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Comment: Keeping the UK FiT - what will DECC do next?


Gregory Dix, Savills Energy

The buzz at the recent EcoBuild Conference at London’s ExCel was all about what the Department of Energy and Climate Change (DECC) will do next about renewable energy Feed In Tariffs (FiTs)?

With its consultation on the future of Solar FiTs due to close imminently, and little time left on the consultation for other FiT-eligible renewable technologies, there is significant speculation over DECC’s next move.

The future of FiTs is intrinsically tied to the levy-funded budget, and when viewed against the Impact Assessment prepared by DECCs own economist, the Government is likely to need to implement all of the measures it has alluded to, and perhaps even more.

However, the devil is in the detail. Tucked away on the final pages of the impact assessment that accompanied the Phase 2A consultation document is the fact that with even minimum take-up between February and the end of March - the committed spend on deployed installations will already be £636m over the total levy funded spending cap to end of 2015, even with the additional £200m reallocated from the Renewable Obligation (RO) budget.

The only reason that the FiT scheme has not been closed already is down to the fact that DECC has calculated that the RO budget will be underspent by some £350 million during the period 2011/12, and forecasts a similar underspend (during 2012/13) of £356m - after which the planned reduction to the RO and lower levels of take up are assumed to save a further £796m until 2015. The total saving is circa £1.5 billion, which can just cover the proposed FiT programme, assuming that take-up of all technologies is slow.

Therefore requests from the solar lobby to maintain rates are likely to fall on deaf ears. The implementation of a 20-year period for solar rather than 25 years, and the potential removal of indexation on rates for existing installations are also likely.

The FiT Installations Statistical Report shows some 80MW of solar installed for the first three weeks of March 2012, and whilst there is likely to be significant slowdown of deployment during April (as the already implemented D rating EPC requirement comes into force), there is still a high chance that the lower limit of 150MW deployment will be breached, resulting in the mid to lowest levels of support for solar from July.

If DECC also seeks to implement a pre-accreditation system for wind developments under FiTs in order to maintain developer certainty, there is equally a strong chance that the proposed MW threshold of 111MW development for 2014 will be breached, perhaps as early as the start of 2013. Current wind deployment stands at just under 50MW.

There are however in excess of 600 sub 5MW wind development planning applications in Aberdeenshire alone with many of these being 0.25MW – 0.5MW applications. The limiting factors of turbine availability and provenance, have combined with a comparative lack of appetite in the finance markets - mainly due to insufficient wind data being available, with protracted timescales for gathering it, to form the primary reasons for the comparatively slow take up when compared with Solar.

But lenders are starting to come to the market place and there are a number of wind turbine manufacturers pushing their turbines into bankability, with the supporting evidence of test sites and existing installations.

DECCs ability to predict the market has fallen short too often over the past two years, and the backlash to the stream of changes it has subsequently needed to implement has been very damaging on both sides. Given this, DECC will be left with little choice but to be as harsh as possible on FiTs going forward.

Savills Energy is a dedicated real estate service created to specifically assist the inception, planning, development and continued operation of assets and infrastructure connected to the energy production and storage sector.

 

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