Government plans to amend the Feed-In Tariff (FIT) scheme were ­torpedoed again on 25 January, this time by the Court of Appeal. The scheme had already taken a first instance hit before Christmas with the judgment of Mitting J. However, following the Court of Appeal’s judgment, and while former energy and climate change secretary Chris Huhne had apparently indicated his intention to seek permission to appeal to the ultimate UK ‘solar panel’ (aka the Supreme Court), the proposed modification to the FIT scheme has been struck down.

Lead judgment in the Court of Appeal was given by Moses LJ with Richards LJ and Lloyd LJ expressing one-line agreement (Secretary of State for Energy and Climate Change v Friends of the Earth and Others [2012] EWCA Civ 28). The case is interesting, not just for its substantive application to the FIT scheme, but also for what it says about retroactive and retrospective legislative measures.

The FIT scheme was introduced in April 2010 to enable electricity supply companies to make payments to small-scale producers of low-carbon electricity using biomass, wind or solar photovoltaic (solar PV) generation. However, although the public adoption of solar PV had been unexpectedly successful, the costs of installing solar PV systems had fallen substantially. The secretary of state was therefore concerned that solar PV generators would be over-compensated by the existing payment structure which threatened the affordability of the scheme.

The appeal

This concerned the proposed reduction on 1 April 2012 of the solar PV installation tariff rate, which became eligible for payment on or after 12 December 2011. The tariff rate is fixed by reference to the year in which the installation becomes eligible (at the time of the appeal, 1 April 2011 to 31 March 2012). However, the proposal was to vary and reduce that rate at the end of the current year, not merely concerning those installations becoming eligible after the modifications come into effect, but also for those becoming eligible in the relevant period before the modifications are brought into effect.

The respondents were concerned that the secretary of state was asserting a power to modify what they believed to have been an established system which fixed the rate of return for the generating life of the installation (subject to a maximum period of 25 years). The proceedings concerned those who have installed or who were contemplating installing solar PVs between 12 December 2011 and 1 April 2012.

As indicated, on 21 December 2011, Mitting J found that the secretary of state’s proposals were unlawful and that any new ‘reference date’ could lawfully take effect only from a date on or after the proposed modifications came into effect. The nub of the issue before the Court of Appeal was that while the respondents argued that from the time a solar PV installation becomes eligible, the generator is assured of a fixed rate of return – subject to retail prices index (RPI) adjustments – the secretary of state contended for a power to vary tariffs at such a rate as the secretary of state from time to time introduces.

Moses LJ explained that, while the electricity supply companies pay the FIT to generators of small-scale low-carbon electricity accredited by the Gas and Electricity Markets Authority (the authority), the cost of the FIT is passed on to all electricity consumers. It triggers raised prices and is therefore effectively a subsidy paid by consumers. The subsidy is controlled by HM Treasury and the FIT scheme consequently has a budget. The authority is able to grant an electricity supply licence under the Electricity Act 1989 and such licences contain statutory standard conditions. Section 41 of the Energy Act 2008 allows the secretary of state to modify those standard conditions for (among other things) establishing arrangements for a scheme of financial incentives to encourage small-scale low-carbon electricity generation.

Section 41(3) of the 2008 act specifies what can be included in such modifications. The FIT scheme relies upon a combination of delegated legislation and modification to the standard conditions. As Moses LJ pointed out: ‘The Feed-in Tariffs (Specified Maximum Capacity and Functions) Order 2010 (SI 2010 No. 678) and the standard conditions are symbiotic.’

Back to the future?

Detailed consideration of the underlying statutory material is beyond the scope of this article. However, after analysing the law, Standard Condition 33 and its annexes in some detail, Moses LJ noted (among other things) that the FIT rate is fixed by reference to the year in which a specified installation became eligible for payment, and there was no reference either within the order or schedule A to Standard Condition 33 to any adjustment of the fixed rate other than in accordance with the fluctuations of RPI.

In his lordship’s view, the ‘scheme provides for a predetermined rate, not such rate as from time to time may be determined’. The concept of a payment rate fixed during the period of generation by reference to the date the installation became eligible for payment was in his view ‘fundamental to the scheme’. This ‘provides an assurance as to the rate of return to an owner who has paid a capital sum prior to the installation coming into operation, subject to an adjustment in accordance with RPI’. He therefore concluded that the delegated legislation proposed would have retrospective effect in respect of any installation becoming eligible for payment prior to the modification coming into effect.

Such legislation would be valid only if the empowering provision in section 41 of the 2008 act authorises such an effect. And, just as ‘there is a presumption against retrospective operation in the construction of statutes, so there is a presumption in relation to the construction of a statute delegating legislative powers.’ And ‘absent a clear provision conferring power to make retrospective delegated legislation, the assumption of such a power offends the legality principle’.

Moses LJ noted that Lord Nicholls in Wilson v First County Trust Ltd (No. 2) [2004] 1 AC 816 had adopted the principle expressed by Staughton LJ in Secretary of State for Social Security v Tunnicliffe [1991] 2 All ER 712 at 724: ‘The true principle is that parliament is presumed not to have intended to alter the law applicable to past events and transactions in a manner which is unfair to those concerned in them, unless a contrary intention appears… it may well be a matter of degree - the greater the unfairness, the more it is to be expected that parliament will make it clear if that is intended.’

Lord Rodger had then noted that, while retroactive changes alter the law in relation to past events, retrospective changes amend existing rights but only in relation to the future. The presumption against altering vested rights in the future is weaker than in relation to retroactive change. Moses LJ noted that, although weaker, there does remain a presumption against the alteration of existing ‘vested rights’, that is ‘those rights which, once acquired, fairness demands should not be altered’. The secretary of state contended that there was no unfairness since anyone seeking to install a solar PV after 12 December 2011 would be warned and could expect a reduced rate of return as of 1 April 2012.

However, Moses LJ took the view that the effect of this warning cannot alter the nature of the section 41 powers. Either that measure ‘confers a power retrospectively to alter fixed rates of return or it does not’. He considered that the warning ‘cannot enlarge the power conferred by section 41’. For ‘either there is statutory authority or there is not. The warning makes no difference’.

Decision

The Court of Appeal noted that there is plainly power by modification of the original modification to vary fixed rates for installations becoming eligible only after any modification comes into effect. However, the court concluded that there was no power in section 41 to introduce a modification reducing a rate fixed by reference to an installation becoming eligible before the modification. To do so ‘would be to take away an existing entitlement without statutory authority’. The court therefore found that the secretary of state ‘plainly’ has no power to do what he did.

Nevertheless, as mentioned, the case is apparently now on its way to the Supreme Court where this complex mix of statute, conditions and common law will be subject to detailed scrutiny from the country’s most rarefied judicial brains. But while Chris Huhne now has legal problems of his own, his successor Ed Davey will have to wait and see whether any judicial sun eventually comes out to shine on the government’s submissions.

Dr Nicholas Dobson is a senior consultant with Pannone specialising in local and public law. He is also communications officer for the Association of Council Secretaries and Solicitors