Just before Parliament rose for the Christmas break, the Department for Energy and Climate Change published its eagerly-awaited response to its comprehensive review of the Feed-in Tariff. For the detail of what that consultation proposed, please refer to our article, Still FIT for purpose? DECC reviews Feed-in Tariffs. The outcome is not as bad as the industry had feared and it is clear that DECC have carefully considered industry's suggestions and taken account of them where they can.
These are the headline points. We analyse each one in more detail, and mention some further points, below.
- New generation tariffs will apply from 8 February 2016. They are subject to automatic degression each quarter.
- There are quarterly caps on deployment for each technology. If the cap is reached, the tariff will degress by an extra 10% the following quarter and any FIT applications that go over the cap will be rolled over to the following quarter.
- Unused capacity in any quarter will be rolled over to the next quarter, with a biannual reconciliation where unused capacity can be redistributed across technologies according to policy priorities.
- There will be four-week 'pause' from 15 January to 8 February, when no new installations will be accredited.
- Pre-accreditation will be reintroduced.
- Extensions to installations will not be able to apply for a FIT.
New generation tariffs
The new tariff rates will apply from 8 February and there will be a 'pause' from 15 January to 8 February when generators can apply for accreditation but no new installations will be accredited (except those with pre-accreditation applying to convert to full accreditation).
The new generation tariff rates are higher than proposed in the consultation for solar PV up to 250kW (which is what has made the headlines) and onshore wind above 50kW but actually lower than proposed for larger solar PV and all 'solar farms', and all hydro schemes except the very largest.
The table below compares the final tariffs for Q1 2016 with the consulted tariffs and the current (October 2015) tariff levels (but note that the bandings do not match exactly):
Click here to view the table.
Tariffs shown in green are higher than proposed and tariffs shown in red are lower than proposed. You can see that small-scale solar and larger-scale onshore wind have come out better than anticipated, but surprisingly all except >2MW hydro projects have fared much worse than proposed. It seems DECC may have listened to some industries more than others.
The new tariffs give a slightly higher rate of return than proposed in the consultation: 4.8% (as opposed to 4%) for solar, 5.9% (as opposed to 5%) for onshore wind and 9.2% (as opposed to 9%) for hydro. They will also continue to be aligned with RPI rather than the (lower) CPI.
DECC have changed the tariff bands as specified in the consultation, with the exception of onshore wind where they have added a new 50-100kW band.
Default and contingent degression
As proposed in the consultation, tariffs will automatically degress every three months for all technologies, meaning that AD, hydro and wind power tariffs will degress twice as frequently in future.
In addition to this automatic quarterly degression, there will also be contingent (deployment-based) degression of 10% when a deployment cap is reached. Like the default degression, contingent degression will take place on a quarterly basis for all technologies. This will be kept under review.
DECC are keen to stress that "caps are essential if the scheme is to continue and if its impact on consumers' bills is to be properly controlled".
The primary purpose of the FIT review is to limit the scheme to a maximum overall budget of £100 million to 2019. This will be enforced via deployment caps for individual technologies and degression bands. These caps will work independently of one another so a cap could be hit for one degression band without affecting other technologies or different tariff bands of the same technology. Once a cap is reached, no further installations will be eligible for the generation tariff in that quarter. The proposed caps also apply to AD projects (unlike the revised generation tariffs and degression).
DECC have listened to industry's responses around the levels of the caps and have set the caps at the maximum end of the projected deployment range for those technologies that cannot pre-accredit (<50kW solar and wind). This should, according to DECC, significantly reduce the risk that some applicants with a fully commissioned installation will miss out on a cap, as all small solar and wind projects that are projected to deploy, will be able to.
The caps for AD, hydro and >50kW solar and wind are lower than the projected maximum deployment but the reintroduction of pre-accreditation should reduce the risks of exceeding the cap.
These are the final deployment caps, with increases from the proposed levels shown in green and decreases shown in red (black means no change). It is not exact as some of the bands have changed since the consultation, for example AD is now all one band, wind is now four bands not two, and hydro has been split into two bands. Applications for pre-accreditation will count towards the cap in the quarter in which the pre-accreditation is granted.
