On 18 March 2011, proposals to reduce the financial support available to larger scale solar electricity generation projects were published by the Department of Energy and Climate Change (DECC), as part of plans to protect micro-generation financial support for homes, communities and small businesses.

The consultation follows the launch in February 2011 of a fast-track review into Feed-in Tariffs (FITs) for solar photovoltaic (PV) over 50kW after it was shown that there is already 169MW of large scale solar capacity planned.

Fast-track review of the FITs scheme

"These proposals aim to rebalance the (FITs) scheme and put a stop to the threat of larger-scale solar soaking up the cash. The FITs scheme was never designed to be a profit generator for big business and financiers."
Greg Barker

On 7 February 2011, Greg Barker, the Minister of State, DECC, announced the start of the first comprehensive review of the FITs scheme for small scale low carbon electricity generation which would assess all aspects of the scheme including tariff levels, administration and eligibility of technologies. This comprehensive review is to be completed by the end of 2011, with tariffs remaining unchanged until April 2012 (unless the review reveals a need for greater urgency).

Greg Barker expressed the view that the projections for take-up of FITs published by the previous government failed to anticipate any large or small scale non-domestic solar PV installations until 2013. Current market indications are that a rapid increase in the number of larger solar installations entering the scheme could distort funding for smaller and domestic scale installations as well as other technologies. Conversely the current tariff levels have failed to spur a meaningful uptake for anaerobic digestion (AD) which means that this technology is not fulfilling its potential contribution to our energy mix.

The consultation announced on 18 March 2011, which seeks views on proposals to change tariffs for solar PV installations larger that 50kW and farm scale AD of up to 500kW.

The proposed new bands and tariffs are as follows:

For large solar PV installations

  • 19p/kWh for 50kW to 150kW
  • 15p/kWh for 150kW to 250kW
  • 8.5p/kWh for 250kW to 5MW and stand-alone installations

These compare with the tariffs that would otherwise apply from 1 April 2011 of:

  • 32.9p/kWh for 10kW to 100kW
  • 30.7/kWh for 100kW to 5MW and standalone installations For farm-scale AD installations
  • 14p/kWh for AD installations with a total installed capacity of up to 250kW
  • 13p/kWh for AD installations with a total installed capacity of between 250kW and 500kW

These compare with the tariffs that would otherwise apply from 1 April 2011:

  • 12.1p/kWh for farm scale AD up to 500kW.

Evaluation of the FITs scheme

"Our cash for green electricity scheme is a great way to reward homes, communities and small businesses that produce their own renewable power."
Greg Barker

Greg Barker stated that the FITs scheme has been a success since its launch in April 2010 with over 27,000 FITs installations registered to date, of which 92 per cent are domestic-scale solar PV generators, which are not affected by the proposed changes in the fast-track review. The FITs scheme rewards generators for the green electricity they produce, use and sell back to the grid.

Looking forward

"I'm committed to an ambitious roll-out of microgeneration technologies as part of the Coalition's green vision of a much more decentralised energy economy."
Greg Barker

Greg Barker pointed out that decentralised renewables are a vital part of green growth and the FITs scheme has proved highly successful at stimulating growth, driving innovation, creating jobs and cutting carbon. Greg Barker urges government actions to ensure that the FITs scheme continues to deliver and to achieve both the Spending Review commitment to improving the efficiency of the scheme, which it is said, will deliver £40 million of savings (around 10 per cent) in 2014-15, as well as ensuring that the benefits of a faster fall in technology costs are shared as widely as possible rather than captured in higher returns for a small number of individual investors.

Consultation deadlines

The Government is seeking views on proposed tariffs for solar PV over 50kW and farm-scale AD of up to 500kW until 6 May 2011. The fact that "alternative suggestions" are also sought perhaps suggests some real room for negotiation and perhaps flags the Government's concern to engage with the renewable energy industry to minimise further investment uncertainty.

The Government is also seeking views on the scope of the FITs comprehensive review by 12 April 2011. Evidence received will feed into the scope of this review and help inform if further changes to the legislation are necessary. This is a statement which is unlikely to encourage investor certainty.

The Government has already stated that it will not act retrospectively and any changes to generation tariffs implemented as a result of the review will only affect new entrants into the FITs scheme. Installations which are already accredited for FITs at the time will not be affected. The consultation however, currently envisages tariff changes taking effect from 1 August 2011.

Conclusion

Whilst some of the consultation questions may perhaps be described as somewhat leading (eg: "Do you agree or disagree that there is a need to limit access to FITs for large scale solar PV installations in order to meet Spending Review targets ..."), it will be interesting to see how much in terms of financial modelling information, respondents are prepared to disclose in demonstrating whether the proposed returns remain available and economically viable in any event.

No doubt there will now be an intense period of tariff lobbying, albeit during a seemingly very limited period. The renewable energy industry will be scrutinising the process and outcome carefully, particularly given that the outcome may have repercussions for the Government's ability to attract even greater private sector investment for the proposed broader, electricity market reform.

See also the following relevant links to the DECC website:

"Feed-in Tariffs: Written Ministerial Statement by Gregory Barker, Minister of State", http://www.decc.gov.uk/en/content/cms/news/fits wms gb/fits wms gb.aspx

"Greg Barker outlines proposals to protect green electricity scheme (Press notice)", http://www.decc.gov.uk/en/content/cms/news/pn11 027/pn11 027.aspx

"Consultation on fast-track review of Feed-in Tariffs for small scale low carbon electricity", http://www.decc.gov.uk/en/content/cms/consultations/fit review/fit review.aspx

Online response for Consultation: "DECC eConsultation Hub", https://econsultation.decc.gov.uk/decc-policy/fits_fast-track_review/consult_view

"Feed-in Tariffs (FITs)", http://www.decc.gov.uk/en/content/cms/what we do/uk supply/energy mix/renewable/feedin tariff/feedin tariff.aspx

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