Finally the Government has published its thinking around a revision of the Feed-in tariff scheme. The press release was published on the DECC site today, 9th February 2012.
We have divided up the implications of this FiT Review announcement into three sections. The first looks at the definite changes to Solar PV, the second at proposed changes to Solar PV, and the third at proposed changes to other technologies covered by FiT (wind, hydro, AD etc) and more general FiT administration issues.
Definite changes to Solar PV
A new set of tariffs will be introduced for all systems registered after 3rd March 2012 ie. 21p/unit for domestic scale installations. The Ministerial statement says “The new tariffs are designed to apply to all installations with an eligibility date from 3 March onwards.” See our article "Is Solar PV worth considering in 2012?" for more detail on these.
From 1st April 2012 properties should achieve an Energy Performance Certificate rating of level D or above to qualify for the full FiT tariff. That means older properties that tend to leak energy are unlikely to be eligible for the full FiT so will significantly reduce the market for solar PV.
From 1st April DECC will change the multi-installation tariff rates (which are 80% less than standard rates) will now only apply to projects involving 25 installations or more (rather than 2 or more) – this is aimed at helping community schemes.
A new higher tariff for microCHP units will be introduced to incentivise take-up of these.
There is, as yet, no clarification on the situation for people registering PV systems right now (Feb 2012). “The government cannot give certainty on tariff levels to people who install solar panels with an eligibility date between 12th December 2011 and 3rd March 2012 due to ongoing legal proceedings. DECC is appealing to the Supreme Court and has until 21st February to lodge its case.”
Proposed Changes to Solar PV
DECC are consulting on their Solar PV changes (Document 2A) which requests feedback by 3rd April. These are the highlights from the consultation document together with some of our thoughts:
Their proposed PV tariff table from 1st July 2012:
The DECC consultation document (2A) outlines the detail of Options A, B and C which are based on different scenarios. The stand-alone rate would apply for those properties which do not achieve an EPC rating of D.
DECC would like to introduce a new set of reduced tariff options from 1st July 2012. This would be based around a much more flexible PV tariff system that could take account of rapidly changing market conditions. This is likely to include a 5-10% cut (called a ‘degression’) every 6 months together with the ability to cut the tariffs even quicker if demand starts to rise significantly (with a 2 month notice period). We would suggest the previous hikes in demand are highly unlikely without major falls in the price of PV panels given the scale of cuts to the tariffs.
DECC are proposing to cut the FiT for PV from 25 to 20 years.
DECC are proposing to review the export tariff currently at 3.1p/unit – this could potentially be increased although they would then decrease the tariff to keep returns consistent.
DECC are proposing to review whether tariffs should be index-linked and increase automatically each year or ‘flat’.
DECC propose to reduce the solar PV tariff for non community-owned multi-installations to a level equivalent to the stand-alone tariff from October 2012. As we understand this will dramatically affect the business for those offering commercial companies offering ‘rent-a-roof’ schemes
Proposed Changes for Other Renewable Generation Technologies
A further consultation (2B) document has been produced covering other FiT technologies and general FiT administration. The closing date for feedback on this is 26th April. Here are some of the highlights.
Proposed tariff changes – note they are proposed to be introduced from October 2012:
Note, one of the major potential loosers is the small wind sector where those installing wind turbines between 1.5 kW and 15 kW after October 2012 could get their tariff cut by 25%. Look out for a major spike in installations of small turbines over the summer if this is confirmed.
Annual Degression – DECC propose ‘automatic degression’ of tariffs and capacity triggers across all other technologies. They have particular concerns over a potential rapid increase in the number of micro-wind projects..”there may be some budgetary risk from other technologies that can be deployed quickly such as micro-wind installations. We propose that from April 2014, all tariffs should be subject to a minimum degression rate of 5% per year.”
Energy Efficiency Measures – linking these in to buildings so smaller scale generation projects based on building mounted wind turbines and microCHP could be dependent on the energy efficiency of a building.
Use of Second-hand Equipment - DECC are considering whether ‘second-hand equipment’ could qualify for the FiT and, if so, how should the tariff be reduced to support this? If this is brought in it would have a big impact on the market almost instantly generating a second-hand marketplace for used and refurbished equipment.
AD – Tariffs are frozen. DECC has concerns around environmental risks associated with purpose-grown crops for AD plants.
