Will It Continue to be FiT for Purpose?

The Feed in Tariff (FiT) scheme has incentivised renewable energy across the country for a number of years. Participation in FiT has been so popular that by mid 2015 the UK has almost met its 2020 target. However, this has also meant that the cost of subsidies has been quite high and the Government is considering whether to bring an end to it.

What is FiT?

The Feed in Tariff (FiT) scheme was introduced in 2010 with the aim of encouraging the deployment of renewable energy across the UK.

Upon introduction the key objectives of the scheme were:

  • Encourage deployment of small scale (up to and including 5MW) low-carbon electricity generation;
  • Give people a direct stake in the transition to a low-carbon economy;
  • Assist the public take-up of carbon reduction measures;
  • Foster behavioural change; and
  • Help develop local supply chains and drive down energy costs.

The subsidies provided are paid through additions to consumer bills and the payments are made through different schemes such as FiT, Renewable Obligation and Contracts for Difference, among others. To limit the impact on consumer bills, the Government set a limit on the annual low-carbon energy subsidy to be collected from consumers known as the Levy Control Framework (LCF).

The take of up of FiT has exceed expectation with a total of 730,000 reached by July 2015, which is close to the projection the Government set for 2020. This has meant that consumers have taken a direct stake in the transmission to a low-carbon economy and have taken up carbon reduction measures. The cost of buying and installing renewable energy products has also fallen, in particular solar PV. However, it is not clear whether the scheme has resulted in behavioural change and there are concerns about the overall value of the scheme in terms of value for money and affordability when compared to other low-carbon schemes.

Since operational, the FiT scheme has been amended a number of times. The last change to have taken place was on 8th of September 2015 coming into force on 30th of September 2015. This measure withdrew pre-accreditation meaning that from the 1st of October 2015 it is no longer possible to pre-accredit or pre-register new applications for FiTs. However, this does not affect projects that have been granted pre-accreditation.

Purpose of the Consultation

In its consultation document, the Government has highlighted that it has initiated this process with the aim to:

  • Control costs under the FiT scheme;
  • Work towards phased closure of the scheme in 2019 – 19; and
  • Propose other measures to align the scheme with other Government policy measures.

How is the Scheme being Assessed?

At the outset, the Government recognises that this a fundamental review of the scheme with the aim of controlling scheme costs effectively in the short term.

Based on the affordability criteria, the Government will decide the future and size of the scheme. Some of the factors that the Government is considering include:

  • Applications under the scheme before full implementation of this review;
  • Government’s confidence in the implementation of an expenditure cap;
  • Future generation tariffs settled through this consultation;
  • Deployment into other areas of the LCF; and
  • Government’s decisions surrounding other renewables priorities.

Following the consultation if the scheme is considered as unaffordable, the Government is likely to propose ending generation tariffs for new applicants from January 2016 or further reducing the size of the scheme’s remaining budget available for the cap. The consultation also discusses future directions for small scale renewable support, which could build on or replace FiT.

What is the Government Proposing?

Through this consultation, the Government is making a number of proposals including:

  • Revising generation tariffs and revision of some tariff bands for new installations;
  • Default degression for all technologies on a quarterly basis. Contingent degression at 0%, 5% or 10% for all technologies depending on deployment rate and in addition to default degression;
  • Move from RPI-linked tariffs to a CPI-link for new installations;
  • FITs not to be extended to any other technologies;
  • New expenditure under FiTs limited to an overall budget of £75-100m to 2018/19 with proposals to implement deployment and degression band caps to meet this budget;
  • Remove the generation tariff for new FiT applications from January 2016 if proposed cost of deployment caps unable to place costs of the scheme on an affordable and sustainable trajectory or, alternatively, further reducing the size of the scheme’s budget available for the cap; and
  • Prevent extensions to installations from claiming FiTs;

Further details on the proposal by the Government can be found here which remains open until 23rd of October 2015. Once concluded, we will provide further details in relation to the Government decision on our blog.

Likely Impact

While the final outcome of the Government consultation is not known, it is likely that further changes are to come with cuts to the FiT scheme.

We have already seen the withdrawal of pre-accreditation earlier this month, although by January 2016 if the proposals are adopted a number of changes may come about. For small scale installations such as solar PV on households, FiT rates are likely to be heavily reduced.

Prior to the changes coming through, there is still some time for businesses and households to participate. This final take up is also likely to define the future of the scheme, in particular whether it will be phased out gradually or an alternative considered altogether.

Forbes Solicitors have assisted a number of Registered Providers of social housing and businesses in participating in the FiT scheme including through reviewing contracts, seeking consent and addressing tenancy management issues. If you have any questions or would like any advice relating to FiT or other schemes, please contact Daniel Milnes.

Nat Avdiu

About Nat Avdiu

Nat Avdiu is a Paralegal in the Contracts and Projects team at Forbes Solicitors. Nat provides updates for clients on a range of issues including: governance, data protection and freedom of information, procurement and charity law.
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