Legal Overview of the Feed-In Tariff (FIT) Scheme
Author: MacRoberts LLP www.macroberts.com
Terminology used in this note
Terminology used in this note is used for convenience and abbreviation, and is different from the terminology used in legislation and guidance.
"FIT" means feed-in tariff.
"Generator" means the party installing the equipment which will generate the electricity attracting FIT payments - for example, in a domestic situation this would often be the property owned.
"Installation" means the totality of the equipment installed by the Generator which is used to generate electricity.
"Statement of FIT Terms" means the agreement which will be entered into between the Generator and the Supplier setting out the terms on which the parties will engage in relation to FITs.
"Supplier" means the licensed FIT Supplier of electricity which enters into an agreement with the Generator to take the Generator's export electricity and to pay FIT payments. Examples include ScottishPower, Scottish & Southern, E.ON, nPower, EDF Energy and British Gas amongst others. "Supplier" does not mean your installer.
Which generation technologies are eligible for FITs?
The following are eligible for FITs if they produce less than 5 MWh electricity per annum and provided they meet criteria in relation to accreditation and installation date:
- Anaerobic digestion to produce biogas for electricity generation
- Hydro-electric power
- Solar electric photovoltaics (PV)
- Wind power
- Small-scale gas-powered combined heat and power (CHP) units up to 2kW
Are there criteria in relation to the installation date of equipment?
If installed after 1 April 2010 FITs can be claimed from date of confirmation of registration (see below) of the installation on the central register maintained by Ofgem.
How are installations accredited?
Accreditation of an installation is effectively part of the installation process.
For "microgeneration" systems below 50kW, the major equipment needs to be certified by the Microgeneration Certification Scheme (MCS), and the equipment needs to be installed by a company accredited under the MCS. The MCS is an independent scheme that certifies microgeneration products and installers in accordance with consistent standards. The MCS has support from the Department of Energy and Climate Change (DECC), industry and non-governmental groups.
For systems above 50kW, but below 5 MW, there is an accreditation process called 'ROO-FIT' based on that used in the Renewables Obligation.
For those technologies which are required to be ROO-FIT Accredited, Ofgem will determine eligibility and award accreditation, but not until the installations are complete, i.e. at or just before commissioning. Successful applicants will be awarded a ROO-FIT Accreditation Number which Suppliers can use to register the installation in the central FITs register. Suppliers will be able to verify a ROO-FITs Accreditation Number on the register.
Owners of installations with a declared net capacity (DNC) of above 50kW and up to 5MW have a one-off choice to receive support under either FITs or the Renewables Obligation. This decision needs to be made during the ROO-FIT accreditation process.
As of April 2010 the majority of microgenerators will not be eligible under the RO and will have to transfer to the FITs. Those commissioned after 15 July 2009 using recognised FIT technologies generating a DNC above 50kW up to 5MW will have the option to choose whether to transfer to FIT, The choice to transfer, or to join FITs rather than RO on accreditation, is likely to be based upon the owner's personal choice of the administration associated with each option and their requirements for price certainty. The Government has tried to set the tariffs for larger systems at the same rate as ROs. However, it should be noted that the FIT scheme is intended to provide a stable income whilst ROC prices can be volatile. Where a generator's DNC rises above 5MW they will have to move over to RO regardless of whether they had opted to join FITs.
What tariffs are available?
Subject to confirmation of eligibility and registration, tariffs last 20 years for most systems with the exception of solar PV systems (25 years) and micro CHP systems (only 10 years). The payment is guaranteed for this period. The appropriate tariff will not change throughout that period other than by way of annual index-linked increases following the Retail Prices Index. The increase in April 2011 was almost 5%.
Owners are entitled to:
- a generation tariff for energy produced and consumed by the Generator, and
- an export tariff for excess energy distributed to the grid.
Generation tariffs differ depending on the technology installed and the amount of electricity generated in a year. The tariffs for installations completed before April 2012 are as shown in the table at this link http://www.fitariffs.co.uk/eligible/levels/.
Export tariffs are the same for all technology types and regardless of installation capacity. The "floor" price has been set at 3p per kWh, but Generators (anyone generating energy) can opt out of that price and seek to negotiate a higher tariff with their Supplier. That option can be exercised each year, not just once.
Tariffs are payable by Licensed Electricity Suppliers, that is Suppliers who are licensed to take Generators through the registration process. FITs obligations are being imposed on these Suppliers by modifications to the standard terms of their licences.
There will be a five-yearly review of the FIT scheme but only entrants after the review date will be affected by changes to the tariff, which are likely to be "degressed" in line with expectations that some technologies will be cheaper to install in the future.
What is the registration process?
Registration of your new installation will take place following completion of the installation and will be subject to satisfactory accreditation, as outlined above.
