The UK government’s recently announced feed-in tariff (FIT) is a positive step for domestic renewable energy, but lessons learned from US efforts will be key to not only successful implementations but also managing expectations from the start, according to Gartner analysts.
February 11, 2010 – The UK government’s recently announced feed-in tariff (FIT) is a positive step for domestic renewable energy, but lessons learned from US efforts will be key to not only successful implementations but also managing expectations from the start, according to Gartner analysts.
Key factors in the incentive program include:
- A FIT for small-scale low-carbon electricity, finalized for introduction on April 1, with linked tariff levels index;
- Power from solar panels could earn £900, on top of a £140 reduction on a household’s energy bill [IMS Research distills this as up to 41.3 pence/€0.47 per kWh for systems up to 5MW];
- A blueprint published for a novel incentive scheme for renewable heat, including a pilot combining heat and power.
The table below details the FIT, calculated for a return-on-investment (ROI) of 5%-8%.
|Tariff levels for electricity financial incentives. (Source: Gartner, Department of Energy and Climate Change)|
The UK’s efforts at a FIT program would be well served to take notes from several state and federal policies in the US, note Gartner analysts Jim Hines and Alfonso Velosa, in a research note. From a practical standpoint, state policy (led by California) has driven renewable energy adoption; with no comprehensive federal policy, individual states have been developing their own standards for utilities, distributed generation/interconnection, and financial incentives, resulting in a nationwide patchwork of policies and subsidies.
In the past 18 months or so, though, the US government has enacted legislation to increase solar energy investments and support solar power development. Among these was to extending a 30% investment tax credit for eight years and expanding it to include utilities and larger residential projects (though these changes were made at the last minute before the original plan was to expire, causing confusion and uncertainty and project delays). Another factor was the “stimulus package” which included several provisions benefiting the solar power sector, but the sheer size and magnitude of the stimulus has caused administrative overhead and even more delays and confusion. “The unintended consequence of government action was to create an environment of uncertainty in which investment decisions could not be made with confidence,” the analysts write.
As the UK government looks to nurture the growth of its own renewable energy sectors, it should apply policies consistently over a long-term horizon, spelled out clearly to those within the sector (end-users, developers, investors, and vendors), the analysts suggest. Such a policy should feature:
- Interconnection standards, to enable timely connection of distributed generating assets to the grid;
- Fair compensation for energy supplied to the grid, through net-metering or a FIT; and
- Market-based financial incentive to buy down the cost differential between renewable and conventional energy sources.
Establishing and then implementing a comprehensive policy in a consistent, predictable fashion will provide adequate visibility on rates of return for renewable energy projects, the analysts advise.