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Renewable electricity - weighing up the options

Renewables are here to stay and many farmers are considering their options.  Here Gullands partner Paul Burbidge assesses how the Finance Bill 2012 will impact on renewable electricity Feed in Tariffs (FiT) and Energy Performance Certificate (EPC) requirements.

There has been greater uptake and investor interest in the commissioning of renewable technologies that qualify for FiT than was expected, especially in respect of solar photovoltaics (PV).  This, combined with a considerable reduction in the equipment costs, caused the Department of Energy and Climate Change (DECC) to announce an emergency cut in solar PV FiT rates in 2011 which effectively halved the payments for smaller schemes.

The DECC’s decision was successfully challenged in the Courts although the Government is appealing the decision to the Supreme Court.  This will, however, only affect schemes commissioned between 12 December 2011 and 3 March 2012.  Claimants will either receive the historic rate or the lower rate announced in February 2012.  These rates are as proposed by the DECC in 2011 and will apply to all new schemes registered on or after 31 March up to 1 July 2012.

Many in the industry were disappointed with the cuts but, nevertheless, believe solar PV continues to provide an attractive annual return of between 10-15%.

From 1 April 2012 any property that requires an EPC will be required to achieve an EPC rating of D or above to qualify for a full FiT payment on new solar PV installations.  Those not achieving it will only be eligible for 9p per kWh.

From 1 April 2012 a multi installation tariff was introduced for those claiming FiTs on 25 or more solar PV sites.  This is 80% of the standard rate.

From 1 July 2012 solar PV FiTs are going to be reduced further and the depth of cut will depend on the output of new schemes registered between March and April.  The higher the uptake the deeper the cut!

There will also be further cuts to FiT rates in the future not to be applied retrospectively.  An initial cut of 5% in October is to be followed by a 10% reduction every 6 months.  This may be brought forward if the uptake of solar PV exceeds 125% of expected levels.

It is also proposed that from 1 July the lifetime of solar PV FiT schemes will be cut from 25 to 20 years.

The rationale behind these further cuts to solar PV tariffs is that the DECC is obliged to ensure that FiT schemes remain affordable and offer good value for money as equipment costs falls.  There are many who believe that if electricity costs continue to rise, even unsubsidised solar schemes will be justified economically and at that point a party claiming FiT at whatever rate will be in a “win win” situation!

Other renewable electricity technologies tariffs and eligibility

The Government’s proposals in respect of renewable technologies other than solar PV proposed cuts in FiT rates from 1 October 2012 but not to the same extent as those levied on solar PV schemes.

Wind based projects seem to attract the deepest cuts and the rates for anaerobic digestion (AD), hydro and micro-CHP remaining the same or falling slightly.  The maximum FiT rate payable is 21p per kWh for any technology.

These tariff rates will also be cut annually by at least 5% and can be brought forward with 3 months notice if uptake of each technology is higher than predicted.

The Government has, however, realised that the lead in time for developing hydro, AD and wind schemes is quite lengthy and is therefore allowing projects over 50 kWh to be registered prior to commissioning, the absence of which was deterring some potential operators from developing such schemes.