The UK Feed-in Tariff Review: If It Ain't Broke, Don't Fix It

This was the third 'warning light' to come on during the short lifetime of the UK's FiT. First had been the change of government just a few weeks after the FiT's introduction. Next, the run-up to the government's Comprehensive Spending Review in October had put the nascent solar business on alert.

Having survived these potential crises, the sector continued with relative confidence into 2011, albeit aware that a FiT review scheduled for 2012 might come early. That it came as early as February 2011 was a shock to many, leaving industry players in a state of confusion and — often — anger. While there are government assurances that the FiT for microgeneration (schemes up to 50 kW) will continue, the big uncertainty is the future of tariffs for schemes above 50 kW — and those were just announced last week.

At the time of this writing, the main questions for the solar sector — both UK-based and the many companies from elsewhere in Europe that have invested in the new market — were whether it would be possible to avoid paralysis of market development, and how rapidly investor confidence could be restored? And there are surely some lessons in here about what not to do with a feed-in tariff. Don't they say, 'If it ain't broke, don't fix it'?

The feed-in tariff scheme was introduced in the United Kingdom in April 2010, supporting a range of renewable technologies in schemes up to 5 MW. The response from the solar PV sector was rapid and significant, with 33 MW of new installations between its introduction in April 2010 and the end of the year. 2010 saw the country's total installed capacity of solar PV more than double, with installation companies flourishing, businesses moving in from other parts of Europe, and commitment from the investment community.

Ten Apparently Successful Months

It's worth looking at the written statement to the House of Commons that came from UK energy minister Chris Huhne (left) on 7 February: 'Since the scheme began last year more than 21,000 installations have registered to date. The vast majority of these are domestic installations, including solar panels, wind turbines and micro hydro installations. The scheme is working well. The take-up of solar photovoltaic (PV) panels under FiTs has been a success with 20,000 installations now registered.' But, he went on: 'I am concerned about the impact of super-size solar installations. I am also disappointed at the lack of farm-based anaerobic digestion plants currently accessing FiTs.'

Indeed, especially in the southwest of England, planning permits had been sought for a number of multi-megawatt plants that expected a good return on investment (as yet, none have been built although big investments have been made in preparations).

In spite of the feed-in tariff having a 5 MW upper limit, the government had been taken by surprise by the interest in field-based solar. Perhaps it wasn't large solar as such that was the problem — was it maybe that the government wanted to see a better balance of renewable technologies on farms/agricultural land (e.g. solar vs biogas), and was simply seeking to address this?

No, Huhne's statement confirmed that the government had been becoming nervous about large-scale solar specifically: "Since the spending review, I have become increasingly concerned about the prospect of large-scale solar PV projects under FiTs, which was not fully anticipated in the original scheme," he said.  

An article by Chris Huhne, published in the Western Daily Press on 24 February, stressed the point: 'Let me put it in black and white. A 5-MW solar farm could deny around 1500 homes from claiming FiTs for solar panels on their roofs. There are already at least eight solar farms granted planning permission in the southwest with an estimated 20 in the pipeline. Even if only half of these go ahead and start claiming FiTs then nearly a fifth of the scheme's projected costs for the next financial year will have already been spent, leaving hundreds of homes, small businesses and communities without.'

New (Disastrous) Rates Unveiled

Over the past weeks new rates were unveiled. First, new rates were revealed for projects/technologies NOT subject to the fast-track review i.e. those projects under 50 kW.  To keep in line with the Retail Price Index they have been raised by 4.8% from 1 April 2011, and remain valid for a year, that's the good news.  Also good news was the Renewable Heat Incentive, which was unveiled on 10 March.  With it domestic projects will not be eligible until autumn 2012, but from July this year will qualify for a ‘premium payment’ designed to support the market until the RHI introduction. Industrial, commercial and public sector renewable heat projects now become eligible for payments per kilowatt-hour of heat produced.

On 18 March proposed new rates were revealed for solar PV projects over 50 kW – to the dismay of the industry.  

Hardest hit in terms of drop are projects in the 250 kW - 5 MW range, with their rates dropping from 29.3 pence/kWh in the first 2 years to a mere 8.5 pence/kWh, with no transitional arrangement. 

While projects between 50 kW and 100 kW were previously receiving 31.4 pence, and 100 kW - 250 kW received 29.3 pence, the new proposed tariffs for projects 50 - 150 kW is 19 pence/kWh, and for 150-250 kW a mere 15 pence.

Reacting to the new tariffs – which are open to review until mid-April – the Renewable Energy Association and Solar Trade Association said the government had made ‘a horrendous strategic mistake.’ REA Chief Executive Gaynor Hartnell said ‘pulling the rug out from under the feet of those that have ventured into this market was precisely the wrong response’.

Ray Noble, the REA’s PV specialist said that the cuts were 'far worse than anticipated. This industry has been strangled at birth.'

While the rates for on-farm anaerobic digestion have been raised by a few pence, Hartnell said the increase was insufficient to have a real market impact.

A solar facade at Derby Quad, UK (Source: SolarCentury.co.uk)

UK FIT Shouldn't Rob the Poor

There are voices in the UK that oppose a solar FiT. Some critics maintain that PV is an ineffective means of cutting CO2 emissions at the necessary speed and that funds should be directed towards other technologies. Others complain that passing on FiT repayments to all electricity billpayers — including low-income householders — is a means of 'robbing' the poor to fund the PV systems of the middle classes, and even big business.

It is this second argument that the UK government appears to be particularly sensitive to in a time of public spending cuts, especially the criticism that the FiT scheme as envisaged would support large business investors.

By now, one might think the recipe for a successful FiT is quite straightforward — there are plenty of examples of excellent, and not-so-excellent, FiTs to learn from. Policy specialist Eleni Despotou of the European Photovoltaic Industry Association says her organisation advocates sustainable support schemes with rational internal rates of return and foreseeable reductions, in order to avoid the stop-go policies that prevent sustainable market development.

Sustainable market development is certainly the key, if you're serious about growing renewables.