Andrew Watkin, head of energy and marine, Carter Jonas, comments on today’s Feed-in-Tariff Review
Date of Article
Jun 09 2011

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“Today the Department of Energy and Climate Change (DECC) announced the final rates for the fast track Feed-in-Tariff (FiT) review which are set to be implemented as of 1 August 2011. The rates remain unchanged from those which were put out to consultation in April 2011 and as a result there have been a number of changes to the regime which will fundamentally impact upon the development of solar photovoltaic (PV) and anaerobic digestion (AD) systems.

 

“Large scale solar development has been curtailed in line with Chris Huhne’s comments as a result of the FiT budget being brought into the realms of the Comprehensive Spending Review undertaken in October 2010. With these new rates we anticipate that large ground mounted solar farms will not be progressed unless installation and electricity export can be realised prior to 1 August. It is clear in the market place that due to the pressure on timescales and the associated risk, developers are struggling to secure funds for large developments that could be developed in such a tight timeframe. This is fundamental as capital expenditure for such projects is significant, being in the region of £2.1m per installed megawatt. It is also unlikely that many schemes above 50kWp in scale will be progressed as returns will drop below 8% and given the fact that PV systems are wasting assets other investments will look more attractive. This will restrict development to south facing roofs or areas of land adjacent to buildings of no greater than 400-500 square meters where returns in the sub 50kWp bracket are still attractive, being upwards of 9%.

 

“Anaerobic digestion has received some positive news following the DECC’s realisation that the previous incentive levels resulted in only three new installations being registered under FiT in the
first year of the scheme. Increasing rates at the small end of the scale will encourage more farms and small businesses to consider the technology, though due to the increased risk as a result of the requirement to find feedstock for the process, it could be argued a greater incentive is required. This is compounded when taking into account the current level of commodity prices as energy crop is often used as feedstock for small systems. We envisage returns will rise around 3% as a result of this change, though it remains to be seen whether this will provide enough of an incentive for mass uptake.

 

“Overall these changes, coupled with the ongoing wider comprehensive review, have caused mass investor uncertainty in the renewables market in the UK and hampered delivery as a result. On a positive note much of the scheme remains unchanged allowing decisions to be made by property owners and businesses.  The DECC has also confirmed that tariff rates will not be changed retrospectively. That said, whatever changes the DECC make from now on need to have transparent timetables for implementation going forward or they risk undermining the sector further.”