Are these the winds of change?

This article was produced by Nabarro LLP, which joined CMS on 1 May 2017.

The current UK government has a target of 15 per cent of the energy produced in the UK by 2020 to come from renewable sources, with wind energy making a sizeable contribution to this target.

Most of us who have ventured out onto the streets in the winter would certainly agree that the UK has great wind energy potential, but there is still a long way to go before the UK can use the wind that turns umbrellas inside out as a sustainable source of energy.

However, is wind energy really such a breeze, or is it doomed to be the expensive and complex sibling of the other renewable energy sources such as solar or tidal energy?

The 2015 budgets: onshore wind looking a little deflated

Both the May 2015 and July 2015 budgets detailed the Government's commitment to securing the UK's energy supply, and yet onshore wind energy has not fared well.

The Energy Bill 2015-16 (The Bill) was introduced in the House of Lords on 9 July 2015, and is expected to get Royal Assent at some point in the first half of 2016.

The Bill is likely to make onshore wind farms, to a certain extent, unviable and looks to devolve planning decisions for onshore wind farms of more than 50 megawatts capacity to Local Planning Authorities. For wind farm developers this will mean making risky planning applications that could prove unpopular at a local level, as well as expensive, time-consuming and with uncertainty in terms of outcome.

The Bill also looks to close the Renewables Obligation a year earlier than planned. This provided subsidies to onshore wind farms through levies to household fuel bills, and makes the long-term sustainability of onshore wind farms seem less likely.

So what does this mean for the renewable energy market? Amber Rudd, the Secretary of State for Energy and Climate Change, has indicated that it is time to shift subsidies from onshore wind to “other technologies”, but little detail has been provided. Whilst there is uncertainty around the likely development of policy involving renewable energy, especially given the rise of shale gas, it could well be that this change in policy is simply a move away from onshore wind farms towards a greater focus on offshore wind farms.

Evidence of this focus on offshore wind farms can be seen by the approval of a large offshore wind farm off the Teesside Coast. This new wind farm, Dogger Bank, is set to feature 400 turbines, and potentially power up to two million homes.

Don't throw caution to the wind

Putting aside the political direction of wind energy, offshore wind farms are becoming increasingly common. With the technology of wind farms progressing swiftly, parties need to ensure that the obligations and standards incorporated into their contracts are up-to-date and workable. Parties must also ensure that the allocation of risk is clearly defined and understood.

The risk of not doing so was demonstrated in the recent case of MT Højgaard a/s v E.ON Climate and Renewables UK Robin Rigg East Ltd [2014] EWHC 1088 (TCC).

The contract in question was for the design, fabrication and installation of the foundations for 60 wind turbines. The contract required the foundations to comply with an internationally recognised standard, with the contractor assuming full responsibility for the design and installation of the foundations.

The problem, however, was that the international standard was wrong and, although the contractor complied with the requirements in it, the foundations began to move. Unsurprisingly, the employer E.ON sued MT Højgaard for the cost of repairing the defect.

The Court of Appeal (the Court) held that the contractor had discharged its duty to exercise reasonable skill and care by complying with the international standard, leaving E.ON with a hefty repair bill. Parties should take note of the Court's position in this case and make sure, when drafting their contracts, that the technical documentation included is applicable and consistent with the contract conditions.

Let's all fly a kite

In a recent BBC article on wind farms, Professor Dieter Helm of the University of Oxford said, “Offshore wind is one of the very few things that makes nuclear power look cheap” and yet it is one of the UK's main methods of generating renewable energy thanks to the country's less than sunny climate.

But is it possible to produce wind energy for less? Some commentators believe kites are the answer. These are not your average children's kites; these kites could be the future of wind energy generation.

Using two 50 metre long and 10 metre wide kites attached to a winch, energy is generated from the kites rapidly spooling out from a drum and then being wound back in through a process that uses less energy than is generated. This spooling out and winding back in process is carried out around 90 times an hour, approximately one million times a year.

Whilst this technology is still in its infancy, its supporters believe that it will be cheaper than traditional offshore wind farms due to the significant reduction in the amount of steel needed, as well as the simplicity in the manufacture of the kites and the winch.

Undoubtedly, this technology will present new issues for contracting parties who will need to ensure the contract documentation properly allocates risk, however, it seems clear that renewable energy is here to stay, and so any cheaper method of energy generation should be welcomed.

Conclusion

The continued drive from the European Union for its members to use greener energy means it is likely that wind farms will continue to be areas for growth and opportunities for the foreseeable future. A recent article by the BBC put the investment in offshore wind at £7.7 billion between 2010 and 2013. With use of renewable energy growing, it is likely that investment in wind energy will also expand.

Organisations operating in this industry should take note of the Court’s decision in the E.ON case and ensure, when entering into contracts in the ever shifting landscape of renewable energy, that their contracts are consistent, and properly reflect the intentions of the parties and their respective obligations.