Our latest quarterly Feed-in-Tariff (FiT) report was published on 17 August, focussing on costs of the FiT scheme to suppliers. In addition, we have investigated likely upcoming changes to the FiT scheme as the Department of Energy and Climate Change (DECC) continues to make cuts to renewables subsidies.
The present: our latest quarterly forecast
Our latest quarterly FiT forecast has shown reduced annual FiT costs compared to our previous quarterly report--owed to newly degressed PV tariffs from 1 October 2015 and minor refinements to our forecast model.
However, we still predict an increase in annual FiT costs for 2015-16 of 32% year-on-year. This trend is expected to continue through to 2016-17 and 2017-18 with 15% and 12% year-on-year rises respectively.
A thriving environment: recent capacity developments
It would seem that renewables technology developments under the FiT scheme have thrived on current subsidy levels in the last quarter, with a recent boost in capacity levels.
In our latest quarterly report, we estimated 212MW of newly accredited capacity would come online for the period April to June 2015. However, data from the Ofgem CHP register revealed that 230MW of capacity came online in this period--8.5% above our predicted values--with an additional 69MW added in July. After the spike in installations in 2011-12, monthly capacity accreditation remained relatively stable until the end of 2014, but it appears that 2015 so far has experienced a boost in installation rates, with April and July having the most newly installed accredited capacity for their respective months since the start of the FiT scheme.
Recent higher incremental capacity installations are perhaps due to a rush to become accredited before DECC's likely announcement of changes to the support levels under the FiT scheme following the comprehensive review, planned for the end of summer. The recent spell of higher-than-usual installations could soon come to an end, and the FiT scheme might have to adapt to survive in a changing environment, reflected by DECC's already imposed changes to various subsidies.
The extinct: removal of renewables subsidies
As the LCF budget struggles to cope with renewables subsidies, support for numerous technologies are ceasing to exist.
On 8 July 2015 it was announced the Climate Change Levy (CCL) exemption for renewable electricity would be removed for generation after 1 August 2015. It has since been confirmed by Ofgem that it will no longer issue Levy Exemption Certificates (Lecs) to renewables stations.
DECC has also announced the closure of the Renewables Obligation (RO) to onshore wind projects from April 2016, and has proposed the closure to below 5MW solar from the same date. Furthermore, DECC ended grandfathering for biomass co-firing and conversion projects in England and Wales, and was effective from 12 December 2014.
Tariff cutbacks have not yet extended to the FiT scheme, but it is likely that major changes will be made. Will FiTs follow other subsidies to an early grave?
Evolution: upcoming changes to FiTs
DECC has already opened a consultation proposing to remove preliminary accreditation for installations--the consultation opened on 22 July 2015, and responses are requested by 19 August. Preliminary accreditation is currently applicable to PV and wind projects above 50kW, and hydro and AD projects, and by removing this from FiT scheme, quicker implementation of tariff changes under the degression mechanism will be enabled.
We do not expect changes to preliminary accreditation until the end of September as DECC's response is anticipated within three weeks and any changes may to take up to 21 days in parliament through an amendment to the FiT Order. Consequently, changes are likely to take effect from mid to end September.
In addition, a wider FiT review by DECC is scheduled to take place later this summer with the likelihood of further changes to the scheme to cut its costs. The review is likely to be eight weeks in length, and changes could come into effect in early 2016 (before April). We anticipate DECC is likely to take action against both onshore wind and solar PV, reflecting its earlier squeeze on these technologies in the RO and these technologies receiving the most support.
Survival: the future of FiTs
At a recent industry meeting DECC stated: "cost reduction measures will be put in place to keep the scheme open". We anticipate that DECC will undertake modifications through a series of stringent degression measures rather than by the removal of tariffs. The removal of tariffs route is difficult as this could be challenged legally and on State Aid grounds.
In light of probable changes, our latest quarterly report includes an additional scenario providing our best guess of the anticipated impact the FiT review may have on the cost of the FiT scheme. Our forecasts show reduced costs of the FiT scheme compared to values in scenarios with zero changes to the scheme. Introducing greater degressions to tariffs will ultimately lower both tariff rates, and the amount of new capacity going forwards.
It would seem at this point that the FiT scheme will stick around for a while longer. However, we can soon expect tariff rates to decline and future costs of the scheme to reduce.