21 January 2012

On 9 February 2012, the Department of Energy & Climate Change (DECC) opened a consultation on its long-awaited Comprehensive Review of Feed-in Tariffs. This consultation has been presented in two phases: one phase dealing with solar PV cost control and the other dealing with proposed new tariffs for the other technologies and suggested administrative changes. This article deals with the second of these phases.

Click here to view the consultations.

The headlines are the proposed changes to the generation tariffs themselves, and the introduction of a degression concept, to bring tariffs down over time, but there are some interesting other proposed changes as well.

At around 8%, the proposed reductions could have been worse for wind in the 500kW to 5mW brackets, which are the sizes of FiT project where project finance usually features. For a typical new hydro installation of around 1mW, no change is proposed, which recognises the need for incentives to encourage investment in hydro projects that can carry very significant development costs.  These proposals merit a sigh of relief, but we do not expect many of the currently stalled projects to immediately recommence as, until the results are announced, presumably not earlier than May 2012, further changes are not to be discounted.

Degression steps of at least 5% per year from April 2014 are proposed, to be combined with capacity triggers to accelerate the steps on 3 months' notice.  These steps will be based on "best estimates of pipeline data".  Presumably these estimates will draw on planning application data.  Such data are not reliable indicators of what projects will come on stream or indeed when.  We foresee objections here and so this may be an area where refinements are made.

An interesting proposal, which carries the sensible warning that it will require much further detailed consideration, is that a preliminary accreditation process be introduced for wind projects over 50kW and all hydro and AD installations. 

• At what point would a project become eligible for preliminary accreditation?
• How long should the guarantee of tariffs last?
• Should there be a penalty for uncompleted projects to deter speculators?
• Should such projects count towards the acceleration of the degression steps?

All these are identified as issues to be worked through and none of them appears easy.  While it is true that a similar preliminary accreditation option exists for RO projects, the concept is not capable of simple replication to FiTs without amendment, particularly in light of the degression proposals.  However, we can see the appeal here, particularly for projects involving complex sites or downrated technology.

Finally, we were pleased to see that the consultation is seeking views on ways in which community and social housing projects might receive special support, to give them more certainty, particularly given the longer development times they entail and the wider benefits they deliver.  Fixing the tariffs at a certain point in the process is raised as a possibility, but concerns are noted about administration and early degression.