UK: DECC Confirms FITs Cut - Is There A Silver Lining?

On 18 March 2011, the Department of Energy and Climate Change (DECC) launched a consultation on reducing financial support for larger-scale solar electricity generation projects.

The consultation followed a fast-track review of feed-in tariffs (FITs) for solar photovoltaic (PV) over 50kW and anaerobic digestion (AD) installations in February 2011 (please see our previous briefing "DECC proposals to protect FITs scheme").¹ The consultation closed on 6 May 2011, and after one month of waiting, DECC confirmed its previously proposed degression on 9 June 2011. Whilst the FITs cuts may be an expected disappointment for the UK's solar industry, the proposed larger-scale FIT scheme under Electricity Market Reform and now the intimated inclusion of microgeneration technologies (eg solar PV) in the Government's "Green Deal" could produce a long-term boost for solar PV manufacturers and others.

Solar PV greater than 50 kW and all stand-alone PV installations

The fast-track review of the FITs scheme was launched in response to evidence suggesting that larger PV projects would be deployed much more quickly than originally expected. The Government believes that the construction of these projects would threaten the amount available for smaller-scale installations. Therefore, from 1 August 2011, the following changes will be made for solar PV installations over 50kW with an eligibility date.²

Solar schemes under 50kW are unaffected by this review.

AD schemes of less than 500 Kw

Recognising AD's role in delivering a zero waste-to-landfill society, it is said that the Government is committed to delivering a huge increase in energy from waste through AD. However, after the first year of the FITs scheme, the commissioning of AD projects were fewer than expected. The tariffs for AD schemes of less than 500 kW will therefore be increased from 1 August 2011 as follows:

The above changes for solar PV and AD, subject to parliamentary and state aid clearance, is said to help manage the finances of the FITs to ensure value for money for the consumer and to help protect the scheme in the future.

"The new tariffs will ensure a sustained growth path for the solar industry while protecting the money for householders, small businesses and communities and will also further encourage the uptake of green electricity from anaerobic digestion," says climate change minister Greg Barker.³

Transitional period for PV schemes?

Some stakeholders, particularly prospective generators at the larger end of the market and those involved in larger community and public sector schemes, indicated that they have invested significant time and resources in developing projects that may not be able to be commissioned by 1 August 2011. As a result, a number of respondents in this consultation suggested that installations already under development should be permitted to claim the original tariff levels as long as they met certain conditions.

The Government nevertheless refused to set a transitional period for the larger PV projects, indicating that no transitional arrangement would have a fair spread of benefits. In addition, the Government holds the view that the longer the current tariffs are available to larger schemes, the greater the impact on other technologies and the lower the number of domestic PV installations that can be supported.

However, the Government states that it will continue to work to identify alternative incentive mechanisms to encourage companies to green their operations in order to develop a low carbon economy.

Conclusion

After an intense period of lobbying, the confirmation of tariff cuts will disappoint the UK's previously expanding solar industry. However, the arguably greater prize of a proposed FIT for larger-scale clean energy generation projects under the current Electricity Market Reform consultation still provides significant hope for many developers, as does DECC's most recent olive branch published in relation to the Green Deal. The Green Deal will essentially allow households to finance "green" property upgrades by attaching a charge to fuel bills. Whilst this was originally thought to be restricted to energy efficiency measures (like insulation costs), DECC has for the first time suggested this could now also cover microgeneration technologies like solar PV. Whilst this could have significant repercussions for the "free" and "rent a roof" schemes' attractiveness to households now able to find alternative capex funding, it may prove a significant boost to manufacturers and others supplying the UK residential market.

Footnotes

1. http://www.blg.co.uk/publications/briefing_notes/decc_proposals_to_protect_fits.aspx

2."Eligibility date" is defined in Schedule A of Standard Licence Condition 33 as "the date as regards a particular Eligible Installation from which eligibility for FIT Payments commences which shall be the later of the date:

(a) as applicable, of

(b) on which the Eligible Installation is Commissioned; or

(c) of Implementation."

3. New feed-in tariff levels for large scale solar and anaerobic digestion announced today, DECC press release, 9 June 2011

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