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Final (for now) words on the Feed-in Tariff Review for solar PV

by Mel Starrs on December 12, 2011

in Feed In Tariff

This will be my final post on the solar FiT consultation for now. I’ll start with a quick overview and then comment on the consultation itself. There has been so much comment and articles elsewhere trying to keep up with absolutely everything has been impossible (especially with all the other announcements and consultations out right now). One of the more informative pieces I’ve seen is Alan Simpson over on Business Green – worth a read.

The Feed-in Tariff consultation on Comprehensive Review – tariffs for solar PV was launched on 31st October 2011. The review had been widely anticipated with a major leak on the EST website on Friday 28th October letting the cat out of the bag – rates were to be drastically cut as expected, but most importantly the date from which the cuts were being imposed was to be within 6 weeks. The date was confirmed in the consultation document as 12th December 2011 and fell before the closing date for the consultation (23 December 2011).

The date appears to have been calculated by taking the spending envelope of £357m by 2014-5, using predictions of numbers of installations, the revised tariff rates and working backwards. I have a couple of observations to make on this. Firstly, if you read the supporting evidence for the consultation (links at bottom of page), there are 3 options explored in the Impact Assessment – do nothing, change tariff on 1 April or the third option with the 12th December date. The second option was rejected as the coffers would have run bare before the end of the period 2014-15 for which the budget is allocated at the predicted rates of take up. Fair enough, but is a curtailment at the end of the time period which is 4 years in the future not slightly easier to account for in business planning than the alternative which was a 6 week period? I don’t claim to understand the world of politics and policy but I’m beginning to suspect some things (such as dates and definitions) have more weight than other seemingly more logical factors (yes, zero carbon by 2016 – I’m looking at you). The FT have reported that Huhne is in fact looking at setting a limit on the amount of energy capacity that can be installed before the level of the subsidy automatically falls, rather than a fixed time (a capacity trigger). This would solve this problem and is something I support wholeheartedly.

On top of the time limitation, there is the circular problem of the predicted rates of installation used. Rates have increased because we’ve all known this was coming – the rush to install before 1 April 2012 had already taken hold before this consultation (which was why the phrase “reveals the need for greater urgency” was bandied around so much). The government’s hints accelerated the rate of uptake which in turn allowed them to pull the plug. Is using these rates to predict post 1 April 2012 rates fair and reasonable?

The 12th December 2011 date is felt by most in the industry to be highly contentious and is being challenged by Friends of the Earth, Solar Century and HomeSun. The High Court has agreed to hearings on 15th December 2011 following an earlier rejection of the challenge.

An additional court case is being threatened with the European Commission challenging (via Jean Lambert) on the grounds that the Government is legally obliged to generate 15 per cent of its energy from renewable sources by 2020. However, I suspect this one might be doomed thanks to this summer’s Renewable Energy Roadmap from DECC – solar is conspicuously absent from the list of 8 technologies that: “have either the greatest potential to help the UK meet the 2020 target in a cost-effective and sustainable way, or offer great potential for the decades that follow”:

  • onshore wind
  • offshore wind
  • marine energy
  • biomass electricity
  • biomass heat
  • ground source heat pumps
  • air source heat pumps
  • renewable transport

Assuming the tariffs are revised as proposed, those projects which met the deadline of 12th December 2011 will receive the current feed-in tariff rates, and will continue to do so for 25 years. Those who miss it, but install before 1st April 2012 will receive the current rates until 31st March 2012, dropping to the new rates after that date. This will change the original business case for most projects, as I explored here, here and here.

Another consultation for the other technologies in the Feed-in tariff is expected before the end of December 2011. Within this community scale schemes will be addressed which may alleviate the effect of the current proposals on installations on multiple roofs of social housing. As the current proposals stand, these schemes are classed as multi-installations, which are be cut by a further 20% as I covered here. This is to disincentivise ‘rent-a-roof’ schemes but in effect will also punish schemes which are intending to recycle the payments back into retrofit of housing stock. The capacity trigger is also expected to be in this consulation, for all technologies, not just solar.

The current consultation proposes to strengthen the link between energy efficiency and FiTs. Two options have been proposed which will require an energy first approach – either requiring an EPC rating of C or having undertaken all the measures that are identified on an EPC as potentially eligible for Green Deal finance.

Whilst a fabric first approach is always my first choice, perversely this will again restrict those who wish to fund improvements by using the FiTs payments. PV performance is not affected by the energy efficiency of the building it is installed on (unlike for instance a boiler or other heat producing technology) and barring improvements to the external fabric of the roof, energy efficiency improvements can be made at a later date.

There may however be a silver lining for those in D rated properties (or maybe even E rated). The wording of the EPC option allows for the PV installation to count towards the improvement in EPC rating. Now until the revised EPC is released I can’t calculate for sure, but I suspect there will be some D rated properties who have a large enough roof to allow them to install enough panels to bring the dwelling up to a C rating without having to install any other measures. This is a tiny bit perverse in my eyes, as I hint above, PV panels aren’t strictly an energy efficiency measure – they generate energy rather than save it, or use it more efficiently. However, the EPC is Energy Performance, not energy efficiency. All’s well then.

So where does this leave us? It’s a kind of limbo for now, like many other realms I’m working in right now. We have at least one more consultation and at least one court case to get through before we can declare to have reached the other side of this mess. Virtually no-one disagreed that the cuts were needed, but the process and manner in which things have been administered has been disruptive, at the very least shambolic and at the worst quite possibly illegal. The original intention of the FiT (which had more to do with market stimulation than anything else) is now tied up in arguments over fairness, fuel poverty and the plight of the very SME’s it gave birth to.

BTW I’ve done a lot of reading around the economics of taxes and subsidies in the process of writing these posts. Pigovian subsidies are those which encourage certain behaviors by subsidizing them, for instance installing solar panels to avoid pollution. Such a subsidy of a positive externality can be considered a “negative Pigovian tax”.