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Feed-in Tariffs Four Years On

Posted by Sharon Russell-Verma on 21 July 2015 at 12:15 pm

Ofgem recently published a report on Year Four of the Feed-in Tariffs (FiT) scheme (1 April 2013 to 31 March 2014). It makes for an interesting read, but rather than you trawling through the 50 page report, we’ve done it for you. Here are the highlights. 

On 1 April 2010 the government introduced the FiT scheme. It is designed to encourage the use of small-scale renewable and low-carbon technologies up to 5 MW. The following technologies are supported under the scheme:

  • Wind
  • Hydro 
  • Solar photovoltaic (solar PV)
  • Anaerobic digestion (AD)

The latest report is broken down into four main areas:

  • Accredited FiT installation
  • Effects of changes to legislation and tariff reduction (degression)
  • FiT scheme cost
  • Compliance of licensed electricity suppliers 

Accredited FiT Installation

In Year Four, FiTs continued to grow steadily. The growth was more uniform compared with previous years, due in part to the scheme settling down. Growth was also affected by legislative changes which introduced reduced tariff rates (a process known as degression). During this period:

  • 91,861 installations were accredited, compared to 131,650 in Year Three and 217,455 in Year Two.
  • 2.6TWh of electricity was produced.

The electricity generated was produced from a greater number of installations than had been originally estimated, and at the same time the amount of electricity generated per installation was lower than had been forecast. This may be due to the majority of installations being at the lower end of the solar PV capacity scale, which is 0-4 kWp for domestic installations. This contrasts with non-domestic solar PV and other technologies, which can generate significantly larger amounts of electricity. 

With regard to the uptake of different technology types:

  • The relative proportion of new solar PV capacity continued to fall, from 94% of new installations in Year Two to 79% in Year Four. This was due to a strong diversification into other alternative energy sources.
  • By contrast, the percentage of new wind capacity increased steadily, from 4% in Year Two to 11% in Year Three and 14% in Year Four. 
  • Similarly, AD has increased significantly, from 1% in Year Two to 5% in Year Four. The increase in wind and AD is a result of rapid development within the respective markets.

As part of a new pilot programme, up to 30,000 micro-combined heat and power units (micro-CHP) will now be able to join the FiT scheme. A micro-CHP unit must produce less than 2kW of electricity to qualify for the pilot. The Department of Energy and Climate Change will undertake a review of the pilot once 12,000 installations have been accredited under the scheme. By the end of Year Four, 481 micro-CHP installations had been accredited.

96% of the installations under the FiT scheme are defined as domestic, yet they make up only 65% of the total capacity. In comparison, commercial installations comprise only 3% of the total number of installations registered, but provide 30% of the total capacity.

During this period approximately 1,800 installations were accredited each week, across all technology categories. However, there is a wide variation between different regions, with an increase in installations in the southwest and southeast compared with the rest of the country. As of 31 March 2014:

  • The total number of installations registered under the scheme (for all years) was 470,983. Of these, 98.6% were solar PV, with the remaining percentage consisting of the other four technologies.
  • The total value of payments made to accredited generators for excess electricity sold back to the grid was £22,820,320 for Year Four.

The second picture at the top of this article displays the total installed capacity by technology type in the UK.

Effects of changes to legislation and degression

Since it was first introduced FiTs has had a number of amendments. These include both legislative changes and the introduction of a price control mechanism (degression). On 1 April 2014, the first non-PV degression came into effect and tariffs were cut for all non-PV installations with an eligibility date from 1 January 2014 onwards. The tariff reductions mandated by legislation were at the minimum rate, but the industry expected further cuts and so there was a rush to register before the next tariff cut.

In fact in December 2013 applications were four times higher than previous months, which triggered the highest levels of degression for non-PV because degression is linked to increase in capacity. In contrast solar PV registration is now more stable, and there is no longer the surge of applications. This means degression is rarely triggered for solar PV, and only occurs every nine months as required by legislation. It is worth noting that these degression only affect newly accredited members of the scheme: once you join, your tariffs are fixed (index-linked), and will not be affected by future degression.

FITs Scheme Cost

As a consequence of the increasing number of installations now registered on the scheme, there was a considerable increase in costs compared to previous years- in particular an increase in total payments for generation. In Year Four:

  • The scheme costs totalled £691m, for 2,645 GWh of renewable generation. 
  • These costs are met by licensed electricity suppliers (in a process called levelisation). The amount each supplier pays depends on their share of the UK electricity supply market.
  • The costs include £686m in generation payments, £21.3m in deemed export payments and £9.3m in licensees’ administration costs.
  • For the first year since the start of the scheme the cost per ton of carbon saved by FiTs has decreased from the previous year: £526/tonne in Year Four, compared to £613/tonne in Year Three.

Compliance of licensed electricity suppliers 

As with many things in life, as the FiT scheme has evolved it has grown in complexity and it is the responsibility of FiT licensees to ensure they comply with all requirements. The number of suppliers participating in the scheme rose from 28 in Year Three to 37 In Year Four. However, as with all new schemes there is room for improvement. During Year Four, monitoring of the scheme increased as a result of some concerns and failures over licensees’ obligation to verify meter readings at least once every two years. For example, in October 2013 only 50% of meters due to be read had been verified, although this rose to 68% by the end of January 2014, due to improvement measures put in place. 

Lastly, the good news on the domestic front is that by the end of Year Four around 1.5% of all homes in the UK were generating their own electricity (and/or heat) from renewable or low carbon sources. So not only were these householders reducing their energy bills, they were also getting paid for generating energy.

Source: Ofgem Eserve Feed-in Tariff Annual Report 2013-2014

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