Further to recent announcements in relation to cutting support for onshore wind (click here) and the removal of the renewables exemption from the climate change levy (click here), DECC has today announced further measures to reduce support for renewables. Already a number of commentators have expressed concern that this will further undermine what remains of the fragile investor confidence in the UK renewables industry. In particular, these proposals signal an end of the ‘grandfathering’ policy for certain biomass and solar plants and an end to pre-accreditation under the FIT scheme. Previously these support mechanisms have underpinned UK renewables policy and helped secure investment in the sector.
As predicted by industry analysts, it appears that DECC underestimated the cost of the schemes under the Levy Control Framework (LCF). This underestimation has occurred due to various factors including: i) greater than expected deployment (particularly solar PV and onshore wind under the FiT and RO); ii) the Final Investment Decision Enabling (FIDe) process; and iii) underestimation of future load factors and wholesale power prices in the recent CfD allocation round. DECC has stated that it will set out totals for the LCF beyond 2020/21, although it has not provided a date for such announcement. The level of the LCF beyond 2020/21 will be pivotal to the future progress of the UK renewables industry.
The measures are therefore intended to deal with a projected over-allocation of renewable energy subsidies and can be summarised as follows:
SOLAR: DECC has launched a consultation on controlling subsidies for solar PV of 5MW and below under the RO (click here). Proposals include:
- Closing the RO early in Great Britain to new solar PV projects of 5MW and below, and to additional capacity added to existing accredited stations up to a total of 5MW total installed capacity, from 1 April 2016.
- Grace periods for developers who either (1) have obtained preliminary accreditation on or before 21 July 2015; or (2) have made significant financial commitments to projects (i.e. grid offer and acceptance, declaration of land rights and submission of planning application, all in place on or before 21 July 2015); or (3) experience grid connection delays which are outside their control. The grace periods would allow projects to enter the RO on or before 31 March 2017.
- Removing grandfathering for new solar PV projects on 5MW and below, and additional capacity up to a total of 5MW total installed capacity, which are not accredited under the RO as of 21 July 2015. DECC also propose an exception to the removal of grandfathering for projects that satisfy the criteria for the significant financial commitment grace period.
- DECC intends to publish proposed bandings for new solar PV projects of 5MW and below, for further consultation.
- The closing date for submission of responses to the consultation proposals is 1 September 2015. The proposals in relation to early closure would, if implemented, apply across GB. The proposals in relation to grandfathering, and any future banding review, would, if implemented, apply to England and Wales only.
BIOMASS: DECC has decided to remove grandfathering for biomass conversions and co-firing projects for the duration of the RO (click here).
- The changes are to take effect from the date of the publication of the original consultation document (12 December 2014).
- This policy change will also apply to generating stations or combustion units which are already receiving support under the RO and move for the first time into the mid-range co- firing , high-range co-firing or biomass conversion bands.
- Exceptions will apply to protect those who have already made significant financial commitments. These cover:
- any station or combustion unit that is the subject of an investment contract awarded through the FIDe process and is awaiting State Aid clearance; or
- any station or combustion unit which has moved into the mid or high-range co-firing bands and generated electricity eligible for ROCs under these bands in any month before 12 December 2014.
- The changes to grandfathering apply to England and Wales only. Decisions regarding the operation of the RO, including grandfathering policy, in Scotland and Northern Ireland are for the Scottish Government and Department of Enterprise, Trade and Investment in Northern Ireland respectively.
FIT: DECC has launched a consultation on changes to the preliminary accreditation rules under the FIT scheme, to be followed by a wider review of the scheme (click here).
- DECC proposes to remove pre-accreditation and pre-registration from the FIT scheme. This will have the effect of removing the link to the tariff guarantee for installations currently able to pre-accredit under the FIT, such that installations will only receive the tariff rate as at the date they apply for full accreditation. This will mean that a developer will not be certain of the level of support they will receive under the scheme until the point at which their application for accreditation is received by Ofgem.
- DECC is currently preparing a further review of the whole scheme to consider the appropriateness of current tariff levels and the scope for further cost control measures. DECC will consult on a wider package of proposals as part of this review later this year.
- The closing date for submission of responses to the consultation proposals is 1 September 2015. The proposed changes to pre-accreditation would, if implemented, apply across GB.
CFD: DECC has stated that it will set out its plans in the Autumn in respect of future CFD allocation rounds. Further to statements made by Amber Rudd, Secretary of State for Energy and Climate Change, it is not expected that onshore wind will be granted any budget under the next CfD allocation round.