British Wind Industry’s Desperate Bid to Retain Subsidies Crushed by Court of Appeal

subsidies

The greatest Ponzi scheme of all time is on the brink of collapse.

In America, Trump’s ‘deplorables’ have crushed the wind industry’s hopes of carpeting the United States in millions of these things; shares in wind turbine makers, like Denmark’s Vestas have plummeted.

In Australia, the wind industry is like a wandering zombie; quite apparently lifeless, but unwilling to yield to death’s strengthening grip. The Large-Scale RET on which it depends is bound to be scrapped, as it will never be met and the political cost of lumping $1.5 billion each year in a Federal penalty tax on top of all Australian power consumers’ retail power bills will force the Liberal Coalition and the Labor opposition to slash the annual target, once again.

In the UK, David Cameron went to an election promising to scrap subsidies to onshore wind power and to give a right of veto to local communities over proposed wind power projects (no prizes for guessing how locals in Britain have chosen to exercise their power of veto). Accordingly, with the exception of Scotland, the wind industry in Britain is on its knees. The decision to back the Hinkley Point nuclear power plant hasn’t helped them much, either.

Proving that the wind industry is always and everywhere about maintaining massive subsidies until kingdom come, in response to the Cameron government’s legislation slashing renewable subsidies, the wind industry cried foul and took their grievance to Court. The thrust of their argument was that the Government was bound to honour throwaway promises about backing wind power with subsidies filched from taxpayers and/or power consumers until the end of time.

The Court of Appeal thought otherwise.

UK Court rules unwinding of renewable energy subsidies
The Global Warming Policy Forum
John Constable
6 November 2016

The Court of Appeal recently upheld the government’s right to cancel the Climate Change Levy (CCL) exemption for renewable generators. In effect this is a retrospective removal of subsidy entitlement, and should remind investors that even a seemingly secure economic rent will collapse when push comes to shove. This has significant implications for the Carbon Price Floor (CPF) and also the value of certificates issued under the Renewables Obligation (RO).

The Renewable Heat Incentive (RHI) may also be affected. For the time being the Feed-in Tariff (FiT) and Contracts for Difference (CfD) are probably safe, but anyone in the electricity sector relying on subsidies and handouts has been given fair warning: The government giveth, and the government taketh away.

The main flaws with current energy policies as they relate to climate revolve around their inflexibility. Broadly speaking, the policies simply assume that the premises driving their motivation cannot change, except to require still more urgent action to reduce emissions. This was clearly an error.

A full gearbox, including a reverse gear, is a necessary feature of any legislation whatsoever, principally because errare humanum est. This is still so even when the policy is grounded in area designed to minimise such errors, scientific research. Indeed, both the history and the philosophy of science tell us that scientific propositions are without exception provisional and subject to change.

There simply are no absolute truths in any scientific field, even at a very fundamental level, a point that Schrödinger famously noted in What is Life? (1944) when he reminded his audience that “the laws of physics and chemistry are statistical throughout”. Scientists should never forget, though in the heat of policy debate they sometimes do, that their propositions are reasoned abstractions from observations, and those observations are necessarily finite.

There is always more to learn, even in areas that seem rock solid. We may not expect the clock to suddenly go backwards and wind its own spring, but, as Schrödinger puts it, this infinitesimal probability “always remains the background”. In many cases, particularly those relevant to policy, the probability of change is far from infinitesimal.

This sceptical point has from time to time been apparent to political leaders. It is over three hundred years since Oliver Cromwell, with a mighty puritan oath, “in the bowels of Christ”, asked the Synod of the Church of Scotland to “think it possible that ye may be mistaken”. But legislatures become overconfident, and the necessity for provisions for flexibility in law-making is neglected. The Climate Change Act of 2008, for example, is designed as a one-shot rocket, quite without steering and with precious little provision for deceleration.

