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Feed-in tariff review: an update

Posted by Cathy Debenham on 22 February 2011 at 1:44 pm

Concern that large-scale solar is set to take a significant quantity of the set amount of funding is the main driver of the feed-in tariff review, according to RegenSW chief executive Merlin Hyman, who recently met Greg Barker MP, the minister responsible for feed-in tariffs at DECC.

Barker is determined that the feed-in tariff budget of £900m between 2010/11 and 2013/14 is not swallowed up by one technology. He also believes the tariffs should be aimed at domestic and community-type installations, not investors - and so is determined that large-scale projects won't take a major share of the funding.

The review process will begin with a formal consultation document that will be published in a couple of weeks. This will set out:

  • A 'fast-track' review of the tariffs for 'large-scale' PV of over 50 kW and for farm-scale anaerobic digestion (where there hasn't been as much take up as hoped).

  • A comprehensive review of the Feed-in Tariffs that will run until the end of 2011 and will result in changes in tariffs and scheme design to be implemented for April 2012.

Fast track review

Greg Barker was clear that he hopes to have changes to the tariff for large-scale solar from the fast-track review implemented by the time of the Parliamentary recess on 19 July 2011. It was also clear that, although this is a consultation and conclusions from it will be evidence based, DECC's expectation is that the fast track review will conclude that changes to tariffs are necessary to make large-scale solar projects much less attractive.

Installations that are already generating and accredited for feed-in tariffs will not be changed retrospectively. However, projects in the pipeline at the time of the changes will not be eligible for the tariff at the current rates.

Solar projects below 50 kW and all other technologies should be 'safe' from tariff changes until April 2012 - unless evidence reveals a need for greater urgency.

Comprehensive review

Barker stated his desire for a more dynamic tariff-setting process for feed-in tariffs in future. He gave the example of the Monetary Policy Committee. which regularly reviews interest rates and referred to the German approach to feed-in tariffs. It's clear that the introduction of a fixed budget for feed-in tariffs has fundamentally changed the nature of the scheme and that a new mechanism is needed to replace periodic reviews and provide a more secure footing for investors.

Photo by Living Off Grid

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Comments

10 comments - read them below or add one

ColinNewlyn

ColinNewlynComment left on: 7 March 2011 at 1:17 pm

The Treasury was never happy that the Feed-in Tariff was considered outside the taxation net. It was set-up to be self-funding, with some of the cost passed onto consumer through an energy levy. Given the potential cost of failing to meet our CO2 targets and the need to stimulate growth in the economy, this is entirely reasonable (IMHO). However, the new boys got mugged by the Treasury into agreeing it was part of the taxation system and so it had to have a budget imposed, which has led to the DECC effectively having to second-guess how the industry and the technologies will develop. Given all government's track records on that score, it doesn't look too promising and is unlikely to lead to the stability the market needs.

BTW, contrast this with the treatment of the nuclear industry, which receives much more subsidy from taxpayars and energy users.

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chrisw

chriswComment left on: 24 February 2011 at 3:58 pm

Thanks Cathy, I knew there had to be an explanation (and I might have guessed the Treasury would be at the bottom of it!)  and thanks Fred for the links to the Ofgem stuff.


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Cathy Debenham

Cathy DebenhamComment left on: 24 February 2011 at 12:36 pm

The reason you're confused it because it doesn't make sense! But, because consumers have no choice about whether or not they pay the FiT subsidy which is added to energy bills, the Treasury bundles it up and counts it as a form of taxation - I guess because we can't spend it on anything else. 

The FiT scheme announced by Labour didn't have a cap on it, but the coalition has just recently announced the cap of £900m.

I hope that helps.

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chrisw

chriswComment left on: 24 February 2011 at 12:27 pm

I must be being very stupid but I still can make no sense of the government statements about the FIT scheme and how the scheme is actually funded.

1) The FIT scheme is paid for by the electricity supply companies (ultimately by all electricity consumers through higher prices)
2) The FIT scheme is administered (keeping the register, levelisation etc) through OFGEM presumably at some cost to the government (presumably less than £900m over 4 years?)
3) The government has a budget of £900m to spend on the FIT scheme over 4 years and is worried this is being "swallowed" too quickly by  "one technology"

If the scheme is funded by the electricity supply companies what is the cost of the FIT scheme to government, apart from the administration costs? That is what I am struggling to understand. 