Registration for FIT is against the property, not the owner of the property. There is no provision to allow owners to move property and take the kit with them to install in their new property. In the event, for example, of a residential house-move, the FIT register would be amended and payments made to the new owner. All technology used must also be new – it cannot be ‘second-hand’ to qualify for FIT payments.
The most likely route to registration is for the Generator to approach a licensed Supplier and have the Supplier do most of the work. Most of the administrative burden of FITs is on the Supplier. For example, the Supplier must be satisfied that the Generator is eligible and can then enter the Generator's details on the central register with Ofgem. Ofgem then has to confirm that the installation is eligible, and this confirmation can presumably be made available as evidence to the Supplier that the installation has been registered.
Verification of metering data, payment calculation and audit is also principally the responsibility of the Supplier, albeit subject to contract terms entered into with the Generator. Of course, some of these obligations will be reflected in the contract between the Generator and the Supplier (see below) so that the Generator will probably be subject to a number of positive and negative obligations for example in areas like data provision.
Generators get a choice of either taking the FIT or selling the electricity on the open market, and the Supplier is obliged to explain the choices to the Generator and to enter the Generator's choice on the register.
Generators and eligible installations may be suspended from the Central FIT Register, maintained by Ofgem, if a change is made to an installation which makes it ineligible, if fraud or abuse of FITs is suspected, if a Statement of FIT Terms is in breach, or if Ofgem have good reason to believe that a FIT Payment should not have been made. One example might be that once a PV system has been registered by a Supplier, if a non-accredited installer then extends it (eg. by adding PV panels to generate additional electricity), then the whole system may then be ineligible for FIT claims.
Is there a contract with the Supplier?
Suppliers are required to take all reasonable steps to agree a Statement of FIT Terms with a Generator: essentially the contract between them. The minimum required contents of a Statement are outlined in Appendix 2 of the Ofgem Guidance fro Licensed Electricity Suppliers at http://www.fitariffs.co.uk/library/regulation/100514OfgemGuidance.pdf.
Ofgem expects the Supplier to have agreed a provisional Statement of FIT Terms with the FIT Generator before registration has been completed, having explained key elements, including obligations on the Generator as regards agreeing declarations, providing information and deciding payment terms. Following receipt of confirmation from Ofgem that the Generator and installation are registered on the central FIT register, the Supplier should not delay in informing the Generator of receipt of Ofgem’s confirmation Notification and agreeing the Statement of FIT Terms in writing. If a Generator and Supplier cannot agree a Statement of FIT Terms, the FIT Licensee should not begin making FIT Payments.
If a Generator and a Supplier cannot agree the Statement of FIT Terms within ten working days, the Supplier may decide to discontinue the FITs registration process. If this happens, the Generator's only option appears to be to try to find another supplier. There is no obligation on a Supplier, even a Mandatory FIT Licensee (see below), to conclude an agreement.
If a Supplier considers that a Generator is in breach of the Statement of FIT Terms, that is one ground on which the Supplier can ask Ofgem to suspend the registration and so suspend payments.
Generators are entitled to switch Supplier and Suppliers must facilitate a smooth transition.
How are FIT payments made?
Generators are entitled to nominate a payee other than the Generator, if they notify the Supplier. This could be a person or friend living at a completely different address. It could be a Pension Scheme provider. It could be a separate company.
Payments will be made by the Supplier once eligible equipment has been installed and is commissioned to the required standard.
Generally payments will be paid in accordance with metered supplies at the relevant tariff(s) for generation and export. The frequency and timing of payments are matters to be agreed in the Schedule of FIT Terms, which should also set out the circumstances in which payments can be suspended, reduced, recouped or withheld (see below).
For metering for generation payments, the Generator will have a generation meter fitted as part of an eligible and accredited installation.
As regards export payments, an export meter is supposed to be installed, and it is anticipated that future Smart Meters will cope with FIT exports. However, certainly for many residential properties at the current time, there is no export meter. Instead there are what are termed as ‘deeming provisions’ obliging the Supplier to deem 50% of the generation meter figure as the export figure. So, for many households claiming FITs, the export tariff payment is based on an estimated figure of 50% of the electricity generated. If you schedule your main power-consuming activities to coincide with daylight hours and end up exporting only 10% of your locally generated electricity back to the grid then, at the current time, you will still be paid on the assumption that you are exporting 50% back to the grid.
Can FIT payments be suspended or terminated?
FIT payments may be reduced, recouped or withheld by the Supplier:
- if an error has been made;
- if fraud or abuse of FITs is suspected; or
- if Ofgem notifies the relevant FIT Licensee that it has good reason to believe that a FIT Payment should not have been made.
