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FITS face slimdown in summer

Ed DaveyOn 9 February 2012, newly appointed Energy Minister Ed Davey announced the outcome of the government's consultation on the Feed-in Tariffs (FITs), and managed to dispel some of the uncertainty hanging over the renewable energy sector in the UK, particularly the solar PV industry. But he raised the prospect of further cuts to the tariffs for solar PV in July and again in October, with the overall aims of controlling the FITS budget and pegging returns on investment in solar panels to the target range of 4-5%. So, how will this affect decisions about installing solar PV and other renewables?

Solar tariffs set until July

It is confirmed that solar PV installations with an eligibility date on or after 3 March will receive the reduced generation tariffs from 1 April 2012. These rates are as proposed earlier, with the top rate (for systems of less than 4 kilowatt capacity) falling to 21.0 pence per kilowatt hour (p/kWh) from 43.3 p/kWh. Systems registered after 3 March will earn the original, higher, rates until 1 April.

New energy performance requirement

For solar PV registered after 1 April, applicants to the FITs scheme will need to provide a valid Energy Performance Certificate (EPC) proving that the building has a rating of level D or above. This EPC certificate will need to be submitted and verified before the installation receives FITs accreditaiton. The government was originally proposing a requirement for level C, but only 13% of dwellings reach this more stringent standard at present. To reach level D, a house generally must have in place all the basic energy-saving measures, including loft insulation, cavity wall insulation (where applicable), heating controls, hot-water insulation and an efficient boiler. Applicants may get an exemption if they can show that the building in question cannot obtain an EPC. However, where,. for example, the panels are fitted to a barn or garage, but the electricity is wired into a building that can obtain an EPC, eg. a farmhouse, then that building will need to have the EPC.

Concession on multi-installation tariff

The lower multi-installation tariffs will apply when the generator owns or receives FITs payments from 25 or more solar PVinstallations located on different sites, rather than just two or more as originally proposed. This will help, for example, small-scale community housing projects where several different properties are fitted with solar panels, enabling a housing association to receive the full-rate tariff from each location, up to the threshold of 25.

Proposed cuts to FITs from 1 July

By the end of December 2011, the total capacity of solar PV installed had topped 900 megawatts (MW), compared with an estimate of 116 MW when the FITs scheme was introduced, which will incur a total cost over 25 years of around £7 billion, shared by all electricity consumers. Also, returns for investment in solar panels were well above 10% in some cases. This, the government argues, demands a rethink about how to rein in the FITs budget and trim returns to more modest levels, against a background of steadily falling installation costs.

Essentially it has proposed that tariffs from July will be set according to rates of installation in March and April. Hence, if uptake of solar PV is high in these two months (exceeds 200 MW) then the top-rate tariff will fall from 21p to 13.6p; if uptake is 'low' the tariff will fall to 16.5p. Full details are shown in the table below.

Band (kWp) Tariff from 1 April Proposed tariff from 1 July 2012
Scenario A Scenario B Scenario C
up to 4 21 13.6 15.7 16.5
4-10 16.8 10.9 12.6 13.2
10-50 15.2 9.9 11.4 11.9
50-150 12.9 7.7 9.7 10.1
150-250 12.9 5.8 8 10.1

Note: scenarios are deployment of solar PV between 3 March and 30 April 2012. Scenario A is greater than 200 MW; scenario B is 150-200 MW; scenario C is less than 150 MW.

Future tariff setting

In addition to the short-term changes outlined above, the government proposes cutting the tariffs - so-called 'degression' - every 6 months, starting with a 5% cut in October 2012 and by 10% every 6 months thereafter. These cuts would be brought forward if deployment of solar PV exceeds predictions in any time period. Moreover, the 25-year lifetime of the solar PV tariff may be cut to 20 years, in line with most other renewables. Also, with the introduction of smart metering, it could become possible to pay a higher level of export tariff, reflecting the true value of the electricity actually fed into the grid. Only newcomers to the FITs scheme would be eligible, thus giving them some compensation for the greatly reduced generation tariffs! The government is also looking to change how or even whether FITs are index-linked.

The solar PV industry sees these cuts as too large too soon, and argues that they will undermine confidence, cause contraction of the sector, and prevent prices falling, instead of promoting a buoyant competitive industry with constantly falling prices, which is the assumption underlying the government's argument. Consultation on the proposals is open until 3 April.