February 2, 2012

Renewable Energy Schemes and Feed in Tariffs: Act quickly, but proceed with caution

The Government has lost its appeal in relation to the recent judicial review on the level of feed in tariffs. This has provided a brief respite for those interested in installing solar photovoltaic systems as feed in tariff levels are to remain at their current levels for a little longer. The forthcoming weeks therefore present a small window of opportunity for those interested in having solar photovoltaic systems installed to benefit from a higher tariff.

The Government had intended to reduce the rate of feed in tariffs for installations of less than 4kW that had been installed on or after 12 December 2011 from 43p/kWh to 21/kWh from 1 April 2012. The Court of Appeal has since ruled that introducing the feed in tariff reduction in this way would be unlawful as the Department of Energy and Climate Change should have waited until their ongoing consultation had finished before introducing the changes. This means that feed in tariffs will remain at their current levels until the next planned reduction in the feed in tariffs from 3 March 2012.

Qualifying in time

Qualifying in time for the higher rate is especially significant because the feed in tariff provides a guaranteed index-linked income for 25 years. To achieve the higher rate feed in tariff in time it is necessary to ensure that your system is installed as quickly as possible. This means that it is important not only to act quickly to commence the works but also to ensure the project is managed as smoothly as possible so that there are no delays that could cause the delivery of the project to overrun.

Contractual mechanisms could prove critical

The contractual mechanisms that you have in place to deal with completion and extensions of time could prove critical in achieving the existing tariff rates. They are especially significant for this type of project, because even if an Employer is able to claim damages for failure to complete on time, the amount of damages is likely to be insufficient to compensate for the loss of the guaranteed 25 year income from the higher tariff rate.

An Employer planning an imminent solar photovoltaic project can put into place a number of contractual safeguards to reduce the risk of not achieving the current feed in tariff rate. Firstly the Employer should require a clear programme for the delivery of the project from the Contractor and take a proactive role in managing this programme. The Employer may wish to instruct a specialist consultant such as a Contract Administrator to manage the programme.

Express provision for the completion of works

The contract should also include an express provision that the works must be completed by a certain date (either a calendar date or a fixed number of weeks from granting access). Without this provision, the Contractor will only be liable to complete the works within a “reasonable” time, which will not take into consideration an impending reduction in the feed in tariff. The Employer should also ensure that the definition of “Completion” includes the system in full operational order and fully accredited so that the installation is in a state to qualify for the feed in tariff.

Avoid delay

The Employer will also need to take care that they do not inadvertently cause delay to the works themselves by any act or omission that could affect their ability to enforce the completion date. The Employer should provide the Contractor with access to the Site on time in accordance with the programme. The Employer should also be careful that they do not instruct the Contractor to carry out additional works, which could amount to a variation to the original scope of works. The Employer’s acts or omissions which cause delay could result in the Contractor being able to claim an extension of time, or could mean that the completion date reverts into being an obligation on the Contractor to complete within a “reasonable” time. This could jeopardise the ability to qualify for the higher feed bin tariff rate in time.

Time constraints

It is also necessary for the Employer to consider whether the time constraints on the project mean that it is reasonable that events beyond anyone’s control such as force majeure, strikes, adverse weather etc. do not create an extension of time for the Contractor to complete the project.

Summary

It is doubtful whether the financial returns from feed in tariffs will ever be so favourable again, but they are only available at their current rates for a limited period of time. Anyone interested in achieving these higher rates needs to ensure that time is on their side in terms of getting their project off the ground as soon as possible but also by contractually managing their project to best effect.

If you would like to discuss any of the issues raised in this e-brief please contact a member of our construction team on 0113 227 0100 or email construction@gordonsllp.com