With the U.K. government set to degress Feed-In Tariffs (FiT) for renewable energy generation from March 2016, it is critical that companies act now to secure beneficial subsidy payments. The implications of those subsidy changes for the anaerobic digestion (AD) industry spell a potentially significant loss for operators.
In 2010, the U.K. government introduced FiT subsidies to help increase the level of renewable energy produced by the country as it works towards the legally binding European Union target of 15 percent total energy from renewables by 2020. The scheme outlined that renewable generation systems, up to a capacity of 5 MW, were eligible for financial support for producing green energy, helping to drive long-term investment in the sector.
A member of the CooperOstlund team inspects a CHP gas engine. Credit: CooperOstlund.
Since then, the subsidy program has been hugely successful. In 2014 alone, the AD industry installed 89 new plants in the U.K., with the entire industry now exceeding 500 MW of total capacity across 411 plants around the country. In 2015, statistics have shown that 22 percent of energy is now produced by renewables – a significant contribution towards international targets.
Unfortunately, with greater than expected uptake, the FiT scheme has come at a huge capital price and the government admits that spending on clean energy support can’t continue forever.
In fact, as part of long-term measures to keep budgets under control, a subsidy degression mechanism was recently introduced. Simply, this aims to automatically reduce the level of funding support available to new projects once a certain level of deployment is reached. Within the latest review, the decision was made to cut expenditure on the FiT scheme to between £75 million and £100 million ($107.7 million and $143.6 million) from January 2016 to 2018/19 – a hugely disappointing move for the industry.
For the AD sector specifically, financial support for sites in the U.K. will significantly decrease. In fact, from March 2016, the tariff for facilities under 500 kW will reduce from 10.54 to 9.36p/kWh, while facilities greater than 500 kW will drop from 9.16 to 8.68p/KWh. Although this doesn’t look like a great degression on paper, economies of scale show a huge loss for operators.
Fortunately, the government has backtracked on its decision to remove preliminary accreditation – which would have seen AD sites unable to freeze FiT rates while under construction. This decision means that facilities will continue to have 12 months in which to complete building work, with subsidies guaranteed at the level in place when construction started, not when finished.
A member of the CooperOstlund team replaces a CHP engine air filter. Credit: CooperOstlund.
While positive news, degressions happen every three months. Therefore, it is very clear that any business looking to develop AD sites in the U.K. should start construction work and secure beneficial subsidy rates before they are cut further.
But, while acting quickly to secure beneficial FITs rates is key, it is also important to make informed choices when it comes to specifying AD technology. Protecting against downtime should be the key priority. However, being at the end of the process, engine choice is often made quickly with limited thought to the best long-term solution. For instance, in many cases two engines are better than one – giving the financial protection that if one engine breaks down, you will still generate energy and continue to make money.
Indeed, while securing the highest FiTs rates is important, government subsidies shouldn’t be seen as the be all and end all – they will, after all, come to an end. Generating and self-consuming renewable energy is not only hugely beneficial from an environmental perspective, it can also significantly reduce bills and therefore minimize overheads – a much stronger long-term commercial benefit. By looking towards experienced AD service providers and finalizing projects in tight timescales, safeguarding beneficial FiT payments and making the most of renewable energy in the long-term is a much easier process.