Paradoxically, this lack of flexibility makes the legislation fragile, and investors relying on such law should be extremely cautious. What cannot go on, will not go on, and if a change of pace is not possible, abrupt termination becomes inevitable.

Precisely because the legislation contains no obvious means of control and reversal, government, being under the pressure of force majeure itself, may simply apply overwhelming legal pressure to adjust the vehicle’s direction, and even turn it around. A recent ruling in the Court of Appeal reminds us that government is entitled to act robustly in the public interest.

In the July 2015 budget, the then Chancellor George Osborne removed the exemption from the Climate Change Levy (CCL) applying since 2001 to renewable generators.

At the time of removal this exemption was worth approximately £5/MWh to all existing generators, so in that sense was retrospective.

While the CCL subsidy was small in comparison to those available under the Renewables Obligation (for example £45/MWh for onshore wind and £90/MWh for offshore wind), it was a very welcome extra layer of jam, £381m thick in 2014/15, and its removal much resented.

Infinis Energy Holdings Ltd, owner of one of the larger renewable generation portfolios in the UK, and Drax Power Ltd, one of the largest single producers of renewable energy, both attempted to challenge the decision in the courts, arguing, in essence, that they had reasonable expectations that the exemption would continue, and that the government had acted unfairly and unreasonably.

The High Court rejected their challenge. Drax then, sensibly, withdrew; but Infinis took the case to the Court of Appeal, which, in the persons of Sir Terence Etherton MR, Lord Justice Lloyd Jones and Lord Justice Sales, delivered its judgment this week, and firmly rejected the arguments that Infinis had presented. It seems unlikely that this judgment will be reversed.

The Court of Appeal summarised the case thus:

The central issues in dispute between the parties are as to what standards of foreseeability and legal certainty EU law requires in the context of changes to the tax regime and what requirements have to be satisfied to generate a legally protected legitimate expectation. (Para 42)

The Court concluded, from a broad review of jurisprudence and other cases, that the standard applicable was rigorous not loose. The relevant state authorities must have given “precise assurances” and “actively promoted” these expectations. “Vague indications” are not enough. The Court observed:

In our judgment, the Appellant in the present case cannot bring itself within the principle of protection of legitimate expectations according to this test. The Respondents had made no promise and given no assurance that the RSE Exemption would be maintained indefinitely, nor that it would be subject to the giving of a period of notice before being changed. In the context of establishing and changing the rules of a national tax regime, a prudent and circumspect economic operator would appreciate that the tax authorities and the national legislature might change the tax code without giving notice. They are entitled to do so, as it is their function in a democratic society to manage the public finances by weighing up all the competing demands on the public purse against all the possible, conflicting ways of raising tax revenue and adjusting the elements on both sides of the equation as they see fit, in accordance with the policy they think should be pursued. Further, the Appellant was not entitled to expect that the existing situation involving having the RSE Exemption in place would continue, because, absent any precise assurance given to the contrary, the tax authorities and Parliament had a general discretion to alter the tax regime as they saw fit. (Para 55)

In the absence of precise assurances, by which Parliament might bind itself, there is a “general discretion” to make such changes as are required in the public interest.

The significance of this point for other renewable subsidies, for example the Renewables Obligation, is substantial. Of course, it is perfectly true that the RO is not a tax exemption, and may not at first glance appear to be a tax.

The revenue is not collected by the Treasury from consumers and disbursed to the renewable generators, instead it passes from consumers to generators via electricity suppliers. However, and unsurprisingly since the imposition on consumers is both unavoidable and unrequited, the Treasury does, for accounting purposes, regard it as public expenditure, and has consequently asserted its authority over this spending through the Levy Control Framework (LCF).

In principle, then, the RO is indeed a tax, though of a special kind, and as a result no one should assume that this judgment is irrelevant to the continued value of Renewable Obligation certificates. Indeed, the RO system was designed explicitly so that the value of the certificates would fall as the targets were met, a fact that may become relevant in the years to come.

