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BLOG: The Future of the Feed-in Tariff

Hannah Smith

Senior Policy Manager

Posted on 20/07/2018 by Hannah Smith

 

The UK Government has published a consultation on the future of the Feed-in Tariff (FiT) and a call for evidence on the future of small-scale, low-carbon generation.

The publications confirm that both the FiT and the export tariff will close to new entrants on 31 March, 2019.

Broadly, the contents aren’t welcome news for FiT-scale generators, but there is an opportunity through these processes to make the case for small-scale renewable technologies and ensure they play a valuable role in our energy system going forward.

This blog sets out what you need to know, and what our next steps in responding to Government will be.

 

SR Meetings

Scottish Renewables is hosting various member meetings and other events designed to shape our responses:

  • Solar Member Network: Wednesday 25 July, SR Offices (10am)
  • Scottish Renewables’ Solar Conference: Tuesday 4 September, Edinburgh  
  • FiT Consultation Response Meeting - Gathering Views: Tuesday 31 July (10am), SR Offices

Please email Hannah Smith if you would like to attend any of the above.

 

 

What you need to know

Much of the consultation content isn’t unexpected, with the decision to close the FiT scheme to new applicants in March 2019 remaining.

In addition, Government is now also planning to close the export tariff on the same date.

Government’s priority remains to protect consumers from any impacts on bills.

An impact assessment has been published alongside the consultation documents, with deployment scenarios and savings estimates. It also highlights the potential risk to jobs and deployment levels in doing this.

The move towards subsidy-free development is also highlighted as a factor in Government thinking.

A call for evidence on the future of small-scale low-carbon generation has also been published.

It sets out the Government’s position that:

“Small-scale low-carbon electricity generation, where it is on balance beneficial to government’s objectives and the electricity system, should compete independent of direct subsidy and on its own merits on a level playing field with other electricity generation technologies through competitive, market-based solutions”.

Government’s intent again here is clear, but the consultation does ask how a guaranteed route to market could be cost-controlled to protect consumers and enable development.

What this does is set us, as an industry, some homework.

We need to clearly demonstrate to Government that this scale of technology is beneficial to energy policy objectives, the electricity system and more. And we need to set out credible pathways where industry can work with government moving forward.

 

Deadlines for Responding:

FiT Closure: 13 September 2018

Call for Evidence: 30 August 2018

 

 

The detail

 

FiT Closure

Government intends to close the Feed-in Tariff, including the export tariff element, to new applicants next March.

Government set out the reasoning behind its decision thus:

  • FiT installations have exceeded deployment expectations. It’s supporting around 800,000 installations (around 6GW)
  • Consumers are deemed to understand the benefits of these technologies, the latest Public Attitudes Tracker is referenced
  • The FiT is effectively funded through consumer bills, so controlling costs “was paramount”
  • Government see costs falling, and subsidy-free development on the horizon. 

The consultation also goes some way to setting out Government’s vision for the future, saying it wants to move away from “driving deployment with direct subsidies” and instead rely on “fairer, cost reflective pricing” and market-based incentives.

Also referenced is the recently-announced Control for Low Carbon Levies

 

In more detail:

Replacement of Generating Plant

The FiT legislation doesn’t explicitly set out how replacing different pieces of generating plant impacts accreditation.

Government is seeking evidence (but not necessarily issuing detailed consultation) on the likely rate of replacement over a scheme’s lifetime and the potential for installations to increase their generation capacity.

There is concern about increasing generation under high tariff levels.

 

The Export Tariff

With the Export Tariff, generators receive payment for each kWh exported to the grid.

Government intends to cease this, as well as the generation tariff.

The logic for this change is that export tariff isn’t reflective of the wider market – it’s not linked to the wholesale price. With low wholesale prices, Government believes generators are overcompensated for their export.

Beyond that, Government sees the export tariff as a fairly blunt instrument.

It’s not easily able to reflect the market signals they want to see our electricity system based on, such as time of day or intra-seasonal pricing. The consultation sets out that Government see the export tariff as disincentivising desirable behaviour, like including battery storage on sites or self-consumption.

Government doesn’t feel there is a strong evidence base to reshape the export tariff, and have little appetite for prolonging its lifespan.  

