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What is the aim of the feed-in tariff? And what do you think it should be?
Posted by Cathy Debenham on 24 June 2011 at 12:20 pm
Ask 10 people what the aim of the feed-in tariff is, and you'll probably get 10 different answers, at least that's the impression I got at this week's MicrogenerationUK conference.
DECC officials were speaking about the renewable heat incentive and the feed-in tariff at a session on financing change. When asked about the aims of their respective incentives, the reason for this confusion became a bit clearer.
The purpose of the renewable heat incentive is simple. It's about delivering the heat section of the EU renewable energy targets for 2020. However, Rachel Solomon-Williams, the DECC official leading on the feed-in tariff couldn't give such a succinct answer:
"I hope through the comprehensive review we can clarify its aims more clearly. Greg Barker has a very strong vision that it's for decentralising energy and engaging people with energy."
She was a bit clearer on what it's not for: "It's not its point to incubate new technologies ... it's not fully clear whether it's about bringing technologies to scale."
What was clear was the emphasis on managing the money. The budget for the feed-in tariff going forward is around £80m a year for the next four years. Rachel Solomon-Williams said: "It always comes down to is this affordable, can we justify it? We are focusing on ways of predicting demand and managing it. ... Cost control is key."
Co-founder of HomeSun Bill Sneyd didn't agree with either the aims, or the methodology of the feed-in tariff plans. He thought the aim should be to build an industry of scale as quickly as possible. "I worry that you're asking what we can do to dribble out the money as slowly as possible. As a result growth will grind to a halt. That won't help us to reach the scale we need to reduce costs."
To illustrate his point Bill Sneyd referred to the difference in installation cost between the UK and Germany. At £600, the installation costs in Germany are half the UK domestic average of £1,200. He also pointed out that global PV prices are 1 Euro per wP. Yet in the UK we can't reach those prices as we can't buy in enough bulk.
Erich Scherer, who is on secondment to the corporate finance team at BDO from DECC, said that DECC must give much longer notice of changes to incentive schemes if it wants to build investor's confidence in the market. He said that as government incentives are going to be offering low reward, they must also be low risk. The fast track review of feed-in tariffs upset people because they had projects on the go that couldn't be completed by the 1 August 2011 cut off date. "As long as you give enough notice, funders won't be that upset," he said.
However, it looks as though there's due to be more turbulence in the microgeneration market as Rachel Solomon-Williams laid out the schedule for the planned comprehensive review of the feed-in tariff:
July: framework document announced and discussed with key industry figures.
September: public consultation
End 2011/Early 2012: Proposals published
April 2012: new regime starts
Pretty much everything is up for grabs in the review: tariff levels, degression rates and methods, eligible technologies, export arrangements, and more. The DECC website says "tariffs remain[ing] unchanged until April 2012 (unless the review indicates the need for greater urgency)". Maybe they will even come up with a clear aim. What do you think it should be? Let us know in the comment section below.
Just for interest, I looked up what the last Labour government has in mind when it introduced the feed-in tariff. Here's what they said:
"The scheme is intended to encourage deployment of additional small scale low carbon electricity generation, particularly by individuals, householders, organisations, businesses and communities who have not traditionally engaged in the electricity market. For these investors, delivering a mechanism which is easier to understand and more predictable than the Renewables Obligation, as well as delivering additional support required to incentivise smaller scale and more expensive technologies were the main drivers behind the development of this policy."
Photo: steel & silicon
If you have a question about anything in the above blog, please ask it in the comments section below.
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