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:
- 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|
1st Jan, April, Jul, Nov
- 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
|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|
- 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
More information about Feed-in Tariffs on YouGen
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