All Suppliers have an obligation to take all reasonable steps to ensure that any FIT payment it has made reflects only that to which the Generator is entitled. If a Supplier believes that in making a payment to a Generator it would contravene that obligation, it is required to notify Ofgem immediately. If Ofgem determine that a payment could result in the improper administration of FITs then it may suspend the relevant installation from the register.
If instructed to withhold payments, the Supplier shall continue to do so until such a time as notified by Ofgem that the suspension has been rescinded, or if instructed by Ofgem to recover or make a reduced FIT Payment.
What is the difference between Mandatory and Voluntary licensed Suppliers?
Licensed Suppliers who have a minimum of 50,000 domestic customers are obliged through their Electricity Supply Licence to register and make FITs payments to eligible Generators. These Suppliers are classed as Mandatory FIT Licensees.
Licensed Suppliers with fewer than 50,000 domestic customers can elect whether or not to register. These Licensees are classed as Voluntary FIT Licensees and are required to remain in FITs for at least the remainder of the FIT Year (1 April - 31 March) in which they enter.
Mandatory FIT licensees are not allowed to exit the FITs regime unless they cease to fall within the definition of a Mandatory FIT Licensee. In that event, they can elect to become a Voluntary FIT Licensee and must notify their Generators accordingly if they are no longer obligated to be a Supplier for the purposes of making FIT payments to the Generator. The minimum notice period is 6 weeks prior to the end of the current FITs year.
If a former Mandatory FIT licensee elects not to become a Voluntary FIT licensee, notice must be given to Generators on a minimum period of 6 weeks prior to the end of the current FITs year.
Do Suppliers have the right to exit the FIT regime?
A Voluntary FIT licensee may decide to withdraw from participation in the FIT scheme at any time. However, if it does decide to withdraw from the scheme, the Voluntary FIT licensee will still be required to continue its existing obligations under the FIT scheme for the remainder of the FIT year in which it has given notice of its withdrawal, unless notice was given after 14 February in any FIT year, in which case the Voluntary FIT licensee shall continue its obligations for the next 6 weeks from the date upon which notice was given.
The Voluntary FIT licensee must also notify Ofgem of its decision to withdraw and notify the Generators to whom FIT payments are made.
There appear to be no provisions protecting Generators against a Supplier deciding to exit the FITs regime, if the Supplier is permitted to do so, i.e. is not a Mandatory FIT licensee. The Generator will be left without a Supplier or a contract, albeit after a period of notice within which they can attempt to find another Supplier.
Generators are advised to consider their own particular requirements/preferences and take independent specialist advice when choosing their energy Supplier.
What happens if FITs are abolished?
We have not found anything that would legally guarantee payments under the FITs regime in the event that the regime is abolished, and nor anything in relation to compensation for loss of payments. Despite the fact that any contracted period may extend beyond an abolition date, if the FITs regime infrastructure is abolished, e.g. the central register is abandoned or Suppliers ceased to be FITs licensed, we anticipate that the legal position will be that the contract is frustrated. In other words, if the regime was abolished and the contract could not be performed, it would not be the fault of either of the parties. As such, each party would be discharged from any future obligations under the contract and neither party would be able to sue for breach of contract.
The Department of Energy and Climate Change (DECC) have announced they are bringing forward their review of Feed-in-Tariffs which will be completed by the end of 2011 (originally scheduled for 2012) in order to determine how the efficiency of FITs will be improved in order to deliver the required savings.
The comprehensive FITs review will:
- Assess all aspects of the scheme including tariff levels, administration and eligibility of technologies
- Be completed by the end of the 2011, with tariffs remaining unchanged until April 2012 (unless the review reveals a need for greater urgency)
- Fast track consideration of large scale solar projects (over 50kW) with a view to making any resulting changes to tariffs as soon as practical, subject to consultation and Parliamentary scrutiny as required by the Energy Act 2008.
- Undertake a short study into the take-up of FITs for farm based Anaerobic Digestion plants.
Ofgem's FIT website http://www.ofgem.gov.uk/Sustainability/Environment/fits/Pages/fits.aspx
OfGem produce a useful regular newsletter on FITs – to register see http://www.ofgem.gov.uk/Sustainability/Environment/fits/Newsletter/Pages/Newsletter.aspx
Website created by Feed-In Tariffs Ltd, a wholly owned subsidiary of Ownergy plc, set up to provide free information on the Feed-In Tariffs http://www.fitariffs.co.uk/
UK Government FiT Legislation: http://www.legislation.gov.uk/uksi/2010/678/pdfs/uksiem_20100678_en.pdf
The material contained in this summary is general in nature and does not give advice on any particular matter. Readers should not act on the basis of the information in this summary without taking appropriate professional advice on their own particular circumstances.