The UK Government has announced changes to the Feed-In Tariff (FiT) programme which supports small scale renewables. Many thousands of householders, farms and rural businesses have benefited from this scheme, with 10% of UK farms now using wind energy to reduce energy costs.
The UK Government is reducing support across technologies and setting a cap on the number of schemes supported each quarter.
But these limits will be hard to understand in advance, so increase the risk for anyone applying for support. RenewableUK is warning that complex rules would in the long term scare away many of the people who could most benefit from this scheme, and in the short term create market chaos.
The programme is designed to promote small-scale renewables through ensuring householders, communities or businesses are paid a set tariff by electricity suppliers for the power their projects generate.
This flagship support mechanism has been a lifeline to these farmers, as well as householders, rural businesses and community groups wanting to cut energy costs and play their part in cutting carbon emission.
The market has been supplied mainly by UK turbine manufacturers who supply both the UK and export markets. For every turbine sold at home, one is exported.
A strong domestic market is vital for these companies, but further shrinking of this market will hurt UK manufacturing and encourage relocation abroad.
RenewableUK’s Deputy Chief Executive, Maf Smith, said: “It’s important that we all work to manage costs, but it looks as if the long term vision has been lost.
”The small and medium wind sectors are at one with Government in their desire to cut carbon at lowest cost to the consumer. But they can’t do this when Government makes sudden and damaging changes which undermine investment.
”What we needed in this Review was a clear vision for how we get to a point where cost effective, small-scale renewables are common-place, with all homes and businesses able to be part of a productive, vibrant low carbon economy. This Review is not about how we build that prosperous future but simply about short term politics and accounting.”
RenewableUK is also expressing concern about the speed at which Government is making these changes. Maf Smith continued: “We’re also concerned about the timing of this review. Only last month Government consulted on ending pre-accreditation.
"Now they are consulting on reducing tariff rates, and capping deployment. But such significant changes can’t be introduced within the proposed January 2016 deadline without hurting many businesses and individuals who have been investing in new projects. The next four months will turn the British energy market into a wild-west market with energy consumers stuck in the middle.”
1. Revised Generation Tariffs & Mandatory Degression
Revisions to FiT tariffs aim for subsidy free solar PV in the small scale domestic market (<10kW) and large scale (>1000kW) by January 2019. This is considerably earlier than the industry has previously projected.
In the run up to no tariffs there will be mandatory degression each quarter for all FiT technologies. This will range from 4-5% for the PV 50-250kW band up to 8-50% degression for the small scale <10kW banding.
It is unlikely that wind or solar will have reached grid parity by these points although they may be on their way to it.
This reduction in support will almost certainly result in the end of investors funding solar and wind installations. At 4% returns there is insufficient return to be able to fund a development with debt. Click to view a comparison.
2. Wind larger than 1500kW will be entirely excluded from the FiT from January 2016.
This coupled with previous announcements for ROC’s and planning for wind turbines will stop any wind project that does not already have planning and cannot connect by either 31st December 2015 if aiming for FiT’s or 31st March 2016 for ROC’s unless it qualified for the grace period giving some projects until 31st March 2017.
3. Hydro has been least effected with tariff reductions of 30% compared to today’s levels.
4. Anaerobic Digestion
We are pleased to see a separate consultation is proposed although the one released today perhaps does not bode well for that.
5. Impact on Solar PV returns
Parsons Brinckerhoff have advised DECC on the tariff level changes aiming for a project to achieve in the region of 4-9% IRR under proposed FiT levels. We have reviewed our 3 most recently completed solar PV projects for their expected return and what this would be if they were accredited in January 2016 under the proposals. Click here to see the examples.
6. Contingent Degression
Contingent degression on top of the mandatory would be a minimum of 5% where deployment exceeds projections with a further 10% when the cap is reached for both PV and non-PV.
Deployment caps would be 8.8MW for the >50kW band in q1 2016 providing space for 176 installations if all at 50kw, however DECC estimates there will only be 34 installations in the >50kw band.
7. FiT Extensions
DECC will prevent extensions to accredited stations receiving the FiT. This is to encourage deployment of a sites maximum capacity in one go. We consider this to be a disappointment as a number of businesses have installed a 50kW PV system as an initial project and having been pleased with this then gone on to extend the installation once they are comfortable that it works for them.
8. Cost Control Measures
The Cost Control Measures propose the introduction of a quarterly budget cap that can be allocated to new installations. Two sceanrios of how this could operate are given both of which create significant risk to deploying a project as you could find either you have not qualified and have to resubmit in the next quarter (under the first proposal) or the alternative proposed is a rolling system where if you miss out due to a cap being reached you qualify under the next cap which reduced the risk of not qualifying at all but will make financing a project difficult.
9. Future Proposals
All generation sites to be fully export metered in conjunction with smart metering legislation – these proposals coupled with other metering changes, such as P272 (see attached) are making the whole metering area more complex and expensive for users of electricity. For some sites export metering will not be viable.
All sites to have an EPC dated prior to the generator commissioning date – this proposals removes the benefit that installing a renewable generator has had in increasing the performance of a property and therefore focuses the 2018 Minimum Energy Efficiency Standards on to insulation and efficiency measures in a building.
10. Finally
DECC has proposed that if the FiT tariff alterations are not successful at creating an affordable and sustainable trajectory the FiT will be removed for all new applications from January 2016. This would be an immediate blow to the industry that has developed and must increase the likely hood of a rush to complete projects by the 31st December 2015.