 

Exemptions

Any project applying after 31 March 2019 will not be able to accredit. But there are some exemptions:

  1. ROO-FIT scale (> 50 kw) installations that apply for pre-accreditation on or before 31 March 2019 would benefit from existing validity periods to convert to full accreditation.
  2. ROO-FIT scale community installations continue to get the standard additional six-month period on top of the relevant validity period
  3. Microgeneration Certification Scheme (MCS) scale installations which commission would have until 31 January 2020 to apply to their FiT licensee for accreditation
  4. MCS scale community installations have a 12-month validity period, as with schools.

In all of the above, there needs to be room in the deployment cap prior to the tariff period in 2019 and other conditions apply (detail set out in the document).

 

The Impact Assessment

As ever, an impact assessment is published alongside the consultation. Notably, it recognises that the proposal could cost jobs and cause deployment slow-down (at least against a ‘do nothing’ baseline).

Deployment scenarios for the policy intent are published here and summarised below:

Additional Capacity (MW) added per annum:

 

2019

2020

2021

2022

2023

2024

Solar

103

105

107

109

112

114

Wind

34

36

38

39

41

43

Hydro

8

8

8

8

9

9

AD

9

10

10

10

11

11

Micro-CHP

0.001

0.001

0.001

0.001

0.001

0.001

The impact assessment is clear that:

“FiT installations are low-carbon generators and reducing their deployment will result in larger amounts of more carbon intensive generation being sourced from the rest of the GB electricity system.”

The cost of that increase is set out to be £257 million.

Administrative savings from closing the scheme come in at £7 million.

 

Jobs

The impact assessment states that under the proposed policy the assumed reduction in deployment will “likely result in decreased employment in the low-carbon sector”, but go on to say that “given the inherent uncertainty” around jobs in the sector it’s difficult to quantify.

 

Consumer Bills

Estimated marginal impacts of the continuation of the FiT post 2019 are set out in the impact assessment.

 

Marginal impact of FiTs on end users bill

Marginal Price Impact (£MWh)

Percentage of total electricity bill

Average households

£1

£0.5

<0.5%

Small businesses

£100

£0.5

<0.5%

Medium businesses

£3,000

£0.5

<0.5%

Big businesses

£30,000

£0.5

<0.5%

 

The Call for Evidence

Along with the consultation on the closure of the FIT scheme the Government has published a call for evidence on the future for small scale low-carbon generation in the UK.

The document sets out that government doesn’t intend to replace the FiT with a subsidy, and industry is expected to compete.

It does though recognise the benefits of decentralised energy, falling costs, and the need for a level playing field.

The Call covers a lot of ground across energy markets and systems, considering in detail how FiT-supported technologies can contribute to the smart, flexible energy system ambitions set out in the Clean Growth Strategy as well as what market mechanisms might be required to enable small-scale generation to come forward.

 

System Change

The call looks at FiT-scale generation through the lens of a changing energy system.

The document covers off changing patterns of supply and demand, moves towards half-hourly settlement, and the DSO transition.

It places this call firmly among the ongoing Smart Systems and Flexibility Plan work, Ofgem’s reviews of network charging and National Grid’s Future Energy Scenarios work.

 

Opportunities and Challenges

The identified opportunities and challenges follow this system-based approach to small-scale generation, with the call focussing on the below.

We’ll be responding to these, but even at this stage it’s clear that we also need to ensure Government recognises the wider socio-economic benefits of small-scale, low-carbon generation.

Opportunities

Challenges

  • Meeting rising demand
  • Markets for flexibility
  • Co-locating generation and demand
  • Storage
  • Demand Side Response
  • Smart metering and half-hourly settlement
  • Energy efficiency targets
  • Fuel poverty and community energy
  • Behind the meter and inequitable network cost recovery
  • Tracking deployment and network management
  • System inefficiencies
  • System balancing

 

 

A level playing field

The call seeks input on where Government can help create the right conditions for a competitive market where these technologies can thrive.

It talks in detail about market-based interventions, access to markets, as well as around planning, network charging and other investment considerations.

 

 

Conclusions

Challenges remain for small-scale renewable generation, with further uncertainty as to the future direction of policy for these technologies.

While not unexpected, there is a clear policy gap which will be challenging to navigate.

That being said, the call for evidence and consultation offer us an opportunity to make the case to Government on giving this sector the right sort of support to help it thrive.

We look forward to working with our members over the coming months to do just that.