In other areas the judgment has a straightforward relevance. The Renewable Heat Incentive (RHI) is funded via the Treasury, and anyone relying on this income may wish to hedge immediately. The Carbon Price Floor is straightforwardly a tax, and rumours are already in circulation that government is considering making major changes, perhaps even cancellation.

The status of the Feed-in Tariff, and that of the new Contracts for Difference, seems more secure. These are both contractual entitlements, “precise assurances” regarding particular prices, though doubtless everyone will now be reading these contracts extremely carefully to see whether there is any room left in which Parliament’s “general discretion” might be exercised.

In this context the numerous and at first sight vacuous government statements on the need to respect the burden placed on the consumer may now seem rather more important. However, and in spite of the discretion that this important judgment outlines, governments have been and will continue to be quite properly reluctant to achieve flexibility in legislation by abrupt or forceful means.

The state would prefer to be regarded as trustworthy. That said, no one will respect a government for persisting in obviously foolish or economically dangerous policies, as the climate policies very probably are, and when in a tight corner the government will do what it must, even if specific undertakings have been given.

Investors should recognise this as a normal business risk. Machiavelli had neither a Harvard MBA nor a degree in PPE from Oxford, but his advice is nonetheless sound: “A ruler will never be short of reasons to explain away a broken promise”.
GWPF

Subsidy-Sam

About stopthesethings

We are a group of citizens concerned about the rapid spread of industrial wind power generation installations across Australia.

Comments

  1. If you really want to read some fiction, have a look at UK National Grid Winter Outlook 2016/17. http://www2.nationalgrid.com/UK/Industry-information/Future-of-Energy/FES/Winter-Outlook/. One example of several possibly very optimistic assumptions is about wind generation. Wind is included in the basis of electricity generation capacity calculations. Wind “Equivalent Firm Capacity” EFC is listed as 21%. i.e. Wind generation across the UK will be at least 21% of installed capacity when you start to shiver. However, 21% EFC does not quite match previous experience.
    During winter 15/16, UK metered wind generation was below 21% of nameplate capacity for more than 21% of the time!! “Cold spells” during winter 15/16 must have been as favourable as you are going to get. We only had one very short period of zero wind. At that time, UK weather was warm, UK electricity demand was low and UK coal stations were available.

  2. If un-renewable wind energy were a good provider of electricity without the toxic emissions causing health issues, without the pollution they create and without the added costs and unavailability to consumers, reasonable subsidies could perhaps be justified. Most of the general population want clean, safe and cheap energy which is actually available when needed regardless of the weather or level of demand. After all we pay and have paid a lot of money for upgrades to transmission lines, interconnectors and for the privileged, the use of so-called green energy. Taxpayer money all around the world is being used to establish and support these renewable systems which rip us all off and make many of us living under turbine shadows sick and unable to live in our homes. Our Governments are supposed to represent the people and have a responsibility to act in our best interests, and not bow to the pressure from these insidious companies with their arrogant, self-serving assumptions which are not in the best public interests, companies like Pacific Hydro which put shareholders above all else and are definitely as we were told, not interested in saving the planet! ‘Saving the planet’ is a misused sentence and facts about turbine operations and noise impacts are manipulated in order to cover our pristine rural areas with wind turbine after turbine. We heard the same drivel as above during the Australian Senate Inquiries into Wind Farms. Remember the squeals of ‘soveriegn risk’ and the typical catchcry of jobs, jobs; yet the jobs in truth benefit a few and not the many, because jobs are lost due to the rising electricity prices and blackouts costing billions causing manufacturers to relocate. Thanks STT for never giving up, for keeping us up to date and for trouncing so quickly whenever and however you can on this ‘ponzi scheme’.

  3. Hi,

    I started a PETITION “SA PREMIER JAY WEATHERILL : Demand the RESIGNATION of the Energy Minister for HIGH POWER PRICES CAUSING SA’s JOBS CRISIS and 15,000 household POWER DISCONNECTIONS, frequent POWER BLACKOUTS and the JULY 2016 POWER CRISIS” and wanted to see if you could help by adding your name.

