As REM reported yesterday (27 August 2015), the UK government has issued a new consultation document on Feed-in Tariffs which most experts in the industry predict will be hugely damaging to the UK solar market.
Chartered surveyors and specialist property consultants Fisher German LLP believes that if these proposals are implemented, the reductions will make a lot of solar projects financially unviable unless panel prices fall considerably.
The consultation document issued by the UK Department of Energy and Climate Change (DECC) proposes cost control measures under the Feed-in Tariff (FiT) scheme, citing a need to “put the scheme on an affordable and sustainable footing” amidst higher than expected renewable energy deployment and significantly reduced technology costs. DECC also states that costs have exceeded projections and as a result there is a breach to the limits of the Levy Control Framework (LCF) – the amount of money agreed within Government that can be added to consumer’s bills to pay for low carbon electricity generation.
The measures are intended to limit the financial burden on consumers who ultimately pay for renewable energy subsidies through their electricity bills. This follows an earlier consultation, in July-August 2015, outlining proposals to remove to remove ‘preliminary accreditation’ for FiTS and limit the impact on bill payers of deployment surges. The measures also propose revised tariffs, a more stringent degression mechanism, and deployment caps leading to the phased closure of the scheme in 2018-19. These new tariffs are based on fresh evidence about costs and rates of return. There will also be an overall cost control which will essentially be a new cap on FiTS expenditure of between £75 – 100 million from January 2016 to 2018/2019.
The government has also warned that if these cost control measures are not implemented then the only alternative would be to end generation tariffs for new applicants as soon as January 2016.
The government proposes to amend the bandings and rates as follows:
Domestic solar PV will be hardest hit with tariffs set to go down from 12.47p/kWh to 1.63p/kWh – an 87 percent cut. The other tariff bands for solar are proposed to go down by around 75 percent. Fisher German believes that although the cost of solar is expected to fall over the next 2-3 years, this may not happen immediately.
With regard to onshore wind turbines, the most popular are those between 50 kilowatts and 500 kilowatts. DECC is proposing to reduce the tariffs for these turbines by 25-40 percent Fisher German says. This means that most wind projects, unless they are situated in very high wind speed areas, are unlikely to be viable. Furthermore, other recent government announcements have made obtaining planning permission almost impossible, which means that these latest changes could kill onshore wind off entirely.
Hydro projects will not be hit as hard, with average reductions being between 25-30 percent. Most of the more straightforward hydro schemes in Scotland have already been developed and the ones remaining are invariably more difficult to develop, so these tariff reductions is likely to render them financially challenging.
Anaerobic Digestion (AD) plants are not proposed to be subject to tariff reductions but the government is considering the implementation of “sustainability” criteria for feedstocks for new AD installations under the FiT scheme. This will bring them into line with existing Renewable Heat Incentive (RHI) and Renewables Obligation (RO) criteria, as they are concerned that the use of crops such as maize to feed AD plants may not be sustainable. The uptake in AD projects rose by 46 percent in 2014 from the previous year and FiTs currently support around 90 MW of AD generation with a large number future projects in the pipeline (370MW consented but not yet operational). The Government considers it appropriate to put in place regulatory controls to ensure the crops used in AD deliver a sustainable outcome.
DECC has also proposed that the full degression for all technologies should be quarterly. If the changes go ahead contingent degression will now be 0 percent, 5 percent or 10 percent for all technologies depending on deployment rate and this will be in addition to default degression.
DECC have not proposed any change to the export tariffs in this review. However, they are consulting on options to ensure that the long term sustainability of the export tariff. The reason for this is that wholesale electricity prices have dropped and they want the future export prices to reflect the actual electricity market value.
“It is sad that the Government are attacking the FiT system which has worked so well for the last five years encouraging farmers and landowners to do small to medium scale renewable projects” said Mark Newton, Head of Renewables at Fisher German. “These proposed heavy rates of degression are going to unfortunately kill off the majority of FiT projects. The Government’s Energy Bill in June announcing the early closure of the Renewable Obligation has caused 270 MWs of projects to be scrapped. They have also stopped onshore wind turbines by making it almost impossible to get planning approval and by these heavy reductions in FiT rates they will therefore be killing off most of the rest of the small scale renewable projects.”
Mr Newton added that there is bound to be a mad rush to get projects built and commissioned before the end of December this year, in order to capture the current rate of FiT payments. The renewable sector has a history of going into decline when the government when the government puts on the financial brakes, and then it finds new ways of resurrecting itself by reductions in costs of solar panels and turbines so that projects become viable again.
“The implications of this latest consultation compound the uncertainty and instability already present in the renewable energy marketplace” said Fisher German Partner Darren Edwards. “If implemented, the proposed cost control measures threaten to trigger an immediate ‘lights out’ for a UK industry that has been buoyant through the recessionary period. A large proportion of our client base, some of whom have invested heavily in the FIT market over the last 5 years, will lose out should the Government make the cuts and some businesses will undoubtedly go under. Emerging technology, such as commercial scale lithium-ion batteries, offer some future hope for the renewables sector but again this is a few years away so such drastic Government cuts in the short term seem premature.”
Fisher German LLP is a leading national firm of chartered surveyors and specialist property consultants. The firm offers professional services and support in all aspects of land and property management and employs recognised experts in all property sectors identifying business opportunities for their institutional, commercial and private landowning clients.
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