Click here to view the table.
As proposed in the consultation, DECC will use data from the MCS database (for sub-50kW solar PV and wind) and Ofgem's records of applications received for full accreditation and preliminary accreditation under the ROO-FITs accreditation process (for above 50kW solar PV and wind, and all AD and hydro projects) to determine when the cap has been reached. The timing (to the second) of the issue of an MCS certification or the receipt of a ROO-FIT application will be critical.
Installations that miss out on a cap will be put in a 'queue' and carried over to the next cap, rather than having to resubmit their application.
Ofgem have produced some draft guidance on deployment caps (and on how the pause to FITs will work) which is open for comment until 14 January 2016. See https://www.ofgem.gov.uk/environmental-programmes/feed-tariff-fit-scheme
If in any quarter, the number of installations of a particular technology applying for accreditation is less than the cap, any unused capacity will be added to the next quarter's cap. So for example if only 4MW of >1500kW wind applies in Q2 2016, the cap for Q3 2016 will increase from 5MW to 6MW. There will be a periodic (possibly biannual) budget reconciliation bringing together any underspend under all caps and redistributing it as deployment cap top ups, taking policy priorities into account, which at the moment would benefit solar PV.
The renewables industry will be pleased to hear that DECC will be reintroducing pre-accreditation from 8 February. As before, solar PV will have their tariffs held for 6 months before having to convert to full accreditation, wind and AD will have one year (not two years for AD as the first consultation response wrongly said) and hydro will have two years. There will also be the extra 6 months for community projects, but not the tariff guarantee for community solar up to 50kW, unless DECC can devise a system that works to control costs.
As proposed, DECC will not be adding new technologies (such as energy storage) to the FIT scheme nor will they allow any extensions to installations that already claim FITs to apply for further FITs.
When installing solar PV on buildings, developers will have to provide an Energy Performance Certificate (EPC) showing that the building is rated D or higher, before the solar PV installation is commissioned. This is to make sure that the solar PV installation is not taken into account when setting the EPC rating.
The winners and losers
Some technologies clearly did better than others out of the review. Small solar PV has come off much better than expected, with higher tariff levels than originally proposed and much more generous caps on deployment (and even a hint that any under-deployment could be reallocated to solar PV). Onshore wind also seems to have fared better than expected, particularly with the reintroduction of pre-accreditation and a specific tariff for 50-100kW turbines.
On the other hand, hydro has seen its deployment caps halved and its tariff slashed, leaving the industry "in a sense of shock and disbelief".
For AD it is a question of wait and see. AD tariffs have not yet been changed but seem to be subject to the new degression rules. DECC will be launching a separate consultation on tariffs and degression for AD and micro-CHP in early 2016, which will also include questions on implementing sustainability criteria for AD.
What can projects do now?
If projects can apply for accreditation before 15 January 2016, they will receive the current tariff.
Projects that apply for accreditation between 15 January and 8 February 2016 will be 'queued' in the order that they submitted their online applications and will be processed from 8 February under the new tariffs and subject to the new cap.
Projects that already have a valid pre-accreditation can apply to convert it to a full accreditation and these will continue to be processed during the 15 January – 8 February 'pause'.
Projects can apply for pre-accreditation as from 8 February 2016.
What happens next
An amended FIT Order and Licence Condition modifications have been laid before Parliament. Assuming there are no objections, the FIT Order will come into effect on 15 January 2016 and the Licence Condition modifications on 8 February 2016.
There will be a separate consultation in early 2016 on tariffs and degression for AD and micro-CHP and sustainability criteria for AD.
DECC are reviewing eligibility criteria and balance of caps between technologies and also whether there are grounds for further reviewing the tariffs. Look out for an update from DECC in the first quarter of 2016.
DECC will also issue a consultation on support for energy storage in Spring 2016.
The only certain thing about the FIT is that nothing is certain (except the £100 million cap). DECC are keen to stress that the scheme is being kept under review and there may well be further changes depending on the level of deployment.