Friday, February 10, 2012

FITs reductions get mixed reaction from renewables industry

PV solar modules on roof
One installer says the new proposals "could spell Armageddon for the industry".

The solar industry has responded with mixed feelings to DECC's new proposed changes to the Feed-In Tariff system for small scale renewable energy, announced yesterday.

In its response to the consultation on FITs for solar PV, the Government admits that 81% of respondents disagreed with their proposed reduced tariffs for solar PV installations and with the proposed reference date of 12 December 2011, compared to 12% who agreed.

Nevertheless, it is proceeding with the tariff reductions, and the appeal to the Supreme Court over the legality of the cut-off date for the high tariff rate.

The new tariff rate includes a drop to 21p/kWh for systems under 4kW, until June 30. It estimates the cost to taxpayers of all the new tariffs to be £1.2 billion over 25 years.

The reductions are based on research showing that the average cost of a 2.6kW system has dropped from £15,000 in 2010 to £12,000 in 2012. They aim to provide an approximate 5% rate of return to their owners for well located installations.

DECC projects around six million installations by 2020 based on the new tariffs, which over their lifetime will involve total costs, the Impact Assessment says, of £54.3 billion. [Note: the document contains several errors so this figure, high as it seems, may not be correct.]

Nevertheless, the Impact Assessment calculates a net benefit of around £400 million because the savings on social costs outweigh the overall costs, compared to a loss of £600 million under the original scenario.

The response does contain a concession to objectors from the solar industry: that the energy efficiency requirement that will be a condition of receiving FIT support should be based on an Energy Performance Certificate (EPC) rating of level ‘D’ or above, not the more stringent level ‘C’, as previously mooted, as this excluded too many homes.

Even so, it will almost certainly exclude the majority of old, solid-walled homes, that do not have wall insulation. DECC estimates that about half of all properties are already at the ‘D’ rating level.

A second concession is that the threshold at which the multi-installation tariff rates would apply has been increased from more than one PV installation to over twenty five. These rates are set at 80% of the standard tariffs to reflect the economies of scale gained from tackling several roofs at once.

Individuals or organisations with 25 or fewer installations will still be eligible for the individual rate.

"This will help community groups, small businesses and councils who do not benefit from the economies of scale that larger aggregators can obtain," said Energy Secretary Ed Davey.

DECC says it is using budget flexibility to cover the overspend resulting from high PV uptake of 240,000 installations over the last year, while still allowing £460 million for new installations over the Spending Review period.

The statement says this will not impact any further on consumer bills, since DECC is juggling overspends and underspends in the overall amount allocated to it for renewables under the Comprehensive Spending Review between the budgets for FITs, the Renewables Obligation, and the Warm Home Discount.

What happens beyond June?

A new consultation is beginning, and it is this which so far appears to be the most disheartening for the solar industry, for it proposes a reduction of 10% of solar PV tariffs every six months, with an added deployment trigger to ensure that subsidy levels keep in step with the market.

It is based on projections which estimate that system costs will fall by two thirds by 2020.

The proposals would make the tariffs from 1 July onwards dependent on the levels of actual deployment of new eligible installations seen in March and April.

They outline three ways of calculating the level, which could bring rates down as low as 13.6p/kWh for installations below or equal to 4kW.

This structure is aimed at protecting the scheme's budget and creating long term certainty for consumers and investors about what the FIT rates will be.

However, one installer said this "could spell Armageddon for the industry. Yet again the Government, even with a newly appointed Energy Secretary in Ed Davey, seem happy to watch the solar industry lurch from one crisis to the next," said David Hunt, a director with Eco Environments.

Friends of the Earth's Executive Director Andy Atkins also said that the "distinctly unclear solar road map leaves a dark cloud hanging over thousands of jobs".

But others welcomed the news.

Robert Goss, Managing Director of Conergy UK, called it "a very good day for British solar. There will be a boom in May and June as people look to complete installations before the June tariff reduction, with returns of seven to nine percent".

A spokesperson for Good Energy said they considered this "a step forward".

"The industry was in desperate need of more clarity and the government has moved to provide that," said its CEO, Juliet Davenport. "The rate changes proposed for solar PV are a reflection of the well-known problems with the FIT budget and it will take time to fully digest what they mean."

Ed Davey said the proposals, "will remove the need for emergency reviews, consistent with our commitment to a stable, predictable future for solar PV and for the whole FITs scheme.

"It will also help to keep the long-term costs of supporting solar PV down, increasing the number of people able to benefit from FITs over time," he added.

The consultation closes on 3 April.

Other FIT technologies

A further consultation has been launched on tariffs for technologies other than PV, including potential arrangements for community projects.

Significantly, it proposes an increase in the rate of return available for micro-combined heat and power, as ministers believe this could bring multiple benefits.

It also outlines potential tariff guarantees for wind, anaerobic digestion and hydro projects, to provide greater certainty about what rates of return they will receive.

This was welcomed by Don Leiper, Director of New Business at E.ON, which has been investing for a few years in micro-CHP for the home market.

He called it "a key step towards building a mass market for what is a smarter home heating and power solution that can save customers money and contribute to saving the planet".

E.ON calculates that under the new Feed-in Tariff scheme, homeowners installing microCHP could see financial savings of more than £600 per year, including electricity savings of £194 and export payments of £46.

This consultation closes on 26 April.

Concluding the announcements, Climate Change Minister Greg Barker said: “Our new plans will see almost two and a half times more installations than originally projected by 2015 which is good news for the sustainable growth of the industry.

"We are proposing a more predictable and transparent scheme as the costs of technologies fall, ensuring a long term, predictable rate of return that will closely track changes in prices and deployment."

The impact of the FIT cuts on solar have captured the headlines, but they have also affected small wind power installations.

Trade association RenewableUK said tariffs for these have been slashed by over 40%, while farm and small business-scale turbines have seen cuts of over a quarter, and it expressed anxiety over the possible impact on jobs.

Story: David Thorpe, News Editor

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