Feed-in tariffs for small UK renewables could end next year if scheme becomes 'unaffordable'

Out-Law News | 01 Sep 2015 | 4:59 pm | 2 min. read

Subsidies available to small UK businesses and homeowners that install their own renewable energy generation equipment could be withdrawn from January 2016 if the scheme becomes "unaffordable", the government has said.

It plans to cut the feed-in tariffs (FiTs) available to those who install new small-scale solar photovoltaic (PV), wind or hydroelectric generating equipment by as much as 87% in some cases from January, as set out in a new consultation paper. However, it has warned that it could end generation tariffs for new applicants "as soon as legislatively possible" if the scheme became "unaffordable" in the meantime.

The Department of Energy and Climate Change (DECC) said that the cuts were necessary to keep the scheme on a "sustainable footing", by limiting the amount recoverable through consumer bills to the cap set by the previous government's levy control framework (LCF). However, in an impact assessment published alongside the consultation, it said that the proposed changes could "result in significantly reduced rates of deployment".

FiTs provide long-term financial incentives to businesses and homeowners that generate their own electricity from renewable sources. Once accredited under the scheme, installers are eligible for guaranteed 'generation' payments for the power that they generate and 'export' payments for additional power that they send to the grid over the life of the generation equipment, subject to a statutory maximum. Payments vary according to project size and the type of technology used.

The FiTs scheme was introduced in 2010 and comprehensively reviewed in 2011/12, after it became obvious that deployment was happening faster than expected at the same time as technology installation costs fell. The government currently expects to pass the generation capacity it anticipated in 2012 by 2020/21 by the end of this year, according to the consultation. In July, DECC said that the cost of the UK's renewables subsidies could reach £9.1 billion per year by 2020/21, compared to the £7.6bn per year budgeted for through the LCF.

The consultation, which closes on 23 October, proposes reducing the FiT available for the smallest solar installations, such as those on householders' roofs, from 12.47p per kilowatt hour (kWh) at present to 1.63p/kWh from January 2016. This new rate would apply to all installations below 10kW generating capacity, following re-banding proposed by the consultation. Projects between 10kW and 50kW would receive 3.69/kWh, down from the current 11.3kWh; while the rate for larger installations such as those used by businesses and public sector bodies would fall from 5.94/kWh to 1.03/kWh.

FiT rates for wind and hydroelectric installations would fall by between 25% and over 50% depending on the size of the installation, according to the consultation. The government has also proposed withdrawing support under the FiTs scheme altogether for wind turbines capable of generating more than 1.5MW.

The consultation also sets out proposed new degression mechanisms, through which tariffs would be automatically reduced each quarter and end altogether for certain installations by January 2019. The changes would also rule out extending the scheme to any further technologies, and extending the scheme to Northern Ireland. The new tariffs would be linked to the consumer price index (CPI) measure of inflation rather than the retail price index (RPI), which the government said would be a "more appropriate way of compensating investors for inflation".

Existing installations would not be affected by the proposals, the government said. Separately, it said that it was continuing to consider responses to its consultation on changes to the preliminary accreditation rules under the FiTs scheme, published in July.