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Government delays its announcement for future renewables support

The widely anticipated announcement, expected today before the parliament recess, has failed to materialise regarding changes to the Feed-in Tariff and Renewables Obligation Certificate (ROC) schemes.  The only clarification from DECC to date has been the future of solar PV  under the Feed-in Tariff scheme (see our related blog post on this).  For all other renewable technologies we are effectively 'in the dark' regarding the future landscape for support at both smaller and larger scale.

The news was a further blow to the renewables industry who have been waiting for months on government clarification.  The onshore wind industry in particular is seeking confirmation on the new levels of support and how much existing levels would be cut.  Suggestions range from between 10% and 25% with anything near the latter having a huge impact. The wind sector is highly exposed to policitical sensitivities of a significant number of Conservative MPs.

The mainstream media are reporting that the cause of this further delay is a deep-seated disagreement between the Tory Chancellor and senior LibDems - they have not been able to reach a compromise on the issue with the result that any decisions have been deferred until the Autumn.  The result - huge uncertainty across the industry.  

One chink of light highlighted by Nick Green, Head of Energy at Savills, is that the investment climate for larger scale projects (usually around 5MW or above that fall into the ROC scheme) may be less fragile in Scotland.   “The position is different in Scotland and ROCs could remain unaffected.  The Renewables Obligation differs in north of the border, with decisions on rates being set in Holyrood. This, as well as the fact that Scotland benefits from over 25 per cent of Europe’s wind resource, makes it a much more attractive option for wind energy investors.

“Historically the devolved regions of the UK have maintained consistency with incentives (although Scotland set higher rates for wave and tidal) but if Holyrood cannot see the justification for more than the 10% cut already proposed it may choose not to follow Westminster.

“Diverging from Westminster would be a bold move by the Scottish Government and make a strong statement about their commitment to meeting their ambitious target to produce 100% of Scotland’s own electricity demand from renewable resources by 2020. It also puts a marker down in the ongoing independence debate.”

While there may be some reasons for optimism north of the border, the PM's re-iteration this week that it's the "greenest government ever" does rather stick in the throat!  You have to wonder whether they actually realise the impact of their squabbling and continued dithering?  It's trully staggering!

Current FiT incentives for Solar PV

As we near the next deadline, now pushed back from 1st July to 1st August 2012, for 'degression' of the Feed-in tariff rates for solar PV, I thought it would be worth a quick round-up of where things stand in terms of incentives.

Before we do it is our understanding there is still no clarity or official RICS guidance on valuation of properties with solar PV (see our article on solar PV and moving house).  The bottom line is that solar PV may make your property more attractive to buyers but is unlikely to increase its actual value.  So anyone considering solar PV should, we believe, be planning to stay in the property for a period of 10-15 years minimum.  Whether this situation will change is not clear - we know there are unhappy people that have invested in solar PV but have not got a premium when it came to selling their house.

Now, on to the specifics of what the UK Government has said about their support for solar PV through the Feed-in tariff scheme, here's the details...they apply to all new projects registered after 1st August 2012:

From 1 August:

  • Any new sub 4kW schemes, typical of most households, will get 16p/kWh delivering an annual return of about 6% for a typical installation (note this return is not an AER rate and therefore not comparable with other financial products).
  • Tariffs for larger installations will also be reduced to reflect cost reductions but with most tariff cuts lower than proposed in February.
  • RPI Index linking is to be maintained as previously so tariffs will go up each year.
  • Only households meeting energy efficiency standards can claim the high FiT rates - you need an EPC rating of D or better. If you don't meet this standard then, on purely financial grounds, solar PV is probably a non-starter.  [EPC's cost about £100 on an average domestic property].

Multi installation tariff will be 90% of standard tariff

  • Companies and organisations with more than 25 solar PV installations will get a slightly reduced rate (these will include companies offering rent-a-roof PV schemes for example).

Reduction in tariffs over time in line with uptake of FITs scheme

  • Average tariff reductions of 3.5% will occur every 3 months so you should ensure that any project is fully completed and registered within a 3 month window. 
  • If there is rapid take-up at any stage DECC reserve the right to make bigger reductions (up to 28%) - so again you need to plan your project carefully to fit into a 3 month window.
  • Tariff cuts will be skipped (for up to 6 months) if uptake rates are low.

Increase export tariff from 3.2p to 4.5p/kWh

  • According to DECC this better reflects the real value of electricity exported to the grid - unfortunately it will also encourage people to export rather than consume their self-made energy which, as far as we were concerned, was the whole point of the FiT scheme.

Scheme lifetime reduced from 25 to 20 years for new solar installations

  • This has a significant impact on the total returns from a project, particularly given a lot of the profitability of solar PV was delivered in years 20 to 25.  We recommend using the SolarGuide PV Calculator but you need to take care to adjust the default settings (we think the defaults are over-optimistic).

DECC says it is keen to maintain the momentum for solar PV and see the market continue to expand while prices for the technology continue to fall.  While there is a push for installations right now up to the 1st August deadline, we have real concerns that the revisions proposed for FiTs will make solar PV sufficiently less appealing.  The critical question about technology prices remains.."how low can kit prices go before they are no longer viable to produce?"  If there is still scope for significant reductions then returns could retain their appeal.

But who won the lego turbine?

No doubt it's been a question on many peoples' lips since visiting our stand at All-Energy 2012!!

lego turbine

Lego wind turbine

The winner is...[annoying delay to build artificial suspense..]

...Ellie at Ecotricity.

Well done her - a brand new lego kit has been posted off.

Thanks to all those who dropped their cards to us - both physically and digitally!