In our last issue, we predicted that the Government’s planned review of the Feed-In-Tariff (FIT) regime, announced in the CSR, would be brought forward and urged those looking to take advantage of the present rates to act quickly. Sure enough, the Government launched a review of the tariff in March – a year early - and changes to the scheme have been brought forward.
Two forms of technology have been targeted for immediate action and will see changes in tariff rates from August this year. Large scale Photovoltaic (PV) solar energy installations have been hit very hard, perhaps fatally for many planned projects, with cuts in the available tariff of around 40% for schemes above 50kW peak capacity and 70% for schemes above 250 kW.
These cuts arise from the Government’s concern that a recent influx of applications for 5MW plus solar farms will swallow the entire FIT budget – taking support away from micro-renewables and less popular technologies. One of those less popular technologies, farm based Anaerobic Digestion (AD), is set to benefit from a modest tariff increase. At the end of 2010 there were only two AD schemes claiming FITS, as against 17,250 PV installations.
Ofgem releases data each month on the number and types of installation claiming support FITs. In September 2010 there were 9,800 installations claiming FITs. That figure has risen to nearly 31,000 in this month’s report. This is a significant jump but it is still far short of Government estimates of the number of new installations required each month to meet the UK’s 20/20 targets. The previous Government put this figure at around 6,500 installations per month. Ofgem’s figures suggest that the FIT regime has fallen short of this aim.
Only a tiny proportion of those currently claiming FITs are commercial operations (less than 2%), although they account for around 21% of the total installed capacity. This would appear to confirm Government concerns that they could take the lion’s share of benefits under the scheme. However, the counter point to this concern is obvious. If 2% of the installations are generating 20% of the output, that 2% must be doing something right.
Moving to a low carbon economy requires change at every level of society; while it is important to encourage the installation of small scale renewables, the driver of incentivised schemes such as FITs is surely to increase the amount of energy the country, as a whole, is generating from renewable resources and so, in that respect, anything that achieves that aim should be encouraged.
The Government’s response to this criticism has been to claim that FITs were designed to encourage initial investment in technology up until the point where it can become self-sustainable. It argues that PV now attracts enough investment in its own right to support itself. It remains to be seen whether this is the case, but a point that appears to have been lost by the Government in this ever shifting regulatory and policy background is that investors, particularly those investing in new technologies, require certainty, and pulling the rug from underneath this business sector a year early does not provide that.