“Once electricity enters the distribution grid (upon generation), it becomes impossible to identify its origin, as an electron from a renewable source is indistinguishable from an electron from a “brown” source … The CCL legislation therefore introduced LECs to help identify quantities of generated electricity that qualify for the CCL exemption, with one LEC being issued for each megawatt of qualifying electricity generated. The LEC is simply a registration/serial number that is allocated to the appropriate party on “issue” or “transfer” and then cancelled on redemption.”
“It was assumed that the LEC value remains constant in real terms at£4.70 /MWh in 2010 prices, and the CCL remains in place for the length of the modelled period. It was also assumed all currently eligible technologies remain eligible. In our experience, generators generally incur transaction costs in the sale of LECs. This can be around 7% of the LEC price. Although this will tend to vary according to the exact terms and the proportions achieved for the other elements of value in a PPA. For the purpose of our modelling, in agreement with DECC, it was assumed that generators receive 93% of the value of their LECs under the terms of PPAs. Offshore wind generators were assumed not to sign PPAs, and to DECC [sic] therefore asked us to assume they receive 100% of the LEC value.”
“Other Policy: LECs provide around 5/MWh of support. The modelling assumes CfD plants (like those supported under the RO) will receive LEC revenue and the strike price is reduced to account for this. … Strike prices for 2014/15-2016/17 are set so that, given our current assumptions set out [above], they are at broadly equivalent levels to the RO in order to enable a smooth transition between the instruments and avoid all investors preferring one to the other. We refer to this approach as “Renewable Obligation minus X” or “RO-X. … Calculating strike prices on the basis of RO-X involves the following steps: … Round strike prices to the nearest£5 . ROC bands have been set in 0.1 ROC increments, with 0.1 ROC indicating a difference in support of around£5 /MWh. All strike prices are therefore rounded to the nearest£5 /MWh (2012 prices), to be consistent with this convention. The actual strike price paid to generators will then be uprated in line with CPI inflation.”
“… the overarching problem we have is that whilst we are trying to exempt the “actual”
“… there was a strong policy and value for money argument to end the RSE Exemption. Critically, the benefit provided by the RSE Exemption was regarded as inefficient compared to other support mechanisms for renewable generation, supported foreign generation and was diffused across the supply chain. Removing the RSE Exemption would also help eliminate the deficit, which is a primary fiscal objective for this Parliament.”
“This will impact generators and stakeholders, although it is difficult to know how much as the precise effect will depend on individual commercial arrangements.”
“The ‘three year cap’ – Precedents in VAT have highlighted that taxpayers have a legitimate expectation with regard to claiming reliefs that they are entitled to and they should expect a reasonable period of notice when they are withdrawn.”
“UK renewable generators could be impacted in the short-term, but the value they receive from the exemption was expected to be negligible by the early 2020s, and any short-term loss will be minimal compared to the£4.3 B of support they are expected to receive in 2015/16 alone.”
“Any loss UK renewable generators face will be small compared to the other support they receive … Unlike other forms of renewable support, this exemption is not targeted specifically at UK renewable generators. They do receive some value from the exemption but this is uncertain and shared with other stages of the supply chain. The value generators receive will also be negligible by the early 2020s, as the supply of renewable electricity exceeds business demand for it. This uncertainty over the future value of the exemption makes it difficult for generators to factor it into their businesses plans [sic], and so it is unlikely to be decisive in their investment decisions.”
“Shares in Drax, the power utility switching from burning coal to wood pellets, tumbled on Wednesday after a climate change exemption was abruptly scrapped … Drax said the move, which is estimated to save£450M in the current financial year and£900M by 2020, could reduce its revenues by about£30M this year and£60M in 2016.”
“While LEC value is explicitly recognised in recent DECC calculations on returns from investment in renewable capacity, CCL is a Treasury initiative and there may be limited incentive to support LEC value, or to ensure demand exceeds supply.”
“The development of renewable energy sources and generation of renewable energy in the UK relies, in large part, on the national and international regulatory and financial support of such development. While the EU and the UK have, in recent years, adopted policies and support mechanisms actively supporting renewable energy, it is possible that this approach could be modified or changed in the future, including as a result of a change in Government or a change in Government policy, relating to renewable energy directly or to energy policy more generally. ”
“It is settled case law that the right to cite the principle of protection of legitimate expectations extends to any persons in whom a European Union institution has given rise to entertain reasonable expectations. The right to make use of this principle implies however the satisfaction of three cumulative conditions. First, the administrative bodies of the union must give precise, unconditional and consistent assurances, deriving from authorised and reliable sources. Secondly, those assurances must be such as to create a legitimate expectation on the part of the entity to which they are addressed. Thirdly, the assurances given must comply with the applicable rules … In addition, it should be noted that, though of course the possibility of enforcing the protection of legitimate expectations, is a fundamental principle of European Union law, exists for any economic operator in whom an institution has given occasion to entertain reasonable expectations, the fact remains that when a prudent and circumspect economic operator is able to predict the taking of a measure likely to affect its interest by the Union it cannot invoke that principle in the event that such a measure is adopted. In addition, economic entities cannot rest their legitimate expectations in the maintenance of an existing situation which could be changed within the discretion of the institution of the Union, especially in the sectors such as monetary policy, whose purpose involves constant adjustment in line with movements in the economic situation.”
