Operational Renewables Projects – Part 5
With the Feed-in Tariff now closed to new applicants (from 1 April 2019), and the Smart Export Guarantee still a twinkle in the government’s eye, now is an opportune moment to assess where the opportunities and challenges lie for operational renewable energy assets.
In our first four articles in this series, Roadnight Taylor and Ashfords considered how to maximise the performance of assets from a generation and financial perspective and what needs to be done in order to prepare for an audit by Ofgem.
In this fifth and final article Richard (Roadnight Taylor), Jonathan, and Ben Derrington (head of Business Risk and Regulation at Ashfords) look at the Environment Agency (EA) and the Health & Safety Executive (HSE) and what can be done to minimise risks of enforcement action.
The risk to your business
Regulators are becoming increasingly active in the energy sector. This is to be expected with the growth in the number of AD and biomass facilities that often handle waste: HSE statistics show that the waste sector continues to be one of the most dangerous sectors in terms of workplace injury, and the EA’s register of pollution incidents shows a high proportion from waste management businesses.
Aside from the public relations and human cost of pollution events and death and injury at renewables facilities, the consequences of not managing environmental and safety risks can be significant.
For example, in the context of pollution events, the EA fines for such an event have increased significantly over recent years and are now linked to turnover. The sentencing guidelines set out a number of matrices so that fines will increase as:
- the harm (which includes the harm that was risked, not just the harm that was actually caused) increases, and
- the level of culpability increases.
Many regulatory offences are strict liability – i.e. you can commit a criminal offence by allowing the risk to exist, or the event to occur. While the use of non-criminal sanctions, such as enforcement undertakings, is on the rise: the monetary element of these will be equivalent to the fine that would have been imposed had there been a prosecution.
In addition, if the offence can be linked to the consent connivance, or neglect of a senior manager/director, that person may also commit a criminal offence, and become personally liable. This can mean a personal fine, and a criminal record. Personal prosecutions are also on the rise.
“The fines levied by the EA and HSE can be business-ending fines. The EA sentencing guidelines even say that consideration should be given as to whether the fine should be of such a size that the business would become insolvent. Personal liability can result in fines against that person, and possibly jail sentences.”
“The size of fines imposed for safety and environmental breaches has risen dramatically over recent years. If your business has a sizeable turnover, the exposure in relation to even minor incidents can be significant, sometimes business-ending. Consequently, the level of operational disruption and lost management time in responding to such incidents can be as damaging as any prosecution that follows.”
Mitigating the risk
Risk mitigation starts at the tendering stage when contractors are being selected. Richard sets out the considerations to be taken into account at this early stage:
“Our approach to all projects is to implement the right technology at the right scale with the right professionals, installers and contractors. As part of this ethos, we consciously consider the Health & Safety and Construction Design and Management (CDM) regulations. We clearly identify the Principal Designer and Principal Contractor and as part of any tender exercise, we will only instruct companies with an excellent track record in regulatory and environmental compliance. Critically, depending on the asset, appropriate risk management measures may be required to cover operational risks.”
However, we live in an imperfect world and so one has to anticipate the risk that the worst will happen at some point in time – even with the most competent of people working on the ground. It is crucial to be prepared for the worst and businesses who have developed incident and crisis management procedures have a much better shot at limiting damage and avoiding prosecution. Nearly all businesses will have some procedures in place to manage risks and respond to incidents, however, to ensure that these are more than an exercise in paperwork, they should be regularly updated with input from staff at all levels. They should also be tested and rehearsed to ensure that they are workable in the real world. A big part of successful incident response is being able to effectively handle regulator investigations in a responsible but controlled manner. Specialist legal input into procedures to cover issues like interviews, document control and evidence gathering can make a crucial difference in showing your business in a positive light.
Successful mitigation begins with producing a written risk management system. This management system should follow three key principles. It should:
- identify the risks/hazards within a business and monitor for changing or newly emerging risks
- put in place sensible hazard controls to mitigate those risks, and
- regularly review to check whether it is being successfully implemented, and make changes where it isn’t
“On roof top solar, wind and AD projects there is often a degree of working at height involved. Having identified the risk, mitigation measures that should be put in place, such as safety nets and the use of harnesses. The final and crucial step is to periodically review the system to ensure that it is being implemented – are the safety nets and harnesses being used – if not, why not, and what can be done to address this?”
“Regulatory offences are usually caused by an unfortunate misunderstanding, omission or mistake. Relatively few are the result of deliberate acts, and even fewer are the result of knowingly criminal behaviour. For example, a misunderstanding as to how a drainage system works is a common issue – an unknown pipe or valve can be all it takes for a polluting substance to reach a watercourse. Likewise, not keeping your management system up to date is a common problem. It may have worked well when set up, but unless it is regularly checked against how the business is working, mistakes and errors can creep in.”
It is crucial to record in writing the steps you are taking as a business. It helps you to see what is working well, and to identify problems before they become serious. If the worst happens, these documents will be crucial evidence to show that you did everything you could in the circumstances. It stands to reason that these documents should be carefully filed, ideally with electronic back-up copies.
Setting up and implementing these systems can be time-consuming initially but saves more time and effort in the long run. They need to address the specific risks of the business, while also being practical and workable - this is where experienced, professional assistance is especially useful. A good system should support your business and its operations without being too onerous. As a result, you should instruct advisors who are familiar with your business and sector in order to develop a tailored system for you.
About the contributors:
Jonathan Croley is an Associate at Ashfords LLP. Jonathan and his colleagues advise asset owners and their funders in responding to enforcement action undertaken by the EA relating to renewable energy facilities (particularly in the context of AD).
Ben Derrington is a Legal Director at Ashfords LLP. He advises clients in highly regulated sectors on compliance issues, risk management and the response to criminal investigations into regulatory breaches.
Richard Palmer is a Senior Consultant at Roadnight Taylor, a leading independent power and energy consultancy that provides strategic energy reviews and advises on optimal deployment of generation and storage technologies, as well as financial optimisation of existing assets.
Return to the Operational Renewables Projects page.
Read the previous article in this series: Ongoing Regulatory Compliance: Ofgem Audit