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How does degression work with FiTs?

Posted by Sharon Russell-Verma on 24 July 2015 at 2:25 pm

If you have installed a renewable energy technology or low carbon technology in the past few years and you are receiving Feed-in Tariff (FiT) payments then you may have come across the term degression. But what exactly is a degression, what is its purpose and how does it work?

What is degression?

Degression works on the principle that renewable energy technologies are expected to decrease in cost as the volumes produced/installed increases. To compensate for this and to ensure that the support costs decrease over time, the tariffs for new registrations reduce gradually through a process called ‘degression’. After all, in order to become an economically sustainable energy option, the renewable energy industry must, in the long term, stand on its own two feet. 

How is degression calculated?

When degression was first introduced it was calculated using a simple fixed annual percentage reduction (depending on the technology). However, this approach proved inadequate with the high cost reductions experienced, particularly with solar PV in the early years of the FiTs. This meant that many people were getting high rates of FiTs and low installation charges and this made it a much more profitable idea than had previously been planned.  Therefore a more complicated degression mechanism has evolved. Currently there are three types of degression:

  1. Pre-planned degression 

This is the simple annual percentage reduction originally proposed and is also known as the default degression. The frequency of degression depends on the type of type technology. 

Table 1: Pre- planned degression

Technology Frequency Effective from Default degression
  • Solar PV

Quarterly

1st Jan,  April, Jul,  Nov

3.5%

  • AD biogas
  • Hydro
  • Wind

Yearly

1st April

5%

  • Micro-CHP
  • Transfers  from RO
  • Exports tariffs 

None 

- 0%
  1. Contingent Degression 

Initially, the government set out expected deployment for various technologies; however in reality there were periods of peaks and troughs in installations. Therefore, contingent degression was introduced which allows the rates and the timings of degression to be changed depending on the actual deployment. For example in December 2013 applications for non-PV were four times higher than previous months. As a result of this additional capacity degression came into effect earlier. On the other hand if deployment is lower than expected then degression can be reduced or avoided altogether. 

Table 2: Degression adjustment depending on uptake of technologies 

Deployment Low High
Solar PV Degression can be missed for 2 years The percentage can be doubled and redoubled up to a maximum of 28%
All other technologies Degression can be halved Higher levels of degression are set 
  1. Annual tariff reviews 

Lastly, there is an annual tariff review which as the name suggests is reviewed yearly to ensure that tariff levels are achieving the desired outcomes.

All in all degression is not a simple approach but it is the one we have ...for now?

Photo credit: Helmuth

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Comments

1 comments - read them below or add one

Stephen Larkin

Stephen LarkinComment left on: 14 August 2015 at 11:50 am

There is an important aspect of degression that is missing from the above description, but it may not last for much longer, unless the Government can be persuaded otherwise by a suitably large number of responses to a current consultation.

There is a system of preliminary accreditation (pre-accreditation) that gives a guaranteed tariff level for a specified time period even if there is a FiT degression before commissioning the installation.

Pre-accreditation is currently available for PV and wind installations above 50 kW and below 5 MW, for hydro below 5 MW and for all anaerobic digestion schemes.  Validity is 6 months for solar PV, 12 months for wind and AD and two years for hydro.  Planning permision and a grid connection agreement must be in place.  (Hydro also needs environmental permits.)

Details are given in the ofgem document Essential Guide to applying for preliminary accreditation under the Feed-in Tariff (FIT) scheme.

There are additional benefits available for community energy groups.  They can get pre-accreditation for an extra 6 months, so allowing more time for fund raising such as via a share issue.

Also community energy groups and schools can get a version of pre-accreditation (called pre-registration) for PV installations below 50 kW.

Full details of the arrangements for schools and community groups are in the ofgem publication Feed-in Tariff: Guidance for community energy and school installations (Version 2)

All of this is now under threat as DECC proposes to remove pre-accreditation and pre-registration from the FiT scheme.  DECC is consulting and full details of the questions they are asking and how to respond can be see in Consultation on changes to Feed-in Tariff accreditation.  Responses are required by Wednesday 19th August so there is not much time left.

The proposed changes are likely to make things more difficult for commercial schemes but they will be devastating for coummunity energy groups and for schools.  The risk of degression will make fund raising impossible.

The renewables industry and some community energy groups may be aware of the consultation but it would be useful if you could put up a blog post to spread the news as there are not many days left.  Ideally responses should include evidence to show that possible schemes may not happen if the changes come in.  However DECC is seeking a broad range of input including from electricity consumers.  If you have no objection to modest increases in your electricity bills (or a lack of reductions) to help promote renewable energy you too can help community enrgy groups and schools by responding to the DECC consultation.

Stephen

 

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