Summary and implications
On 7 February, Chris Huhne the Secretary of State for Energy and Climate Change announced the first review of the Feed-in Tariffs (FITs) scheme. The review was originally intended for 2012 but has been brought forward 12 months due to concerns about the impact of what the Government considers large-scale solar photovoltaic projects (over 50 kW) ("LSPVPs").
The review will see the Department of Energy and Climate Change ("DECC"):
- Conduct a comprehensive review of FITs;
- Undertake a fast-track consideration of large-scale solar installations; and
- Study the uptake of FITs for farm-based anaerobic digestion plants.
It is anticipated the review will be completed by the end of the year. However, a decision on the level of support for solar farms is expected by the summer, but all other renewable energy technologies covered by the scheme should remain unchanged until April 2012.
FITs formed part of the Labour Governments “Clean Energy Cashback” scheme alongside the Renewable Heat Incentive and the Renewables Obligation. FITs represented a major change in policy by directly supporting small-scale low carbon electricity generation technologies.
The scheme was intended to encourage investment in small-scale low carbon electricity generation by providing a guaranteed payment for the electricity generated and expected. Specifically, FITs are aimed at individuals, householders, organisations, businesses and communities who would not normally engage in the electricity market.
The main focus of the review is the perceived impact of LSPVPs. According to DECC a comprehensive review of FITs is required due to growing evidence that LSPVPs may monopolise money intended to help homes, communities and small businesses generate their own electricity.
The review will:
- Thoroughly assess all aspects of the scheme (including tariff levels, administration and technologies); and
- Fast-track consideration of large-scale solar projects, with a view to making recommended changes as soon as possible (subject to consultation and Parliamentary scrutiny).
By bringing the review forward, it is the Government's intention to deliver long-term certainty to the scheme and investors. Predictably, it has had the opposite effect, yet, the Energy and Climate Change minister, Greg Barker, maintains that the Government are behind the FITs scheme: “We are fully committed to the rollout of decentralised renewables, but we have to manage the strategic rollout of these new technologies within a sensible budget… We are 110 per cent committed to… feed-in tariffs, but the scheme was never designed for large-scale solar farms.”
The announcement has been met with hostility by most: a group of 20 solar energy executives have threatened to launch legal proceedings, with a view to judicially challenging the review; and many more have called on David Cameron to call off the Government's plan, just as they did with the plans to sell UK forests.
At the recent mergermarket event, “Focus on Solar Energy: Investments and Economic Development”, there was much speculation by investors about the impact of the review. It was agreed that the announcement had created widespread doubt and hesitation in the market but that continued investment was needed.
For some projects, the effect of the review could be quite severe. If DECC confirm the review will include all brown field and rooftop solar installations (above 50 kW) then many investors, like Triodos Bank, will seek alternative opportunities.
Andrew Newman of Low Carbon Investors predicts developers will not risk investing in solar installations above 50 kW: “I've heard stories this week of site owners withdrawing from projects because they're not interested anymore and banks withdrawing because they don't want to waste their time”.
However, it is not all bad news. While the review has impacted upon solar investments, the wind sector may see a benefit. Low Carbon Investors now expect wind to account for 90 per cent of their activity and, depending on the outcome of the review, this may be a continuing trend.
In the short-term, the industry has already witnessed a push to secure funding and complete solar projects before the Government's expected announcement in July.
Unfortunately, the long-term future of FITs is no clearer: while the Government maintains its support for the scheme generally, there is no certainty what the scope or extent of the scheme will be in the coming years. What does seem likely is that the Government will work within the legal framework and timeframes already outlined for the 2012 review, which may work to limit the impact of this year's review.