Feed-in tariffs on rocky ground
Posted by Helena Ripley on 3 September 2015 at 10:50 am
The department for energy and climate change (DECC) has started a consultation on the future of feed-in tariffs (FiTs). The government is looking at phasing out the subsidy by 2018/19 but if the scheme can’t be put on an “affordable or sustainable footing” then payments of the generation tariff to new applicants could stop in January 2016.
As the 2020 target for renewable energy installations through FiTs have been, or will be, met by the end of this year the government plans to remove these subsidies in the cheapest way possible.
Background of FiTs
FiTs were set up in 2010 to encourage people to install several types of renewable electricity generation. On a domestic level they are most associated with solar PV. Homeowners are paid for all of the electricity they generate (generation tariff) and for half of this as an export tariff (it is assumed that they export 50%). The generation tariff makes up the majority of FiTs, the export is a much smaller fraction.
According to DECC, the tariffs were designed to
- Encourage deployment of small scale (5 MW or less) low-carbon electricity generation;
- Empower people and give them a direct stake in the transition to a low-carbon economy;
- Assist the public take-up of carbon reduction measures;
- Foster behavioural change; and
- Help develop local supply chains and drive down energy costs.
The idea was always that as the cost of the technology decreases the tariff would also decrease. Prices of PV have dropped dramatically since the scheme’s inception; a system which may have cost upwards of £13,000 in 2010 can be picked up for around £6,000 today. DECC has acknowledged this fact in the consultation supporting documents, accepting that the scheme has encouraged the deployment of small scale generation.
What we now know is that DECC never expected the scheme to be so successful and hadn’t planned to have so much money invested in PV in such a short space of time. As the tariff is effectively paid for by a levy on all energy bills the maths no longer adds up. So what are they planning to do?
New FiT rates
DECC is suggesting a number of changes to the tariffs including,
- reducing the tariff levels
- altering the tariff boundaries
- changing the ways they reduce over time (degression)
- changing the indexation (from RPI-linked to CPI-linked)
- preventing payment for extensions to current systems
The consultation document sets out proposed changes to tariff levels which would reduce on a quarterly basis until January 2019 when some PV tariffs would end. PV arrays (between 10 and 1000 kWp), wind (smaller than 1500 kW) and hydro are intended to continue to receive a reduced generation tariff for the foreseeable future.
Starting from January 2016 most tariffs will be much lower or could be removed altogether. PV arrays smaller than 10 kW will receive 1.63p/kWh (currently between 11.30p and 12.47p/kWh); other PV arrays will also receive much reduced generation tariffs. Wind installations larger than 1500 kW will not be eligible for generation tariff from January 2016. These proposed changes could all be altered in the course of the consultation.
Micro combined heat and power and anaerobic digestion will not feature in this consultation.
When FiTs were first introduced the solar PV industry boomed. FiTs particularly benefited small businesses and there was an increase in international investment. Over 730,000 PV arrays have been installed with the help of the FiT subsidy; scrapping it could prove disastrous for the solar industry.
There has been outcry from many organisations over the impacts that the large reduction or removal of subsidies will have, not only on the solar industry but on the UK’s ability to reach it’s carbon emission reduction targets.
Reza Shaybani, British Photovoltaic Association (BPVA) Chairman, has said “In my view, this is not just a simple case of reducing FiT to reflect the market situation, these proposed tariffs will wipe out 95% of the solar industry in the UK and will only make it viable for a very small number of independent electricians… We urge DECC and the decision makers at the Treasury to re-think their strategy, look at the proposed numbers and mechanisms which absolutely do not make sense and make the necessary adjustments accordingly.”
Mike Landy, Head of Policy at the Solar Trade Association, said “This is the antithesis of a sensible policy for achieving better public value for money while safeguarding the British solar industry”.
Alasdair Cameron from Friends of the Earth responded to these cuts saying “Instead of championing fossil fuels, the Government should focus on developing the UK’s huge renewable energy potential. Policies like this will further undermine David Cameron’s credibility on climate change. World leaders meeting in Paris later this year will have every right to call him a hypocrite”.
What do we think?
In these times of huge government debt, a reduction of FiT levels was always on the cards. Fuel poverty is increasing and some commentators indicate that the renewables levy on bills is partly to blame. So this consultation can come as no surprise to industry. What is a little shocking is the huge reduction being suggested. For many years the renewables industry has struggled to keep pace with changing government policy and unsustainable schemes.
This proposed reduction is far too sharp for the industry to deal without job losses. The government must start to consider ‘green jobs’ and our commitment to carbon emission reductions alongside the costs of subsidy, before these kinds of short-sighted cuts should be made.
We encourage everyone to respond to this consultation, by 11.45am on Friday 23 October.
Photo: Rob Baxter
More information about Feed-in Tariffs on YouGen
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