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FITs cuts less than feared

The government has published its reponse to the consultation on the future of the Feed in Tariffs (FITs) scheme, and the cuts are not as deep as initially proposed, particularly for small-scale solar PV and wind. For example, the generation tariff for new solar installations of under 10 kilowatt capacity will fall to 4.39 pence per kilowatt hour, instead of the derisory 1.63p/kWh proposed in the original document. Although this still represents a 64% reduction, the news has been received with relief by many in the renewables industry, who had feared massive job losses and a wipeout of the solar panel sector as FITs looked set to be swept away virtuallystack of PV panels overnight.

"Government has partially listened. It's not what we needed, but it's better than the original proposals, and we will continue to push for a better deal for what will inevitably be a more consolidated industry with fewer companies" - Paul Barwell, chief executive of the Solar Trade Association

However, standalone solar PV and hydro have received deeper cuts than originally proposed, and the government has announced it is removing support for new solar farms under the Renewables Obligation from 1 April 2016.

Reining in budget

Since its introduction in 2010, FITs has provided financial incentives for the deployment of small-scale renewable technologies (under 5 megawatts capacity) for generating electricity. It impact has exceeded original expectations, and to date FITs supports over 780,000 installations with a combined capacity of 4.2 gigawatts. Of these, 99% are solar PV, accounting for 74% of total installed capacity (TIC); other technologies supported are wind (17% TIC), anaerobic digestion (6%) and hydro (3%). Hence the government has been looking at ways of reining in the burgeoning budget for FITs, projected to be over £1.7 billion annually by 2020 on current trends.

New FITs regime from January 2016

The cost of support for new schemes is to be capped at £100 million per year up to 2019, with quarterly caps on deployment and automatic degression (i.e. reduction) in FITs rates, plus the additional option of contingent degression if the budget is getting out of hand. The new rates, shown below, apply from January 2016. There will be a 4-week pause in processing FITs applications from 15 January to enable implementation of the new regime, which will open on 8 February. Note that some existing tariff bands have been combined or changed.

Technology Installed capacity (kilowatts) Existing tariff Consultation tariff New tariff (from Jan 2016)
Solar PV <4 12.47 1.63 4.39
4-10 11.30
10-50 11.30 3.69 4.59
         
Wind <50 13.73 8.61 8.54
50-100 13.73 4.52 8.54
100-1500   4.52 5.46
         
Hydro <15 15.45 10.66 8.54
15-100 14.43
100-500 11.40 9.78 6.14

 

Caps on deployment

A limit will be imposed on the total capacity of new installations in each quarter. If and when this quarterly cap is reached, all further applications for FITs will be held in a queue until the next quarter. For example, in Q1 of 2016, no more than 48.4 MW capacity of solar PV in the <10kW band is permitted. The represents around 15,300 installations at typical sizes. Similarly for wind and hydro. Unused capacity in any quarter is added to the next quarter, and any underspend will be redistributed among the technologies as a 'top up'.

Degression

To keep a tight hold on the pursestrings, the FITs rate will fall inexorably over the 3-year period of the new regime - a process called default degression. Moreover, a further 10% contingent degression will be applied if deployment reaches the quarterly deployment cap. So, although the initial rate for small solar PV is 4.39 in Q1 of 2016, this will fall in stages to 4.11 by Q1 of 2017, to 3.83 by Q1 of 2018, and to 3.55 by the start of 2019. Any additional contingent reductions will be published by Ofgem.

Pre-accreditation reintroduced

The government has changed its tune and decided to reintroduce pre-accreditation for solar and wind projects over 50kW and for all anaerobic digestion (AD) and hydro projects. This will apply from 8 February. Validity periods are 6 months for PV, 1 year for wind, and 2 years for AD and hydro. Community energy projects will also get an additional 6 months. However, the tariff guarantee element of pre-accreditation is not being restored for the time being, pending further consultation. This affects community energy projects in particular, where a long lead time is needed to raise capital from investors, who want to know what sort of return they might eventually see.

No change on...

Aspects of FITs that remain unchanged include:

  • Export tariff
  • Energy efficiency requirements (EPC)
  • Indexation
  • Competition
  • Smart metering
  • Grid management

A separate consultation on anaerobic digestion (AD) and micro combined heat and power (CHP) will take place in early 2016. One significant aspect to be reviewed is the sustainability of materials being used to feed AD plants.