No FIT state

Overzealous interpretation of EU state aid policy has left UK community energy schemes that are dependent on FIT revenues high and dry, say Simon Steeden and Sarah Payne

One of the pledges set out by the government in the coalition agreement is to “encourage community-owned renewable energy schemes where local people benefit from the power produced”. However, its policy on state aid and its application to community energy projects has left some organisations out of pocket and unable to use the proceeds from renewable energy generation to benefit their communities.

According to European Union state aid rules, national governments are prohibited from providing financial assistance or economic support where such intervention may distort competition and affect trade between EU member states.

In April 2010, the Commission decided that elements of the UK’s feed-in tariff (FIT) scheme constituted state aid. Yet European case law on similar feed-in tariffs in Europe had other outcomes. For example, in Germany, a fixed FIT imposed on a private electricity supply undertaking was found not to constitute state aid. In subsequent decisions on German, Danish and Belgian fixed FITs, the principle that such support should not constitute state aid was extended to FIT schemes that were imposed simultaneously on private and public electricity undertakings.

There was clearly scope for challenging the Commission’s decision in the UK’s case. Instead, the government changed its policy from May 2010, to prohibit any organisation that had received public funding for its renewable installation above the state aid threshold from claiming the FIT.

For Mozes, a community energy project based in a deprived residential area of Nottingham, this change of policy had wide-reaching implications. In early 2010, Mozes had received a Low Carbon Communities Challenge (LCCC) grant from the government to install solar panels, some of which were donated to the schools and community buildings on which they were installed, with the remainder generating FIT income for use by Mozes to alleviate fuel poverty among residents. An express term of the grant was that equipment installed would be eligible to receive a FIT.

The state aid policy change threw Mozes and projects like it into turmoil. Many had taken out loans, committed expenditure and framed business plans on the basis of government assurance that they would be able to claim FITs once renewable electricity generation equipment was installed.

The situation is even worse for more recently established community groups, which relied on public funding to launch their project. From July 2011, a further change in policy has meant that community projects are not eligible for FITs if they have previously benefitted from any public funding, irrespective of state aid considerations.

Community groups are often dependent on voluntary time and donated income to get started. This is particularly true of community energy organisations, which require considerable start-up capital and grants from public bodies or funds. Prohibiting the receipt of both grant funding and FITs, without any consideration of the unique circumstances of community projects, inevitably slants UK government policy against the growth of community-owned schemes.

Thanks to pro bono legal support co-ordinated by Carbon Leapfrog, Mozes is seeking to challenge the policy causing its difficulties. Many others will be pinning their hopes on the government’s review of the FIT regime. It has introduced a “community energy project” definition for use in the FIT scheme, through which it hopes to “facilitate greater access to FITs for community energy projects” by removing “upfront barriers”.

How this will be achieved, beyond setting lighter energy efficiency requirements for community projects, is not yet clear. However, formal recognition of the unique circumstances and benefits could provide an opportunity for more proportionate application of state aid rules to community benefit projects.

The UK government would do well to observe its continental European neighbours and their more lenient interpretation of state aid.

Simon Steeden is a senior associate and Sarah Payne a solicitor at Bates Wells & Braithwaite LLP, legal adviser to not-for-profit organisations and businesses with social purposes. Both are part of a working group co-ordinated by Carbon Leapfrog, which is assisting Mozes to challenge the government’s policy on state aid and community energy projects

This article first appeared in Utility Week’s print edition of 24th May 2013.

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