Feed in Tariffs – summary of scheme reform

Solar PV panels

The Government has announced its improvements to the FIT scheme following the Phase 1 consultation on solar PV. It has also published two further consultations: Comprehensive Review Phase 2A on solar PV cost controls, closing on 3rd April, and Phase 2B on FIT tariffs other than solar PV, closing on 26th April.

We’ve summarised the immediate impacts and key proposals for solar PV, particularly those likely to affect the public sector.

Immediate changes

In response to the Phase 1 consultation the following decisions have been taken:

  • A tariff of 21p/kWh will take effect from 1st April 2012 for domestic-size (≤4kW) solar panels with an eligibility date on or after 3rd March 2012. Other tariff reductions apply for larger installations.
  • Properties installing solar panels on or after 1st April 2012 will be required to produce an Energy Performance Certificate rating of ‘D’ or above to qualify for a full FIT.
  • From 1st April 2012, new ‘multi-installation’ tariff rates set at 80% of the standard tariffs will be introduced for solar PV installations where a single individual or organisation is already receiving FITs for other solar PV installations. The threshold is set at more than 25 installations: Individuals or organisations with 25 or fewer installations will still be eligible for the individual rate.

Comments

The reduction in solar PV tariffs was expected. The requirement for EPC ‘D’ rating or above is rather less stringent than anticipated, and it has been estimated that half of all properties already meet this requirement. Those that do not must be brought up the required standard or receive a reduced tariff.

The multi-installation tariff, 16.8p/kWh for ≤4kW installations, will further reduce the financial return for organisations – such as local authorities and housing associations – looking to roll out solar PV across a social housing portfolio. Combined with the reduced standard tariffs, it may mean that this option is now financially unattractive, and therefore the number of installations on social housing will be greatly reduced. This will of course also apply to most ‘rent-a-roof’ operators.

Phase 2A consultation: solar PV cost control

This consultation proposes tariffs to be applied to solar PV installations after 1st July 2012, and sets out a mechanism for the degression of tariffs thereafter.

  • Proposed tariffs for ≤4kW installations post-July 2012 range from 13.6p/kWh to 16.5p/kWh. These will then reduce according to pre-planned degression, contingent degression and annual reviews.
  • For solar PV, a 5% tariff reduction is proposed in October 2012, followed by a further 10% every 6 months.  If actual deployment levels exceed 125% of expected levels, an additional ‘contingent digression mechanism’ would be applied to bring forward the proposed tariff reductions. It is possible that this could result in tariffs changing more frequently than once every two months.
  • A table of solar PV tariffs, modelled using the 10% baseline degression proposals, shows the payment for a ≤4kW system starting at 21p/kWh in April 2012, reducing to 12.9p/kWh by October 2012 and down to 7.7p/kWh by April 2015.

There is a proposal to reduce the tariff lifetime for new installations from 25 to 20 years and options to review the level of export tariffs including possible index-linking.

Comments

The proposed degression models introduce further uncertainty to the FIT scheme. It will be impossible to calculate payback and returns with any confidence, since the tariff paid may reduce sharply between project implementation and installation dates, with only two months’ notice of each reduction.

DECC’s press release and links to the consultation papers can be found here