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Fred1

Fred1Comment left on: 24 February 2011 at 9:50 am

Chrisw,

The Feed in tariff is an initative pushed by DECC, who contract out the running of the Scheme to Ofgem. Ofgem uses a subcontractor to keep a log of all installations, to get on the log you need to have the equipment installed by an MCS contractor, who verifies the installation. DECC sets the FIT rates for various technologies, but DECC does not pay. In the case of FIT's the energy act was amended causing the FIT payers ie the "big six "  and an a few others to pay out the FIT money to generators. Ofgem has a role in the levelisation process, this is the sytem where all electricity companies pay their share of the total FIT cost based on their share of the total electicity market.

Some of the smaller electricity suppliers did not register for the FIT scheme, so do not have the cost and hassle of attracting FIT generators and have a system in place for paying them. All electricity suppliers still pay into the FIT fund administered by Ofgem. Some of the electricity suppliers have more than their "fair share" of FIT generators on their books so recieve a payment back from the Ofgem levelisation process.

In the period 1st July to 30th Sept £2.5 million was paid out in FIT's  by the licensed electricity suppliers.

From the Ofgem Feed in Tariff Newsletter December 2010

Quote

All licensed electricity suppliers are required to make payments into Ofgem's levelisation fund, based on their share of the GB electricity supply market.

The levelisation fund is then redistributed to FIT licensees that have made more payments than they would be required to by their market share contribution.

FIT licensees are responsible for registering eligible installations, processing generation data and making payments.

Unquote

Licenced electicity suppliers have to pay for the FIT Scheme under the amendments to the Electricity Act.

The cost to the Government is nil.

Since the electricity companies are paying out several millions per year, they will make less profit and either pay a lower dividend or put up prices for all........

The RIH (renewable heat incentive) has been consulted on but the Government has not stated who will pay for it Gas companies, energy companies or Central Govt ( ie taxpayers)

Perhaps the reason the RIH has not been announced by the Govt is the problem of who and how it will be paid for...

 

 

 

 

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Cathy Debenham

Cathy DebenhamComment left on: 24 February 2011 at 9:04 am

Hi Chris 

The feed-in tariff budget is used to incentivise small scale renewable generation of electricity. It currently rewards all new generation under 5MW in size, whether it be by wind, solar, hydro, microCHP or anaerobic digestion. The budget of £900m is over the comprehensive spending review period of last October to March 2014. Click the link for details of the feed-in tariff rates.

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chrisw

chriswComment left on: 24 February 2011 at 1:30 am

Thanks for the answers but I'm still confused! I'll rephrase the question:

What is the feed-in tariff budget of £900m being used for? Who or what is "swallowing" it and how?

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Fred1

Fred1Comment left on: 23 February 2011 at 10:06 pm

Hi chrisw, Take a look at the Ofgem site, search there for the "FIT Newsletter", the December edition explains the FIT paying process. No Govt cost the FIT licencees pick up the costs, pass the costs on to consumers as part of their business.

If you are waiting to intall PV panels, try also the Ofgem website, it  has complete list of FIT payers , all seem to pay exactly the same (strange ?) but some pay faster than others some 45 some 60 days after meter reading another 45 days after the end of levelisation process ? 90 days after meter read.

I am with a company which asks me to read my total generation meter 4 times per year then puts the money into my bank within 7 days. More interest no hassle......

I wonder if any of the DECC ministers understand the FIT scheme ?

good luck

Fred

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Cathy Debenham

Cathy DebenhamComment left on: 23 February 2011 at 4:36 pm

Hi Chris

The government isn't paying for any of it. We (UK energy bill payers) all contribute to the cost of the feed-in tariff through higher energy bills.

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chrisw

chriswComment left on: 22 February 2011 at 6:03 pm

How does the government funding for FITs work in detail? I've never seen this explained properly.

ie: does the government money go to the retail electricity supply companies as compensation for some (or all?) of the money they pay for the units generated by FIT registered installations. If so,  do the electricity supply companies get 100% compensation? or if the supply companies don't get the money how does it work and who get paid by the government?

 Just curious really - as a consumer (waiting for solar panels to be installed) it makes no difference to me but I have seen various conflicting claims on discussion boards.

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