“Although Article 20 of the Sixth Directive does not, as such, breach the above principles, it cannot nonetheless be ruled out that the national legislature has breached them in that, without taking account of a legitimate expectation of taxable persons which had to be protected, it suddenly and unexpectedly withdrew the right to opt for taxation of lettings of immovable property, when the objective to be attained did not require it, without allowing taxable persons bound by leases current at the time of entry into force of the law the time to adjust to the new legislative situation. (paragraph 70)”
“[53] It is clear from the Court’s settled case law that any economic operator on whose part the national authorities have promoted reasonable expectations may rely on the principle of the protection of legitimate expectations. However, where a prudent and circumspect economic operator could have foreseen that the adoption of a measure is likely to affect his interests, he cannot plead that principle if the measure is adopted. Furthermore, economic operators are not justified in having a legitimate expectation that an existing situation which is capable of being altered by the national authorities in exercise of their discretionary power will be maintained. [57] However, it is for the national court to determine whether a prudent and circumspect economic operator could have foreseen the possibility of such withdrawal in a context such as that of the main proceedings. As the case concerns a scheme laid down under national legislation, the procedures for dissemination of information normally used by the Member State which adopted it and the circumstances of the case must be taken into account when the national court makes an overall and specific assessment of the question whether the legitimate expectations of the economic operators covered by those rules were duly respected in the specific case.”
“At the date of the review, there was no basis to assume that the RSE Exemption would be removed. I should point out, here, that DECC would only be in a position to make an assumption that the RSE Exemption would be removed after a public announcement announcing a policy change had been made. Without that announcement, we would simply lack the evidence on which to base such an assumption. Put another way, to include an assumption that the CCL would not continue would amount to an announcement. It could have a material impact on the price. All models (government and commercial) are based on assumptions that will change over time.”
“In the absence of an announced policy change, then, income from LECs would be assumed to be ongoing. The approach taken was, effectively, a binary one. The assumption of a continuing income stream from LECs simply did not take into account the likelihood of government policy changing, in the absence of an announced change, and thus cannot be and should not be relied upon as an affirmation that it was likely the policy would not change.”
“Proportionality as a general principle of EU law involves a consideration of two questions: first, whether the measure in question is suitable or appropriate to achieve the objective pursued; and secondly, whether the measure is necessary to achieve that objective, or whether it could be attained by a less onerous method. There is some debate as to whether there is a third question, sometimes referred to as proportionality stricto sensu: namely, whether the burden imposed by the measure is disproportionate to the benefits secured. In practice, the court usually omits this question from its formulation of the proportionality principle.”
“The latest market intelligence from DECC’s commercial team is that the exemption is worth about£2 /MWh to UK renewable generators. This means they receive just 24% of the total benefit of the exemption. This is expected to reach 0% by 2020, as the supply of renewable electricity outstrips demand. … The exemption is undermining the policy intention of the CCL tax more widely, by encouraging the inefficient use of renewable energy.”
“… must be interpreted as allowing a Member State to establish a support scheme … which provides for the award of tradable certificates to producers of green energy solely in respect of green electricity produced in the territory of that State.”
“If one applied to the proposal the same analysis which the commission applied to the RSE exemption, my colleagues and I are of the view that it is likely that the Commission would find that the proposal was a State aid and was not permitted by Article 107(3) TFEU. In particular, the impact of RSE on long-cycle CO2 emissions is the same regardless of where the electricity is generated. It would not be straightforward to argue that it was in the logic and general scheme of CCL to tax RSE differently depending on place of origin, as the proposal suggests. Such a difference in approach based on the nationality or location of the generator would require a powerful justification. For reasons set out in this statement and elsewhere in the Defendants’ evidence, my colleagues and I were of the view that the RSE exemption would not be regarded as a sufficiently efficient means of support for RSE generation to justify its continuance.”
“… domestic courts cannot act as primary decision-makers and the principles of institutional competence and respect indicate that they must attach appropriate weight to informed legislative choices at each stage of the Convention analysis.”