Wind - Tariffs for 1.5kW to 1.5MW wind installations are set to provide an approximate 8% rate of return for reference wind installations located at sites with an average 6 m/s wind speed. This target rate of return at the high end of the 5-8% target rate of return is justified because of the portfolio risks experienced by wind developers.
Hydro – “Recalculation of tariffs using the revised estimates based on an 8% rate of return would result in a profile of tariffs that was very similar to the existing tariffs.”
MicroCHP – “..we propose to raise the support level to 12.5p. This increase will allow a rate of return for μCHP comparable to other low carbon domestic technologies.”
Community Energy Schemes – DECC would like to develop clearer ideas on how to define a community energy project
FiT Accreditation process - “We recognise the value of a preliminary accreditation process, along the lines of the RO. We believe that preliminary accreditation should be offered to wind projects over 50kW and all hydro and anaerobic digestion installations i.e. those that are eligible for ROO-FIT.” This would suggest that DECC are considering some way that projects can get a tariff guarantee offering financial certainty earlier in their project life-cycle. This would certainly be very helpful.
General Admin of FiT - DECC are considering greater powers to remove installations from the FiT register where, for example, they have been unlawfully erected through not getting planning permission.
It appears from Greg Barker's post this morning that the DECC spokesperson were right - the document referenced in our last blog post was inaccurate in the sense that the deadline date was not 8th December but 12th December - 4 days out! Pretty much everything else is spot on. You can read the full DECC report here.
These are the proposed new tariffs compared with the current ones to see the extent of the suggested reductions:
If I'm some way through the process already what should I do?
If you're at a relatively early stage and you have yet to get a confirmed install date with an installer then it's likely to be too late. Most installers we've spoken to do not have any free slots for new customers.
For those that are some way down the road with an installer then it's all about whether you can meet the 12th December deadline. You should probably seek guarantees from your installer that they can get your system signed off with some days to spare before the deadline. What exactly do you need to do to meet this?
The DECC report says the following..
47.The effect of the proposal is that in order to be eligible for existing tariffs a PV installation with a total installed capacity of up to 250kW must be commissioned (see definition below) and have its request for accreditation received by a FIT Licensee (in the case of PV installations with a declared net capacity of 50kW or less) or Ofgem (in the case of PV installations with a declared net capacity of more than 50kW) before 12th December 2011. In the case of PV installations with a declared net capacity of 50kW or less, the request for accreditation must include a Microgeneration Certification Scheme (MCS) certificate.
Our reading of this (and we are seeking confirmation specifically on this from our Supporters) is that for domestic and small scale projects (under 50 kW) you will need to have your system up-and-running (ie. commissioned by your installer), completed all your documentation (with no gaps or mistakes), and have sent this off to your chosen FiT licensee to arrive with them on 11th December 2011. To be certain you should check with your chosen FiT licensee. You should consider using a FiT Licensee that you can trust to follow their procedures, has a strong reputation in this area and can act quickly - we would suggest Good Energy as one of the FiT Licensees that would be a good option. You do not have to switch to them to provide your electricity - you can just use their FiT registration service.
Subsequent to this post we have included specific Good Energy guidance which they issued for those wishing to use their FiT registration service - see our follow-up comment below.
Installers will be keen to do your work over the next 5 weeks but you may want to back out given the risks of not getting in before the deadline. If you decide to go ahead, given the likely rush and pressure on installers to get through installations quickly, you should be careful to make sure performance is not compromised.
For those who have signed contracts and paid deposits (either for purchase of solar PV or a rent-a-roof scheme) you need to contact your installer or service provider and read the detail of your contract. You may even need to seek legal advice if you want to back out.
Households that have been considering solar PV (given they have south-facing roof space) should seriously consider solar thermal as an alternative solution for offsetting their energy consumption - in this case water heating. The panels will take up significantly less roof space and the overall cost of such a solution may well be 50% or less than that of a solar PV project. Financial support for domestic scale solar thermal projects is likely to be introduced through the Renewable Heat Incentive (RHI) from October 2012. It may not be as generous at first sight but ultimately FiTs and other incentives are a temporary catalyst. We should all be more focused on how much these technologies can save us on our existing energy consumption. Solar thermal solutions are inherently a more efficient way to generate energy from sunshine and should offer sustainable, long-term benefits in terms of offsetting your energy use.
What are the wider consequences of these changes?
If this goes ahead as is very likely, it will be a major blow to the attractiveness of domestic and commercial (up to 50 kW) scale solar PV projects. Take-up from now is likely to be curtailed significantly. The availability of 'free rent-a-roof' schemes is also likely to drop sharply - many of those offering such schemes are already in the process of shelving them.
