Lawyers warn UK Govt. could face claims for £-millions in compensation after axeing wind farm subsidies

Onshore wind developments dominate, and mostly in the Highlands
Onshore wind developments dominate, and mostly in the Highlands

Foreign investors in the Scottish renewables sector could launch multi-million pound compensations claims against the UK Government after it announced it was axing subsidies for onshore wind projects.

Legal experts at law firm Pinsent Masons warn it could be open to international investors, who have collectively pumped billions in to Scottish renewables, to raise a claim for compensation under the Energy Charter Treaty (ECT).

The treaty was introduced to protect the transmission of energy in to Europe and allows investors to file claims against member states for violation of their protections under the ECT.

Spain, the Czech Republic and Italy are facing similar compensation battles after those Governments suddenly changed renewables subsidy legislation and so far investors commenced 10 arbitrations against Spain for alleged ECT violations.

Any compensation claim would be an embarrassment to the UK, which prides itself in offering a stable regime for investment, and Westminster is hoping to avoid such a scenario with the introduction of a grace period before the subsidy pipeline is closed.

UK Energy Secretary Amber Rudd caused widespread anger in the renewables sector when she announced the Renewables Obligation (RO) – effectively a subsidy for renewables projects of a certain scale – would end for onshore wind projects a year earlier than the previous deadline of April 2017.

But her current proposal is that onshore wind developments which have already secured planning consent, grid connection acceptance and land rights for the build site, would be afforded a grace period which would entitle them to RO support up to the original deadline.

Contract lawyer John Gilbert at Pinsent Masons, said some investors in projects which fall outside any grace period which is ultimately granted, will be looking at the potential for multi-million pound compensation claims.

Meantime, Rudd’s proposals are to be included in an Energy Bill which will be subject to the Parliamentary amendment process before it is enacted, which could take up the new RO closure date in March of next year before being passed, thus causing even greater uncertainty.

Gilbert said: “European investors, and German companies in particular, have invested many millions in to Scotland’s renewable sector in the belief that it was a safe investment with limited risk.

“The UK Government have attempted to be clever by introducing changes to the RO through primary legislation which has the backing of Parliament and therefore cannot be challenged through judicial review.

Under the ECT, investors can’t challenge the Government’s decision on subsidies, but they may have a good case for seeking damages on the basis that their investments have been undermined and devalued.”

Scotland’s renewables industry has predicted the decision to end the RO for onshore wind a year earlier could lose a planned £3 billion investment in the sector and put at risk many of the 5, 400 jobs in the onshore wind sector.

Last year an estimated £1.04 billion of capital investment was made in renewables in Scotland, with onshore wind accounting for £702 million, solar £89 million and offshore wind £23 million.

Gilbert added: “The Government seem desperately keen to avoid any compensation claims under investment treaties and that is one of the reasons for introducing this grace period but I suspect investors who have ploughed significant sums in to these projects will be looking to maximise the full protections offered under the ECT.

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