REVISED FITS LEVELS ANNOUNCED

WHAT HAS CHANGED?

On 9th June, 2011, the Department of Energy and Climate Change (DECC) confirmed revised FITs levels for PV and Anaerobic Digestion (AD). This announcement follows the conclusion of the Fast Track consultation on 6 May 2010. DECC launched the consultation in response to concerns that larger PV schemes (250 kW- 5 MW) would be deployed much more quickly, due to unexpectedly large take up of PV systems. The view was that this would consume a significant proportion of the government-defined FITs spending envelope, thereby threatening the funds available for both small scale PV projects and other technologies.

The revised tariffs are shown in the table below. They will apply to any system commissioned on or after 1 August 2011. Those commissioned before this date will be eligible for the existing tariffs. Tariffs for other technologies and bands remain unaffected. A full list of existing tariffs can be found here. 

The tariff bands have also been redefined for PV and AD to better reflect the range of applications. The previous bands of 10- 100 kW and 100 kW- 5 MW are now covered by four bands: 10-50 kW and 50 - 150 kW, 150-250 kW and 250 kW - 5 MW. Revised tariffs have been set for these bands to meet the Government's view of reasonable investment returns (~ 5%). 
Annual degression of PV tariffs will continue at the same rate of 9% p.a. for PV systems 250 kW, to account for predicted reductions in technology costs but no longer apply for PV systems > 250 kW. Degression is where tariffs for new systems are set at a lower level each year than for systems installed in previous years. Once a system is commissioned, the applicable tariff is fixed for the lifetime of system. 

Further changes to tariff levels may take place in April 2012, depending on the outcomes of a Comprehensive FIT Scheme Review being launched this summer.

WHAT DOES THIS MEAN TO ME?

The revised tariffs make investment in PV systems > 50 kW financially unattractive, including those currently being developed or proposed. Many care homes, schools, offices and other large buildings will be restricted to 50 kWp systems, even though they could potentially accommodate larger systems. Unfortunately, these smaller systems provide only a small fraction of the electrical power requirements. This puts greater stress on using other methods for achieving reductions in fossil-fuel based electricity demand.

Multiple small arrays need to be carefully considered where a new system would push the cumulative capacity on a site above 50 kW. For instance, say a separate 30 kW system is to be installed on each of neighbouring buildings A and B, both with the same owner. The total capacity of the two systems (60 kW) exceeds the 50 kW threshold. Despite being installed on separate buildings, the two systems are treated as one, as they are considered to be on one site. In this case, the lower 50- 100 kW tariff (19 p/kWh compared to 32.2 p/kWh) applies to both systems. This increases the simple payback from 9 years to 14 years.

What constitutes a site is not strictly defined in the regulations or legislation and must be considered on a case by case basis.

WHAT SHOULD I BE DOING?

Given the precedence set by the outcomes of the Fast Track review, it would not be surprising to see further changes to the tariffs after the Comprehensive Review. Government has indicated that all tariff levels for all technologies will be part of the review. To secure the recently announced tariffs, a system must be installed and commissioned before 1 April 2012 Commissioning before this date also avoids tariff degression for PV systems < 250 kWp.

Project development including feasibility, planning and commissioning can take 3-6 months for PV systems <50 kW and longer for larger systems. It is important that project development times are well controlled to avoid exposure to future tariff changes.

AD plants, on the other hand, take longer to develop, typically 1-2 years. This leads to greater development risk, as the AD tariffs may have been reduced by the time a system has been commissioned. This risk is partially balanced by the lack of tariff degression with AD. These aspects should be considered in any financial modelling undertaken.

Regardless of technology, a clear development plan should be established to determine project timescales. This should include key exits points that allow you to pull out at the appropriate stage, should changes to tariff levels or other conditions jeopardize the project.

Experienced in renewable energy solutions and carbon management, we can help you to understand and maximize the benefit of FITs to your business. Contact us now to talk to our team!