Customers should keep an eye on the health of their installer - it's likely a significant number of them may not be around long-term. Many customers of solar PV systems are starting to realise these are not "fit and forget" solutions - glitches are occuring and these have tended to be fixed by the installer for free. So if your installer goes bust where does that leave you? You should have warranties on your kit (panels, inverter etc.) with the manufacturer in case problems arise but chances are you may not be able to diagnose the specific problem. It's likely that a smaller number of current installers will set up maintenance services to provide on-going specialist support to anyone with solar PV...but not for free!
The use of Energy Performance Certificates (EPCs) in the qualification process from 1st April 2012 is a new and significant introduction that focuses much greater emphasis on EPC ratings for buildings. There is likely to be renewed investigation of these for residential and commercial properties. Our experience is that larger commercial buildings and older historic properties could find it a costly process to achieve a Grade C or above EPC rating which could effectively rule them out of solar PV FiT receipt.
For the industry the impact will be significant for all those companies that have invested in MCS accreditation and have skilled up their workforce to deliver projects. They should feel rightfully aggrieved with this sudden policy change. A significant number of these companies will either have to focus more on the much smaller market for maintaining these systems or diversify away from this area. If they fail to do so successfully they may go to the wall leaving their PV customers in an awkward position should they need further on-going support. The idea that solar PV companies can diversify into solar thermal systems is worth exploring although the solution is inherently more complex and requires new skills.
What's caused this problem?
The crux of this issue appears to be size and lack of expandability of the budget set for the FiT scheme. The current economic climate and budget deficit probably has a lot to do with this too. While the funding is raised through increases on all our energy bills, it is actually treated as a tax by the Treasury and therefore has to be given an upper limit. The Government are not prepared to increase this budget with the consequence of greater rises across the board to all our energy bills. They are also not prepared to let solar PV hoover up the majority of the FiT budget - there are a range of other renewable technologies that actually are considered 'higher priority' by DECC.
Our view is that FiT has demonstrated it can lead to a significant increase in jobs in this area - jobs which are likely to be evenly distributed across the whole country. So, as a means of creating and supporting jobs it has been very successful. However, as a means of (green) energy production we can understand why many believe it doesn't offer great value. Aggregated outputs from all domestic PV projects would generally fall a significant way short of the sort of output from a single gas fired power station. There is also the argument that the UK is one of the windiest countries in Europe (and the world) but a long way from having a good solar resource.
Much is made in the DECC justification document of the explosion in solar PV installation rates that could blow the FiT budget. Could this have been anticipated? We believe the sort of installation rate increases over recent months should have been entirely predictable - they are in line with our predictions (and those of others) on the take-up of domestic PV. So, the real cause may be one or more of the following:
The FiT budget has taken a 10% cut as a result of cross-government budget cuts so this will have had some impact.
DECC initially predicted very little take up (if any) of anything other than sub 4 kW schemes in the first few years according to their published figures - in reality there has been significant take up (in terms of generation capacity and therefore budget) of larger scale generation projects and also stand-alone projects that has put considerable pressure on the overall FiT budget.
DECC got their early sums wrong in terms of the budget that was actually needed to support the rapid growth of solar PV to meet targets.
Officials assumed initially that the upper budget figure was likely to be more 'flexible' - but that is now proving politically unpaletable in the current climate with rising consumer energy prices.
DECC are far from convinced that support for solar PV is the best way to achieve their energy production and carbon saving objectives. As they say in their document, solar PV is NOT one of their 8 'priority renewable technologies'. The amount needed right now to incentivise customers to invest in solar PV is too great and it does not offer value for money.
The solar PV industry is not something that DECC are prepared to artificially support for the sake of maintaining jobs - they would prefer to put their money for (renewable?) energy projects into other things - like building nuclear energy plants.
My vote is that Government priorities have changed since Labour lost power and the objectives of this government in terms of spending in the current environment are quite different. They believe Solar PV incentivisation is too big a price to pay for the benefits (in relatively small-scale green energy production, carbon savings, jobs and wealth creation). Politicians are extremely keen to see the Green Deal scheme become a major success at the domestic scale and much less enthusiastic about schemes that have been inherited from the previous Government, notably FiTs and RHI. [From a 'green perspective' focusing on efficiency savings is entirely logical but whether the Green Deal will be as popular as FiT remains to be seen.]
