UK looks to significantly slash solar FITs

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Department of Energy and Climate Change (DECC) Minister, Gregory Barker, has published the paper, which contains the new FIT proposals. In it, he suggests that all new photovoltaic projects worth four kilowatts (kW) or less should receive a reduced tariff of 21 pence per kW hour (p/kWh). Currently new build installations of this size receive 37.8 p/kWh, while retrofit installations receive 43.3 p/kWh.

In a statement, he said this should still deliver around a 4.5 percent rate of return. He added, "We are also proposing reductions to the generation tariffs for PV installations above that level and up to 250kW. These changes are vital if we are to ensure a lasting FITs scheme." They are expected to deliver a rate of return of around five percent, and include:

  • Four to 10 kW, current FIT 37.8 p/kWh, proposed FIT 16.8 p/kWh
  • Over 10 to 50 kW, current FIT 32.9 p/kWh, proposed FIT15.2 p/kWh
  • Over 50 to 100 kW, current FIT 19 p/kWh, proposed FIT 12.9 p/kWh
  • Over 100 to 150 kW, current FIT 19 p/kWh, proposed FIT 12.9 p/kWh
  • Over 150 to 250 kW, current FIT 8.5 p/kWh, proposed FIT 8.5 p/kWh
  • Over 250 kW to five MW, current FIT 8.5 p/kWh, proposed FIT 8.5 p/kWh

Overall, the DECC says that 80 million pounds has been made available for FITs between 2011 to 2012. Meanwhile, between 2012 and 2013, 161 million pounds will be made available, between 2013 and 2014, 269 million pounds, and between 2014 and 2015, 357 million pounds.

Further changes

In addition to slashing the FITs, the DECC is also looking to introduce multi-installation tariff rates for aggregated photovoltaic schemes. Under the new proposals, Barker says that a "multi-installation rate which is set at 80 percent of the proposed standard tariffs for individual installations, is justified …"

Secondly, it is considering adding an energy efficiency requirement to PV FITs. If implemented, the latter would mean that if a building on which a photovoltaic system is installed, does not meet the stipulated energy efficiency requirement, the system would receive a FIT rate of 9 pence p/kWh.

While it is suggested that all the changes should be introduced on April 1, 2012 – two years after the U.K. first introduced a FIT – they would apply to all systems registered on or after December 12, 2011. It has been said that any projects eligible before this date will not be affected.

"The effect of this is that, depending on the result of the consultation, installations with an eligibility date that falls between the reference date and 31 March 2012 will receive the current tariff for that period only, and will then move to the new tariff from 1 April 2012."

Furthermore, the department is looking discuss how to best manage the FIT scheme. Suggestions for doing so include contingent degression, like in Germany, rolling reviews, and rationing or quotas.

Reasons

The reasons for the proposed changes appears to be three-fold. Firstly, the DECC says photovoltaic system costs have fallen by around 30 percent since the introduction of the FIT, from an average of around 13,000 pounds in 2010, to 9,000 pounds now. "This is resulting in returns for investors in solar PV that are simply not sustainable and, without action, could result in the spending envelope for the scheme rapidly being breached," said the paper.

Furthermore, a recent "surge" in households installing photovoltaics has "threatened to break the budget". The DECC reports that around 16,000 new systems were installed in September alone, and that at over 400 megawatts (MW), nearly three times as much solar has been installed to date, as was initially predicted.

Broken down, the government estimated that 94 MW of photovoltaic systems worth four kW and under would be installed by the end of September 2011. However, the actual figure is 255 MW. Meanwhile, it had no predictions laid out for systems bigger than this. But, to date, there have been a number of systems installed, both between four and 10 kW, and stand-alone.

It adds that for systems bigger than 50 kW, there is around 100 MW worth of photovoltaic projects in the pipeline. "These are projects that applied for FITs before 1 August 2011 in advance of the implementation of the new tariffs for large scale solar PV following the fast-track review of FITs."

Barker commented, "If the Government took no action, by 2014-15 FITs for solar PV would be costing consumers £980 million a year, adding around £26 (2010 prices) to annual domestic electricity bills in 2020. Our proposals will restrict FITs PV costs to between £250-280 million in 2014-15, reducing the impacts of FITs expenditure on PV on domestic electricity bills by around £23 (2010 prices) in 2020."

Finally, rates of return are said to be "substantially" higher than the around five percent originally intended for "well located" installations. "This is not sustainable and, were the trend to continue, it would have two impacts," said the DECC in its consultation paper, which are: (i) a risk of PV generators being over compensated; and (ii) the FIT budget being drained.

Specifically, says the consultation paper, "Since undertaking the fast-track review, we estimate that retail electricity prices have increased by seven percent, while installation costs have continued to fall, meaning that the rate of return for installations between 50 kW and 250 kW has already increased above our five percent target."

The consultation period will end on December 23, 2011. It is the first of two on the comprehensive review of FITs, announced at the start of the year. The U.K. Department of Energy and Climate Change has said it will publish a separate consultation around the end of the year, which is expected to consider other aspects of the scheme including the tariffs for other FIT technologies.