    Our goal is to reach 100 signatures and we need more support.

    You can read more and sign the petition here:

    https://www.change.org/p/sa-premier-jay-weatherill-demand-the-resignation-of-the-energy-minister-for-high-power-prices-causing-sa-s-jobs-crisis-and-also-15-000-household-power-disconnections-frequent-power-blackouts-and-the-july-2016-power-crisis?recruiter=135406845&utm_source=share_petition&utm_medium=email&utm_campaign=share_email_responsive

    Please share this petition with anyone you think may be interested in signing it.

    Thankyou for your time.

  4. catweazle666 says:

    Heh! “Things can only get better”!

  5. “Indeed, both the history and the philosophy of science tell us that scientific propositions are without exception provisional and subject to change.”

    There were enough “scientists” and politicians who acceded to a political ideology as enunciated by the UN “sustainability” agenda that the ancient vessel of totalitarian elitism launched again on the smooth seas of climate crisis propaganda…let’s hope Trump can use his good ship Constitution to torpedo those pirates!

    • Jackie Rovensky says:

      And we have heard from the lips of the industry and its supporters that ‘the science is in’, too many scientists and academics fail to understand the FACT science is never conclusive, that science while at a point in time one or two researchers may have ‘found’ something that proves something, but there will be others who can disprove it by using other research methods, by looking at the question from a different perspective.
      The problem is these deniers of this FACT, appear to gain an upper hand in the minds of those who make decisions which can have an effect on peoples lives and the broader environment.
      Its easy for a Politician to say science has shown something and it must be obeyed and another for a Politician to say OK lets take a closer look and see IF what they say is valid. Lets check to see if what they are calling for is the best solution to a problem and if what they are proposing to solve the problem will cause more damage, before taking what is proposed at ‘face value’.
      Until those who have gained the support of media, politicians and others in authoritative positions stand back and do the right thing and say OK there is controversy so why not listen to everyone, ensuring the so called FACT is that and not just a possibility which can be found to be incorrect, only then will the truth be known, only then will there be a modicum of respect returning to the ‘scientific world’, and Academia.
      Scientific truth is not found when it is based on ideology rather than clear scientific endeavor.

  6. Reblogged this on Jaffer's blog.

  7. Jackie Rovensky says:

    Oh how our Governments both State and Federal should read, absorb and contemplate this article.
    When will we have a Government with the guts to do the right thing, the thing which will bring lower energy prices, more investment in industry and jobs and leaving more in peoples pockets to spend on ‘goodies’ not just necessities.
    When will we have a Government who will see the hug mistake made in offering subsidies to an industry which cannot prove it is working as claimed, that does not harm people and the environment and stop paying them to steel our lives and livelihoods, while depleting the public purse requiring more tax to be found to keep the Nation afloat, providing sufficient money to meet all the necessities such as good well equipped hospitals, decent road, schools that meet the needs of the students, sufficient money to assist research into the many areas of need including medicine and other sciences such as biology, geology etc.
    Please, let us have hope for the future of this great Nation and help to remove the blight of turbines which rip money from every source they can, that destroy our environments and that cause immense physical pain to so many, all for what? A minuscule amount of electricity, which is produced in a random manner and cannot be relied on to be available when needed and an industry that cannot survive without constant subsidies, that cannot remain functioning for many years without the need to repair and replace turbines constantly, an industry that is not cost effective or safe.

  8. I suppose Trump’s ‘deplorables’ deplore more expensive electricity.

    Hilary’s manifesto (or programme) promised to install 500 million solar panels. Green, California, hedge fund billionaire: Tom Steyer spent $74 million to help the Dems election. I suppose the $500 million solar panels were his reward. I guess his hedges bet big on solar futures and I hope they tanked to lose him lots of money.

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