In retrospect, what lessons could we learn?
Were the tariffs too generous? Unlike many people, our financial analysis suggests that the rate of return for solar PV was in NOT excessive in relation to risk. The problem relates to it being hugely over-hyped. We've talked to a lot of households who were interested in solar PV but put off by the length of payback period and the relatively 'average' returns based on the walking away after 15-20 years. The value that solar PV might add to your house in the long-term is very unclear. Those that have installed solar PV should be rewarded for taking a significant risk. Unfortunately the hype around solar PV (often perpetuated by those in the industry) suggested the deal was "too good to be true". Many households will move house within the 25 year period and may well not see a financial return on the scale they were expecting - they may even be substantially out of pocket.
Who have been the real winners from FiT supported solar PV to date? In broad terms, they are likely to be:
Wealthier households with savings that have been able to afford to invest up-front in solar PV particularly if their property is unlikely to be sold on outside the family in the long-term.
Many owners of solar PV companies who have had a very profitable last 12 months making significant margins largely on the sale of the kit. Also some owners of 'rent-a-roof' service companies who have made substantial profits due to the nature of the FiT scheme. [We would tend to agree with the DECC report that the benefits to households that have opted for the rent-a-roof scheme are fairly marginal due to the limited ability to actually consume the energy that solar PV generates.]
Anyone who buys a property with solar PV already installed where it qualified for this higher tariff - provided the price the new owner paid does not include a significant "PV Premium". These new owners should be very happy indeed with the windfall payments every quarter!
Should incentives for energy generation have been launched before incentives for energy conservation? We believe they should not. A scheme like Green Deal should have been brought in first to incentivise households to save energy before they try to generate it. Successive Government's have been focused on energy generation ahead of energy efficiency (see ACE blog post). Depending on the energy efficiency measures taken by a household, it should then qualify for generation tariffs. The Government is therefore (belatedly) right to link generation with energy efficiency as they are seeking to do now.
Overall, we feel the Government has asked industry to 'ramp up', 'skill up' and 'certify up' to install solar PV. Unfortunately they have been well and trully dumped on. The industry has generated '000s of new jobs which are now threatened. The recent comments by the Prime Minister to pump prime the economy through large capital intensive projects ring rather hollow when some of this money could go into an industry that has already demonstrated it can generate jobs across the whole country. So, rather than drastic changes and job losses, why not top up the FiT budget with this additional 'pot' and reduce solar PV tariffs more gradually in line with technology costs - that way you should have a sustainable, long-term solar PV industry that supports a large number of 'green jobs'.
Just to clarify, the suggested changes above are 'under review' at this stage, subject to a consultation period. If you feel strongly you can respond to the consultation on the DECC website. The fact that the date of close of consultation is after the 12th December deadline suggests you may be wasting your time!
It looks like the Government is about to take a major decision over the future of Solar PV in the UK. A leak through the Energy Saving Trust website - now withdrawn - suggests not only drastic 50% cuts (from 43p to 21p) for domestic scale systems below 4 kW but also, and perhaps even more surprising, that the deadline for OfGem registrations is to be brought forward to 8th December.
This means unless you're about to get your system installed, you will probably be too late to get the current tariff rates.
The announcement also mentions that your property will need to have an Energy Performance Certificate rating of "C" or better to qualify for the highest tariff level. This is to encourage homeowners to think about making their houses more energy efficient before they consider generating their own energy.
A spokesman for DECC later said the published document was not final or accurate.
At yesterday's Solar PV Conference in Birmingham Energy Minister Greg Barker said solar PV was “burning through” the FiT budget and swift action was needed.
We will need to wait until Monday before we get the full and 'official' picture of Government FiT intentions for other scales of solar PV (and other small to medium scale renewable generation technologies). To stress, the announcement on Monday is to kick off a consultation phase before DECC make a final decision. However, if past experience is anything to go by, the result of any consultation is unlikely to have a significant impact on their thinking.
As reported through the recent GEN News bulletins, the Government has announced the result of its Feed-in Tariff review that kicks in for all systems registered from 1st August 2011. Is this bad news for everyone or just a minority of larger-scale players? We look at the winners and loosers. Read More...
As reported through the recent GEN News bulletins, the Government has announced the result of its Feed-in Tariff review that kicks in for all systems registered from 1st August 2011. Is this bad news for everyone or just a minority of larger-scale players? We look at the winners and loosers.