13 September 2011 #Dispute Resolution
For the first time, the Court has awarded what may turn out to be substantial damages to an energy supplier for the breach of their human rights by the Office of the Gas and Electricity Markets ("OFGEM").
Renewable energy supplier, Infinis Plc, had been refused accreditation by OFGEM for two of its electricity generating stations at Welbeck and Candles, for the issue of Renewables Obligation Certificates ("ROCs"). ROCs are an important part of the statutory regime created by the government to encourage energy suppliers to produce more electricity from renewable sources. Currently, electricity suppliers are required to produce 11.1% of their output from renewable sources. If they fail to meet this target they have to pay a tariff (currently £38.60 per MW/hr for their shortfall below the required 11.1%). Electricity produced by an accredited renewable energy supplier receives a ROC for each MW/hr produced. This is on top of the payment they receive for the individual units of electricity. ROCs are highly valuable since they can be sold onto energy suppliers who cannot meet the required 11.1% electricity from renewable sources. OFGEM`s refusal to accredit these two electricity generating stations, therefore, caused Infinis to miss out on substantial revenue.
The two generating stations, in question, are fuelled by landfill gas which is a recognised form of renewable energy. OFGEM claimed the stations were excluded from the ROC regime because they were already subject to a separate "non-fossil fuel" agreement with the Non-Fossil Purchasing Agency. Infinis applied to Court to judicially review OFGEM`s decision.
The decision turned principally on a careful analysis of the terms of the alleged agreement and the detailed wording of the statutory regime governing renewable energy. The Court sided with Infinis, ruling that the power stations were not excluded from the ROC regime and should have been accredited.
The immediate effect of the Court`s ruling is that OFGEM`s original decision has been reversed, and the two power stations are deemed to have been accredited since early 2009. Of particular interest is how the Court dealt with the financial losses suffered by Infinis in the intervening period. Had they been accredited, Infinis could have sold the ROCs generated by the two power stations for substantial profit.
The Court decided that OFGEM`s unlawful refusal to grant accreditation was a breach of Infinis` right to property under Article 1 of the First Protocol of the European Human Rights Convention. They were entitled to be accredited and, therefore, OFGEM conduct had unlawfully denied them a "pecuniary advantage to which they were statutorily entitled" (i.e. the payments for the ROCs produced by the two stations). The Court decided that overturning the decision itself was not adequate compensation and so relied upon section 8 of the Human Rights Act 1998 to award Infinis damages. OFGEM objected on the grounds that awarding damages could lead to other energy suppliers who believed they had been wrongly refused accreditation making claims against them. This was not considered by the Court to be a valid reason for not awarding damages under the Human Rights Act.
Although Infinis` estimate of damages (£2.6million for this scheme year) was substantial, the final award may turn out to be much lower. Infinis have until 1 September 2011, the end of the current scheme year, to reduce their losses by selling their ROCs into the market. They are obliged to take all reasonable steps to minimise their losses, so any sales made before the 1 September will reduce the damages OFGEM is required to pay.