Review of the Feed-In Tariff Scheme

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News article

Review of the Feed-In Tariff Scheme

August 2015

renewable energy news

 REVIEW OF THE FEED IN TARIFF SCHEME

The Department of Energy and Climate Change (DECC) have issued a consultation document on 27th August 2015 proposing cost control measures under the Feed-in Tariff (FIT) scheme.  The document cites a need to “put the scheme on an affordable and sustainable footing” amidst higher than expected renewable energy deployment and significantly reduced technology costs.

They also say that costs have exceeded their projections and as a result there is a breach to the limits of the Levy Control Framework (LCF) - the amount of money agreed within Government that can be added to consumer’s bills to pay for low carbon electricity generation.

The measures proposed are intended to limit the financial burden on consumers who ultimately pay for renewable energy subsidies through their electricity bills.  This review follows an earlier consultation in July/August 2015 outlining proposals to remove ‘preliminary accreditation’ for FITs and limit the impact on bill payers of deployment surges.

The measures proposed include revised tariffs, a more stringent degression mechanism, and deployment caps leading to the phased closure of the scheme in 2018-19.  The new generation tariffs are based on fresh evidence about costs and rates of return.  They propose to have an overall cost control which will be a new cap on FITs expenditure of between £75 – 100 million from January 2016 to 2018/2019.  They say that if these cost control measures are not implemented then the only alternative would be to end generation tariffs for new applicants as soon as January 2016.

They propose to amend the bandings and rates as follows:

 

 

 

 

 

 

 

 

 

 

 

 

 

Domestic solar PV will be hardest hit with tariffs set to go down from 12.47p/kWh to 1.63p/kWh - a massive 87% reduction.  The other tariff bands for solar are proposed to go down by approximately 75%.  If implemented these reductions will make a lot of solar projects financially unviable unless panel prices fall considerably.  Prices are expected to come down over the next 2-3 years but we do not anticipate this happening immediately.

The most popular wind turbines are between 50kW500kW and DECC proposes to reduce the applicable tariffs by 25-40%.  Most wind projects, unless situated in very high wind speed areas, are therefore unlikely to be viable. The Government’s recent announcements for onshore wind have made obtaining planning permission almost impossible, so these latest proposed changes could be the final nail in the coffin.

Hydro projects look set to be hit less hard and their average reductions are between approximately 25-30%.  Most of the more straightforward hydro schemes in Scotland have already been developed and the ones remaining are invariably more difficult to develop, so these tariff reductions is likely to render them financially challenging.

Anaerobic Digestion (AD) plants are not proposed to be subject to tariff reductions but the Government are considering implementing “sustainability” criteria for feedstocks for new AD installations under the FIT scheme. This will bring them into line with existing Renewable Heat Incentive (RHI) and Renewables Obligation (RO) criteria, as they are concerned that the use of crops such as maize to feed AD plants may not be sustainable.  The uptake in AD projects rose by 46% in 2014 from the previous year and FITs currently support around 90MW of AD generation with a large number future projects in the pipeline (370MW consented but not yet operational).  The Government considers it appropriate to put in place regulatory controls to ensure the crops used in AD deliver a sustainable outcome.

DECC has also proposed that the full degression for all technologies should be quarterly.  If the changes go ahead contingent degression will now be 0%, 5% or 10% for all technologies depending on deployment rate and this will be in addition to default degression.

DECC have not proposed any change to the export tariffs in this review.  However, they are consulting on options to ensure that the long term sustainability of the export tariff.  The reason for this is that wholesale electricity prices have dropped and they want the future export prices to reflect the actual electricity market value.

Mark Newton, Head of Renewables at Fisher German says, “It is sad that the Government are attacking the FIT system which has worked so well for the last five years encouraging farmers and landowners to do small to medium scale renewable projects.  These proposed heavy rates of degression are going to unfortunately kill off the majority of FIT projects.  The Government’s Energy Bill in June announcing the early closure of the Renewable Obligation has caused 270MWs of projects to be scrapped. They have also stopped onshore wind turbines by making it almost impossible to get planning approval and by these heavy reductions in FIT rates they will therefore be killing off most of the rest of the small scale renewable projects”.

Mark says “There is bound to be a mad rush to get projects built and commissioned before the end of December this year to capture the current higher rate of FIT payments. The renewable sector has a history of going into decline when the Government puts on the financial breaks and then it finds new ways of resurrecting itself by reductions in costs of solar panels and turbines so projects become viable again. The future must be “green”.

Darren Edwards, a Partner in Fisher German adds “the implications of this latest consultation compound the uncertainty and instability already present in the renewable energy marketplace.  If implemented, the proposed cost control measures threaten to trigger an immediate ‘lights out’ for a UK industry that has been buoyant through the recessionary period.  A large proportion of our client base, some of whom have invested heavily in the FIT market over the last 5 years, will lose out should the Government make the cuts and some businesses will undoubtedly go under.  Emerging technology, such as commercial scale lithium-ion batteries, offer some future hope for the renewables sector but again this is a few years away so such drastic Government cuts in the short term seem premature”.

For further information, please contact Darren Edwards on 01858 411236 or Mark Newton on 01858 411215.

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