on to all electricity consumers. It triggers raised prices and is, effectively, a subsidy paid by consumers. Such subsidy is controlled by HM Treasury and for that reason there is a budget for the FIT Scheme.

4

At the time the 2010 FIT scheme was initiated the cost of installation of solar PV equipment per unit of electricity generated was high compared with other low-carbon generation technologies. Accordingly, the tariff level was set at a higher level than for other technologies to provide an incentive to generators by such means. The Secretary of State expected a return of about 5% from the installation of such systems. The return was expected to last 25 years, was, for some participants, tax-free, and fluctuated in accordance with the Retail Price Index.

5

By February 2011 the Secretary of State had become concerned that larger small-scale solar PV projects would take a disproportionate amount of the funding available. Accordingly, he announced a consultation in respect of solar projects with generating capacity of more than 50 kW. The consultation was fast-tracked and published on 18 March 2011, with a period for responses which closed on 6 May 2011. The consultation led to changes in the tariff rates in respect of large-scale solar installations with effect from 1 August 2011. I refer to this process of consultation because it led to changes in tariff rates relevant to larger small-scale producers and provides a useful contrast to the consultation with which this appeal is concerned.

6

This appeal is concerned with a consultation published on 31 October 2011. The adoption of solar PV by communities and the public had been unexpectedly successful. In the first 18 months of the FIT Scheme the take-up was almost double that which had been anticipated for the first 2 years. Solar PVs were the largest number of installations under the FIT Scheme. There had been a substantial increase in the months immediately before October 2011 with the rate of increase accelerating in the weeks leading up to publication of the proposals. The costs of installing solar PV systems had fallen substantially, from about £13,000 to £9,000 for 4kW. In consequence, the tariffs available were providing higher rates of return than the 5–7% anticipated in the consultation document of 2009. The Secretary of State was concerned that solar PV generators would be over-compensated and the FIT Scheme budget would be breached, limiting the availability of funds to other technologies and future generators. In short, the tariffs for solar PVs were threatening the extent to which the FIT Scheme could be afforded.

7

I should emphasise, at this stage, that this appeal is not concerned with the merits of the Secretary of State's proposals. No one has sought to impugn the reasons behind these proposals. But it is the form of those proposals which has triggered these proceedings. There are two linked proposals, only one of which is the subject matter of these proceedings. The consultation period ended on 23 December 2011, the closing date for the receipt of representations. The consultation proposed a new and lower rate of tariff to be paid to solar PV generators which become eligible for payment from 1 April 2012. This proposal is not challenged.

8

The second, linked proposal is the subject matter, and the only subject matter, of this appeal. It is proposed that the tariff rate to be paid in respect of solar PV installations which become eligible for payment on or after 12 December 2011 should be reduced on 1 April 2012. The rate is fixed by reference to the year in which the installation becomes eligible, which at the time of this appeal is 1 April 2011 – 31 March 2012, (known as "FIT Year 2"). But the proposal is to vary and reduce that rate at the end of the current year, not merely in relation to installations becoming eligible after the modifications come into effect but also in respect of those which became eligible in the three and a half months before the modifications are brought into effect. It should be stressed that it is proposed that those installations which became eligible on or after 12 December 2011 will receive the higher FIT Year 2 tariff until the modification comes into effect on 1 April 2012, but thereafter they will receive the new lower rate.

9

The Secretary of State took the view that following publication of the consultation document on 31 October 2011, those who were committed to the installation of a solar PV would have sufficient time, 6 weeks, to complete the installation and satisfy the criteria for eligibility to receive payments. They would receive the higher FIT Year 2 rate of return without any reduction in the rate from 1 April 2012.

10

However, the proposal to apply the April 2012 reduced rate to installations becoming eligible before that date created consternation. Proceedings were launched by those involved in the supply and installation of small-scale solar PV installations, and by Friends of the Earth championing a large number of community organisations, such as social housing schemes, village halls and schools. Their concern stems from the fear that the Secretary of State asserts a power to modify the system they believed had been established, a system which fixed the rate of return for the generating life of the installation (subject to a maximum period). In its place they fear that the Secretary of State wishes to substitute a system which is capable of reducing the rate of return even in respect of installations which have previously become eligible for payment.

11

An urgent hearing took place and Mitting J produced a judgment on 21 December 2011 which lost nothing in clarity by the speed with which it was produced. These proceedings are, in order to respond to the urgency, brought by way of an application for permission to appeal and an appeal against the decision of Mitting J. Mitting J declared that the respondent's proposal that the April modifications should apply to installations becoming eligible on or after 12 December 2011 (the 12 December "reference date") was unlawful and that any new "reference date" could only lawfully take effect from a date on or after the proposed modifications came into effect.

12

Mitting J reached his conclusion on two linked bases: first, that the reference to a date earlier than the date on which the modification was proposed to come into effect was not calculated to further the statutory purpose of the Energy Act 2008 (the 2008 Act); second, that it was ultra vires the Secretary of State's powers to make a modification which had a significantly adverse impact on those proposing to install small-scale solar systems before the date on which the modification was made and came into effect.

13

It is important to underline the scope of this application for permission and appeal. The instant proceedings are concerned only with those who have installed or were contemplating installing solar PVs between 12 December 2011 and 1 April 2012. The proceedings are not concerned with the legality of introducing a lower rate of tariff for installations becoming eligible after the modifications come into effect. Moreover, these proceedings are not concerned with the legitimate expectation of...

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