The decision to introduce separate bands of support under the Renewables Obligation (RO) for each type of project is intended to encourage the installation of solar projects at large factory and warehouse buildings, DECC said. It comes as part of the Government's response to two supplementary consultations published alongside its review of Renewables Obligation Certificate (ROC) bandings earlier this year.
The Government also announced details of a new subsidy for dedicated biomass plants, which it said could encourage investment worth up to £600 million and create around 1,000 construction jobs, alongside details of other changes to biomass incentives. However, this subsidy will be capped once 400MW of generating plant is built.
"We have listened to industry about the need to differentiate support between building-mounted and ground-mounted installations and we have introduced two bands as a result," Energy Minister Greg Barker said. "Our proposals for solar projects on commercial buildings will encourage businesses to consider solar PV as a serious option for meeting their power needs."
The RO is the main financial support mechanism used by the Government to encourage the development of large-scale renewable electricity generation projects. It places an obligation on suppliers to source an increasing proportion of the electricity they supply to customers from renewable sources. Banded ROCs were introduced in 2009, changing the RO from offering a single level of support for all renewable technologies to one where support levels vary in relation to the cost of developing that technology and its future potential.
The draft Energy Bill, published last month, proposes replacing the RO from 2017 with a new system of Feed-in Tariffs with Contracts for Difference (FiT CfDs) which will offer producers of low carbon power a fixed price for energy supplied to the National Grid. Payments will be made with reference to a technology-dependent 'strike price' and a market reference price, protecting consumers by 'clawing back' money from generators if the market price is higher.
The new rates for solar projects, which will apply between 2013 and 2017, are higher than the flat 1.5 ROCs per MW rate proposed by the Government in its original consultation. From April next year, support for ground-mounted solar PV projects will drop from two ROCs per MW to 1.6 ROCs per MW. Operators of building-mounted systems will be able to claim support of 1.7 ROCs per MW.
Dedicated biomass plants up to the 400MW cap will receive 1.5 ROCs per MW from April. After this point, DECC said that it would consider "issuing a consultation paper on proposals to restrict further biomass deployment" by removing guaranteed incentives for additional projects. Plants built before the cap is reached will be 'grandfathered' into any new scheme.
As proposed in the Government's July consultation, support for standard co-firing plants will be reduced to 0.3 ROCs per MW from April. Support for co-firing with combined heat and power will fall to 0.8 ROCs per MW at the same time. Both of these subsidies will run until 21 March 2015.
Energy law expert Peter Feehan of Pinsent Masons, the law firm behind Out-Law.com, said that the announcement was a positive one which would "give clarity to a market which has been very uncertain of support for ROCs post-March".
"The key point is that there has clearly been a small concession by DECC in terms of the severity of the degredation, suggesting that DECC has listened to the market a little more than they did over feed in-tariffs," he said.
Feed-in tariffs (FiTs) encourage businesses and individuals to invest in small-scale low carbon electricity in return for a guaranteed payment for the electricity that they generate and use, as well as any unused surplus electricity they export back to the grid. As announced in October, solar power developers will be able to choose between claiming under the RO or the FiTs scheme for projects with a generating capacity between 50kW and 5MW.
"We want to see a healthy solar industry that grows in a sustainable way," Energy Secretary Ed Davey said. "That's why our support levels reflect the fall in the cost of the technology. Biomass will make a significant contribution as we seek to increase the amount of cost-effective, low carbon renewable power in our energy mix."