Improvements to the Feed-in Tariffs scheme
14 February 2012
In what's becoming a familiar headline for the renewables industry across Europe, the UK government have taken another step in reform of Feed in Tariffs. Daniel Guttmann, a specialist in the topic examines the implications of the latest update for the UK.
Overall, the announcement is somewhat of a mixed bag for the industry. It's positive news that the proposals are beginning to get more detailed, it will allow the industry to at least shrug off some of the uncertainties that have persisted since the previous announcements, and the subsequent court challenge by the UK government.
The overall spending envelope was extended and government is now hoping to deploy more solar than previously envisaged. That's good news for an industry that has to increase efficiency and volume in the face of the current (and future) reductions in FiTs. The emergence of discussion around the shortening of the FiT period is concerning, as well as whether the FiT should remain index linked. These two issues, if applied will make solar yet less attractive and this discussion has the potential to add yet more uncertainty which this industry really could do without.
The proposed 50% cut to roof top tariffs remains and this seems unlikely to change. While the reduction is steep, it only applies from March, so provides a window of opportunity for high activity levels over the next few weeks, perhaps similar to the extremely high levels of installations in late November/early December 2011. It shows what the industry is able to accomplish when demand rises. Given the inevitability of the cut, much of the industry will have begun to take action to adapt to the new regime.
The government has listened to concerns around the energy efficiency rating provision and has loosened the requirement for buildings with an Energy Performance Certification rating of at least D, the highest performing being A. While it curtails the market, it is better than the original C rating. As and when the UK's Green Deal to incentivise domestic energy efficiency measures kicks in properly - in my view around mid-2013 - these low efficiency rating will also move back onto the radar of the solar industry.
We have long argued for a clear timetable and logical mechanism to tariffs, as in Germany for example and the government is now putting that approach into practice. I think the devil is in the detail in this package and while this gives on the whole more visibility to the industry, there are elements which will be worrying.
The proposed mechanism post - July 2012 consists of a likely automatic degression, or reduction, and an accelerated adjustment based on deployment levels. So if deployments exceed anticipated levels, the government could reduce further the FiT rate.
Given the current uncertainties around costs, it feels like a 6-monthly 10% reduction on tariffs risk creating a severe stop/start market and I think that a lower base rate should be considered. The deployment adjustment is sensible, but it requires clear communication of the government's envisaged annual deployment levels. Also, given the very different dynamics of the different bands, this needs to be considered separately for domestic, commercial and stand-alone systems.
The emergence of discussion around the shortening of the FiT period is concerning, as well as whether the FiT should remain index linked. These two issues, if applied will make solar yet less attractive and this discussion has the potential to add yet more uncertainty which this industry really could do without. It took the UK ten years to install 32MW to the end of 2009, yet UK solar PV capacity grew six fold between April 2010 and August 2011 to over 220MW. The number of qualified solar PV installers is the UK is five times the level it was two years ago. While the UK solar PV market is unlikely to achieve the level of growth that many had forecast, the Government's target of 2.68GW of solar PV installed by 2020 still remains achievable.