UK: RPs, FITS, AHP, SHG and State Aid

Last Updated: 21 April 2011
Article by Michelle T. Davies

Disentangling the endless acronyms in the world of affordable housing is a difficult enough task in itself, without worrying about the interaction between their respective subject matters. This bulletin seeks to confirm the position regarding the
inter-relationship between different sources of public subsidy in Feed In Tariff (FIT) arrangements.

Registered Providers of Social Housing, or RPs, are currently coming to terms with the practical implications of the new Government's policies on affordable housing, which herald some of the most significant changes in the sector for a generation. The HCA recently published its 2011-2015 Affordable Housing Programme (AHP) prospectus, from which it is clear that the much-feared scarcity of Social Housing Grant (SHG) going forward is to become a reality. The bare facts are that there will be significantly less grant for the duration of the AHP, and the grant will only be available in more limited circumstances.

It is therefore vital to RPs that every penny of SHG that they are awarded under their AHP framework agreements is made available to meet the cost of developing new affordable housing.

The energy industry has been quick to realise the capacity of RPs to take advantage of the FIT potential of their assets, in that they own a large proportion of the UK's stock of existing homes, and are also developing some 50% of all new homes being constructed.  We have already seen:

  • numerous "PV for free" procurement exercises being launched by councils and housing associations with RP status, covering thousands of existing houses in the social rented sector; and
  • the inclusion of PV systems within the menu of potential measures used by RPs to achieve the necessary Code levels for sustainable housing in the development of new build affordable housing. 

However, lurking within the Terms of Award for SHG (under both the new AHP, and its predecessor – the 2008–2011 National Affordable Housing Programme) was a State Aid problem for FIT-based initiatives. Briefly, where an RP claimed SHG for a development of affordable housing, if this extended to the cost of providing the PV apparatus, then it was believed that it was not possible to create a FIT arrangement over the same apparatus successfully. This was because:

  1. The element of the SHG that was referable to the cost of providing (and potentially installing) the FIT equipment would be repayable to the HCA; and/or
  2. The FIT arrangement would not be registered by Ofgem.

These fears were therefore an expression of the "double subsidy" difficulties caused by European State Aid rules, whereby a recipient of public sector funding or subsidy is unable to claim subsidy from another fund for the same purpose, without the original subsidy being rebated to the extent that the "double subsidy" has occurred.

As can be seen, the context here was mainly focussed upon new build housing. However, there were also wider fears that the same problem might apply to existing affordable housing that had been built with SHG, and in relation to which PV apparatus was now being installed as part of a FIT arrangement. This uncertainty has in recent months been exacerbated by the housing press reporting on these problems. 

In an effort to clarify the position, the Department For Communities and Local Government (which is the sponsoring Government Department for the HCA) and the Department For Energy and Climate Change have issued a Joint Statement. A link to the Joint Statement can be found here.

The Joint Statement confirms the general rule that if an RP has already received an element of the cost of the provision of the PV apparatus within a property by way of SHG, then the same property cannot benefit from a FIT arrangement, unless and until the element of SHG that was used in the installation of the PV apparatus has been repaid.  There are exceptions to this general rule, relating to transitional arrangements that are not considered to be State Aid, and individual arrangements that have extraordinary installation costs, and these are referred to in paragraphs 2.4 – 2.6 of the Joint Statement.

The key factor is timing. If an RP has already received SHG which covers the cost of installing PV apparatus, then unless one of the exceptions referred to in paragraphs
2.4 – 2.6 of the Joint Statement applies, the FIT provider will be unable to achieve Ofgem accreditation for a FIT arrangement in respect of the same equipment.  Accordingly, there may be cases where the amount or value to the RP and its tenants of the FIT arrangement is greater than the element of SHG that it has already received for the apparatus, such that it may be advisable for the RP to repay the SHG element, so as to be free of the State Aid "double subsidy" problem (and therefore eligible for FIT accreditation).

As a final point, it is clear that the timing of receipt of SHG for an existing house that is now to be the subject of a FIT arrangement (i.e. the sort of "PV for free" retro FIT projects that are in the market) is such that if the house was developed or refurbished with the aid of SHG, that subsidy cannot have been used for the PV apparatus – which is only now being installed – so there cannot be a "double Subsidy" problem. Therefore, the problem that exists where SHG has been used, in part, for the installation of PV apparatus in a new house (which is now also to be the subject of a FIT arrangement), should not be a problem where an existing house is the subject of a retro FIT-type arrangement.

The usual health warning will obviously apply in these scenarios, which is to speak to our Energy Team before entering into any FIT arrangements, whether your organisation is an RP or a FIT provider.

For further information or advice, please contact:

Michelle Thomas
Partner Head of clean energy and sustainability
Tel: 0845 498 7553

Mitch Brown
Partner Head of affordable housing
Tel: 0845 497 6205

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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