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FiT, CfD & The Early Closure of the Renewables Obligation

21 December 2015

In June 2015, the Department for Energy and Climate Change advised that the subsidies for onshore wind will end on 1 April 2016 - a year earlier than originally anticipated. This change will be brought through the Energy Act 2016 (which at the time of writing is titled the Energy Bill and has just been through the First Reading in the Supreme Court).

What does the end of subsidies mean?

There will be different types of grace periods offered to projects that already have planning consent, a grid connection offer and acceptance and evidence that the scheme has the right to use the land. The key date for having each of these in place is 18 June 2015, but that may change as the Bill progresses. With around 3,000 new onshore wind farms in the pipeline in the UK (about 70% of which are in Scotland) the impact on the onshore renewables industry will be significant. Given the obvious impact in Scotland, the Scottish Government has indicated that it may seek a judicial review of the decision.

Scott Wyper
Scott Wyper, Associate

In addition, if funding for a particular project has been ‘frozen’ due to the uncertainty created by the announcement of the Energy Act 2016, there is potentially another grace period likely to be available if the developer can show that their project would have otherwise been commissioned by 31 March 2017.

It is the detail of the grace periods and to whom that is clarified within the draft Bill, rather than being left to follow later in secondary legislation. This detail should bring some clarity for stakeholders sooner than may otherwise have been the case.

Contract for Difference (CfD)

In light of this early closure and the uncertainly that it has created, more attention will be paid to the new CfD programme which it was intended would replace the Renewables Obligations as a key incentive for the development of major renewables projects. It will offer a fixed price for generators supplying energy, known as a ‘strike price’. If the sale price is less than the strike price, the generator will receive a top up payment. If it is more, the generator will pay back the difference. This will create a certainty of returns for investors while affording protection to consumers by way of a claw-back.

Amongst the requirements for eligibility for CfDs are the need for: (i) valid planning permissions; and (ii) an accepted grid connection offer. If the requirements are met, generators wishing to join must compete for CfDs in an ‘auction’. If successful, the generator will be asked to enter into a 15 year contract with the Low Carbon Contracts Company. Where an offer is made, and the generator does not sign the contract, they cannot apply in another round for the same site for 13 months.

The results of the first allocation round were announced on 26 February 2015 with 27 renewable energy projects being awarded contracts worth a total of more than £315million. Of these 27, 15 were on shore wind projects. Secretary of State, Amber Rudd, recently stated that an announcement about the second allocation round (which was originally due to take place in October), will be made by Christmas 2015. Such an announcement has not been made at date of writing.

In the meantime, if you have any questions about these proposals, how they may affect your business or any other matter related to renewable energy projects, please contact us.

Scott Wyper Associate, T: 0141 221 8012


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