Out-Law News 3 min. read
25 May 2012, 2:20 pm
Energy law expert Linda Fletcher of Pinsent Masons, the law firm behind Out-Law.com, said that the Government's plans to introduce decreases to its feed-in tariff (FiT) for solar photovoltaic (PV) installations every three months, as opposed to the six-monthly reviews suggested at consultation stage, remained likely to "cause concern in the sector".
However, the changes would give the industry more clarity and remove the risk of future emergency reviews, she said.
Regulations introduced by the Department for Energy and Climate Change (DECC) postpone further cuts to the FiTs scheme to 1 August. After this date, the tariffs for new installations will decrease on a three-month basis with pauses if the market slows down.
FiTs provide long-term financial incentives to businesses and individuals that generate electricity from renewable sources, and vary according to the technology used. Once accredited under the FiTs scheme, installers are eligible for payment for the life of the generation equipment subject to a statutory maximum.
When introduced in April 2010 the scheme originally offered a generous 43.3p per kilowatt hour (kWh) to owners of small-scale installations with a generation capacity of less than 4kW. Unexpectedly high uptake combined with the falling costs of the technology forced the Government to conduct an emergency review of the scheme, however it was forced to abandon plans for cuts of more than 50% for new installations completed after December 2011 due to insufficient consultation. The reduced rates came into force on 1 April this year for installations completed after 3 March.
Under the revised scheme, small-scale installations certified after 1 August will receive a reduced FiT of 16p per kilowatt hour (kWh), down from the current 21p/kWh. The new tariffs, which will be index-linked in line with inflation, will give a return on investment of over 6% for most typical, well-sited installations, according to DECC's analysis. The "export tariff", for surplus electricity exported back to the National Grid, will be increased from 3.2p/kWh to 4.5p/kWh. These new projects will be eligible to receive payments for 20 years as opposed to the current 25 years.
Rates will be reduced by an average of 3.5% every three months depending on consumer uptake of the technology, with the potential for reductions of as much of 28% if there is "rapid update", the Government said. However, the rates could be frozen for up to two review periods if demand is low.
Tariffs for larger installations will also be reduced, but in most cases will be "lower" than the cuts proposed by DECC in February, it said. Installations between 4 and 10kW will receive 14.5p/kWh, those between 10 and 50kW 13.5p/kWh, between 50 and 150kW 11.5p/kWh while larger installations up to 250kW in size will receive 11p/kWh.
Community projects and other organisations with more than 25 solar PV installations will receive 90% of the standard applicable tariff, up from the current rate of 80%, which the Government said reflected "new evidence on costs involved" for such projects. Installations which do not meet energy efficiency requirements will receive the same tariff as for "standalone installations", or those which are not set up to provide electricity to a particular building, which will be set at 7.1p/kWh from 1 August, it said.
Energy Minister Greg Barker acknowledged that the solar sector had been through a "difficult time" as it adjusted to sharply falling costs. The changes would, he said, restore confidence to an industry that had been badly affected by the speed at which the costs of the technology had fallen. The cost of installing a small-scale solar PV project has come down by approximately 45% since 2009, according to Government figures.
"We can now look with confidence to a future for solar which will see it go from a small cottage industry, anticipated under the previous scheme, to playing a significant part in Britain's clean energy economy," he said. "UK solar continues to be an attractive proposition for many consumers considering microgeneration technologies ... having placed the subsidy support for this technology on a long-term, sustainable footing, industry can plan for growth with confidence."
"The further drop in the tariff rate for installations up to 4kW to 16p is now less than half the original tariff levels that came into effect on 1 April 2010," energy law expert Fletcher said. "However, the date for these further changes to take effect being set at 1 August 2012 rather than 1 July does show that the Government recognises the need to give the sector more time to adapt.
"Fletcher added that the proposed reduction in the length of support for solar from 25 to 20 years reduced the overall level of support for the technology compared to other technologies supported by the FiTs scheme. The Government will publish its response to proposed changes to the scheme for other supported technologies in the summer, it said.
"25 years support is still available for other technologies under the FIT scheme, such as anaerobic digestion where take-up has so far been relatively low," she said.
