Case law >> Not such a big sweetener

Colleen Theron and Deirdre Lyons, from LexisPSL, discuss higher wholesale electricity prices with regard to the recent court case involving Tate & Lyle.

Tate & Lyle produces 1.1 million tonnes of sugar a year at its Thames refinery in Silvertown, east London.

It has installed four dedicated biomass boiler houses supplying 70% of the refinery’s energy requirements.

These boilers use biomass (wheat husks) purchased and stored in biomass-fuel-storage silos.

The decision to invest £81 million in a combined heat-and-power plant was made in December 2006 and the boilers became operational in October 2010.

Under the EU Directive on promoting the use of energy from renewable sources (2009/28/EC), the UK is obliged to encourage greater electricity consumption from renewable-energy sources.

The Renewable Obligations Order 2002 was introduced as a means of stimulating licensed electricity suppliers in England and Wales to source an increasing proportion of electricity from renewable sources.

From 1 April 2009, the obligation changed from a percentage of electricity supplied to an obligation to present sufficient renewable obligations certificates (ROCs).

As part of the Energy Review in 2006, the government decided to promote the development of the more expensive renewable technologies. Different technologies were allocated different rates of ROC per MWh through a banding system.

The 2009 change also gave the secretary of state powers to carry out an early review of any particular bands at any time.

Tate & Lyle initiated judicial review (R (on the application of Tate & Lyle Industries Limited) v Secretary of State for Energy and Climate Change) on the basis that the original banding allocation had been maintained and aggravated through the early review.

Consequently, unlike those who had not been subjected to an early review, it was losing a claimed £1.5 million a year and was being deprived of appropriate subsidies.

The High Court ruled, however, that the secretary of state had not acted unfairly or in a discriminatory manner in using updated costs data in his analysis.

According to Lord Justice Moses, the critical question was whether the secretary of state was entitled to take into account the reality of higher wholesale electricity prices when carrying out the early review of the level of subsidy granted to the claimant pursuant to the 2002 Order.

This appears to be the first High Court decision in this field of law and contains some significant conclusions on principle.

While the decision would appear to be discriminatory, Moses LJ noted that the secretary of state was also obliged under competition law to avoid over-subsidisation.

Here, discrimination and state aid appeared to be irreconcilable.