On 29 July 2011 Ofgem published updated Guidance for generators of renewable energy who want to benefit from the Feed-in Tariff (FIT) scheme (the Guidance). Click here to view.
This article draws out some of the more interesting points that emerge from that Guidance and rounds up some of the legislative changes that emerged from the FIT Amendment Order 2011 (the Amendment Order) that was enacted in May of this year.
Background
The FIT scheme came into force, rather hurriedly, on 1 April 2010. Since then several key, often vexing, issues have been identified. The Guidance does not have force of law - the onus is on applicants to seek independent legal advice where they feel this is required. In our experience Ofgem has been willing to engage in detailed correspondence on particular points and so this can be a useful strategy to combine with legal advice, but Ofgem does not provide advance clearance. The FIT comprehensive review is due to completed by the end of 2011 and so the scheme remains subject to change. The Guidance restates that the current tariffs will remain unchanged until April 2012 – unless the review reveals a need for greater urgency.
Maximum capacity
Following the Amendment Order, the maximum capacity of an eligible installation is now 5mW total installed capacity (TIC) rather than 5mW declared net capacity (DNC) – the point being that the amount of electricity that is consumed by the plant is no longer to be deducted in calculating the maximum capacity.
De-rating an installation
The Guidance simply restates that it will be for generators to satisfy Ofgem that the TIC is in accordance with the FIT Order. Our view is that generators should gather evidence from the manufacturer and from an independent source as to the TIC and the permanence of the de-rating.
Definition of “site”
The Guidance does not shed much new light on this difficult question that arises where a single project seeks to deploy more than one turbine. Developers and investors need to know whether a project will be eligible for the FIT and, if so, which banding applies to the generation tariff. The application cannot be made and thus the decision cannot be known until shortly before commissioning of the project, by which time of course the bulk of the development costs have been incurred.
Interaction with grants
The Amendment Order confirms that the “de minimis” state aid exemption will be closed. Only grants made before 1 July 2011 for installations that are commissioned before 1 October 2011 will be eligible to use this exemption. This will be most relevant for smaller installations where the value of the FIT over a three year period plus the value of the other grants is less than 200,000 Euros.
The Guidance contains clarification that will be particularly useful for community projects around which grant-funded costs are compatible with the FIT and which must be repaid. Costs that are not associated with an installation will not offend the state aid rules. For wind projects, the Guidance states that grant funded costs of local grid upgrades are not part of the installation. This is useful clarification given the “capital vs revenue” costs distinction that has evolved in this sector.
Further information
Please contact Ralph Riddiough or James Dickson.