Many people would agree that Feed-In Tariffs (FiTs) have done more than any other measure to stimulate and support the growth of renewables in Europe and other parts of the world. But in the usual British way we have been relatively slow to adopt these methods to encourage renewable power generation.
But it seems we are, at last, beginning to get there. FITs should be introduced for qualifying renewable electricity generation from April 2010, and for qualifying renewable heat generation (the Renewable Heat Incentive (RHI)) - also from April 2010.
So what are some of the legal issues and background to the proposed introduction of FITs? What will be their likely effect? And are there constraints which may limit their take-up and effectiveness?
DECC Consultation on FiTs
The Department of Energy and Climate Change published its consultation proposals on FITs in July 2009 and the formal consultation ended on 15 October. Essentially what is proposed is that FITs will incorporate two types of financial support for renewable generation of under 5MW installed capacity:
- A guaranteed rate of payment for all generated electricity;
- An optional guaranteed export price for surplus electricity sold to the National Grid.
The technologies covered by the consultation were anaerobic digestion, biomass, hydro, solar and wind power (though the enabling legislation potentially permits a wider list than this).
Essentially FiTs offer the possibility of generating electricity for ones own consumption, being paid for it and being able to sell any surplus that isn’t used. The system is intended for people and companies who install renewable power generation for their own use, but who may at times generate a surplus they can supply to the grid.
This will certainly be attractive to small businesses of various types - though anyone who regularly needs 5MW can hardly be described as small! Certainly many small businesses with relatively high power bills (i.e. light engineering, dairy farmers, sawmills and small food producers) might be interested, as will those wishing to develop (and/or finance) a micro-renewables portfolio.
Potential payment rates
It is proposed that FiTs would be payable to anyone (private or commercial) who operates a qualifying renewable electricity generation system, with differing bands of payments (depending upon the technology and installed capacity) of up to 36.5 pence per kWh (maximum).
An additional 5 pence per kWh could be paid for any surplus exported to the grid – and of course one would also have a “zero” electricity bill. The FiTs would be payable for 20 years (25 for solar), to allow a reasonable payback time and return on investment, and funded from a levy on all electricity sales by licensed electricity suppliers.
More legislation required
These rates are simply those put forward through the DECC consultation and may change.
More to the point, at the time of writing none of the secondary legislation setting out any details of how FiTs will work and be regulated is in place, and the primary legislation (Sections 41 to 43 of the Energy Act 2008) is notably brief and vague.
Secondary legislation (for England, Wales and Scotland but not Northern Ireland) will need to be passed very quickly if FiTs are to be payable in April 2010 as planned. Even if it is, are the licensed electricity suppliers (i.e. the people you buy your electricity from right now e.g. Powergen, Scottish Power etc) likely to be ready to operate FITs by then?
It is, however, proposed that the legislation will be retrospective to the extent that qualifying systems installed after 15 July 2009 will be eligible for FITs - once the FITs are operational.
Will FiTs work?
Broadly speaking the concept of FITs seems to be a good one. They have after all been around (in varying formats) since the 1990s and have worked well elsewhere. But there has been criticism of, for example, the low proposed rates for anaerobic digestion, biomass and hydro generation, and there being no indexing of tariff and export values.
Some commercial consumers/producers may just stick with the existing Renewables Obligation Certificates (ROCs) scheme, which FiTs and the RHI are intended to complement. Below 50kW capacity the “double ROCs” entitlement currently applies (i.e. you get 2 ROCs per MWh), though it is intended that FiTs and the RHI will replace ROCs below 50kW.
Between 50kW and 5MW the proposal is for a one-off choice between ROCs or FiTs/RHI i.e. not both. However it is likely that FiTs will be less attractive than ROCs above around 1MW (depending on technology). Likewise the current proposals include a noticeable drop in FiTs income above 500kW. Reducing installed capacity and re-rating to below 500kW might then result in more income for less power.
So could there be a surge of projects rated at just below 500kW? We understand that this might very well happen, and that there are various projects at this level awaiting the introduction of FiTs (though there may still be difficulties funding these).
So, as published, the consultation proposals could lead to some unintended consequences if implemented as they stand. Certainly any developer and/or funder would have to compare the benefits of ROCs against FiTs very carefully for any small/micro renewables project.
Constraints and “red tape”
No developer of renewable energy projects in the UK needs reminding that there are currently two enormous obstacles in their way. The Planning system and the National Grid access system each create great uncertainty (and, very often, significant expense and delay).
Significant reforms to the Planning systems in England & Wales (the Planning Act 2008), and Scotland (the Planning etc (Scotland) Act 2006) may yet bear fruit. However it is too early to tell whether the systemic cultural and policy changes required throughout the whole systems will match the legislators’ good intentions.
The bigger question is whether Planning authorities will have sufficient resourcing to deliver improvements in processing times and quality of decisions. In any case, while such improvements are certainly necessary, the problem for many renewables projects (particularly onshore wind) has often been rejection by local politicians or planners influenced by small numbers of determined local objectors. Therefore the crucial change is probably a general change in public attitudes towards renewable energy projects.
Access to the National Grid is also a complex and difficult issue and consultation on potential reform is ongoing. But FiTs and the RHI may be useful as small projects (in this context, under 5MW) can sometimes mean lower impacts, an “easier” ride through the Planning system and no lack of available grid capacity compared to bigger projects.
Small projects connected to the local distribution grid can also have quicker delivery than bigger ones needing a transmission network connection – and potentially an upgrade to that too (the Beauly-Denny Upgrade decision is imminent at the time of writing).
The advantages of “small” projects versus “large” ones can be overstated and is (a) subjective and (b) often site (and technology) specific. A project of 5MW capacity is still fairly “large” anyway. What might perhaps improve the success rate for small renewables projects is if FITs/RHI projects become increasingly popular for individuals and small businesses to develop themselves.
Local residents, businesses and community groups developing and benefiting from their own investment in renewable technologies is something most, if not all, politicians usually like to support.
Conclusions – FIT for purpose?
In theory (and sometimes in reality) not everyone needs to be connected to the National Grid at all if they can generate all of their own electricity requirements. After all, some rural estates have for years generated their own electricity from small hydro schemes and used this purely to supply their own properties and reduce their own fuel bills. Many are now also turning to biomass. But these producers are the exception rather than the rule. For much of the rest of us, consumption from the grid is necessary and unavoidable.
Paying individuals and small businesses to generate their own electricity and heat, and export any surplus to the grid is therefore a big step worth taking. (Some would argue it’s hardly a big step anyway as many of our EU neighbours have had FiTs for years).
Yes the exact detail of the FiTs/RHI schemes is still to be confirmed, through secondary legislation. But the basic principles certainly seem sound, desirable – and necessary, if our society’s low carbon aspirations are really to be delivered. The public needs (and wants) small and micro renewable energy – and lower fuel bills. FITs/RHI schemes are a good way of trying to give them both.
About the author:
Robin Priestley is a specialist in renewable energy projects in the property department at Brodies LLP