Last week the Department of Energy and Climate Change (DECC) published a response to its consultation on the small-scale feed-in tariff (FiT) regime for technologies other than solar PV. The response also sets out changes to the administration of the scheme.
- DECC's response confirms the new generation tariffs for the anaerobic digestion (AD), hydro, wind and micro combined heat and power (micro-CHP) technology bands. Our table below sets out the new rates which are expected to apply to all newly eligible installations from 1 December 2012.
- The response also outlines the Government's proposals to gradually reduce the tariffs for newly accredited installations according to the level of uptake for each technology. Tariff degression will be introduced from 1 April 2014 and will occur on an annual basis, although there is scope to reduce tariffs mid-year if deployment is particularly high.
- A tariff guarantee will be available for investors under plans for a new preliminary accreditation process.
New generation tariff levels for hydro, wind, AD and micro-CHP
DECC's proposals to reduce generation tariffs remain largely unchanged from its consultation launched in February 2012, with a few exceptions. The new tariffs will take effect from 1 December 2012. Installations accredited prior to that date will receive the current tariffs for the full 20 year tariff lifetime.
Following industry feedback showing concern that there could be a perverse incentive to develop smaller installations because of the large disparity in FiT levels between the two lowest bands, a new band for hydro has been created, which will increase support to 15.5p/kWh for installations between 100 and 500kW.
The Government has also increased the rates proposed in its consultation by 0.1p/kWh for two of the tariffs, which it attributes to changes to estimates of RPI-indexed tariffs. In addition, two of the tariffs for hydro and wind may be adjusted following the outcome of the renewables obligation (RO) banding review.
The Government has also created a "community energy project band". Proposed tariff levels for this new band are currently the same as for non-community projects, although the new band gives the Government the flexibility to provide community groups with preferential tariffs should this be desirable in future.
Click here to view table.
Increased export tariff
The export tariff will be increased from 3p/kWh to 4.5p/kWh for new installations of all technologies from 1 December 2012.
Annual tariff reductions from April 2014
DECC intends to gradually reduce tariff levels for projects using non-PV technologies that seek accreditation from April 2014 onwards.
An annual degression rate will be published two months before the new rate comes into effect. A baseline degression of 5% per annum has been set, although this may be reduced to 2.5% (except for certain technologies, eg, wind with a capacity between 100kW and 1,500kW, for which the minumum tariff reduction will be 5%) or increased to as much as 20%, depending on levels of deployment in the previous year.
The Government may take the same approach as that used for solar PV tariff degression, which would mean that after the mechanism is introduced developers would receive the tariff in place at the time they are accredited for the full 20 year tariff lifetime. This would incentivise consumers and developers to expedite the installation of eligible technologies to lock-in to tariffs before they are reduced.
These arrangements will, however, not apply to the micro-CHP FiT, which is subject to its own review process. Nor will they apply to tariffs in the FiT bands set at levels equivalent to RO bands (eg, the largest capacity band of hydro and wind), unless deployment is higher than 150% of the estimated level for the year.
The Government also intends to implement a mechanism which will enable it, in exceptional circumstances, to apply a mid-year degression of 5% or 10% to the tariffs for new installations seeking accreditation if certain deployment levels are reached in the first six months of the year. There will be netting-off provisions, so that mid-year reductions are taken into account when calculating the annual degression amount at the end of the year.
Tariff guarantees for projects with preliminary accreditation
DECC has also announced the introduction of a preliminary accreditation process for solar PV and wind projects of over 50kW and all AD and hydro projects. Prospective investors will be able to get a guaranteed FiT at the level in place at the time preliminary accreditation is sought, provided that the project has been commissioned within six months to two years of pre-accreditation (depending on the type of technology) - even if the relevant FiT band has undergone degression during this time. Those wishing to receive a tariff guarantee must meet certain pre-accreditation eligibility criteria, including obtaining planning approval, a firm grid connection offer and environmental approvals.
Other decisions outlined in DECC's response
- The 5MW cap for FiTs for all technologies will be retained. Interestingly, earlier this week, the Energy and Climate Change Committee (ECC) recommended, following its pre-legislative scrutiny of the draft Energy Bill, that the FiT scheme should be opened up to generation capacity of up to 10MW, and potentially even up to 50MW. See our e-bulletin for more information on the ECC's report.
- Energy efficiency requirements for non-PV technologies will not be introduced.
DECC's consultation response is available to download here.
Our February 2012 e-briefing on the consultation can be viewed here.