The viability of future solar photovoltaic projects hangs in the balance following government plans to slash support from this summer. Paul Spackman reports
Dramatic reductions to the financial incentive for solar installations over 50kW in size and a small increase to the payment for farm-scale anaerobic digestion (AD) have been proposed by the government.
The consultation published last Friday (18 March) is part of the fast-track review of Feed-in Tariffs announced by the Department of Energy and Climate Change (DECC) on 7 February. DECC is concerned current incentives for larger PV systems are too attractive and could lead to a surge in the number of field-scale “solar farms”, while existing rates for smaller AD units have resulted in disappointing uptake.
The current FiT payments for solar PV are 31.4p/kWh for 10-100kW systems and 29.3p/kWh for 100kW-5MW systems. However, DECC proposes cutting these tariffs and changing the payment bands to:
• 50-150kW systems: 19p/kWh
• 150-250kW: 15p/kWh
• 250kW-5MW: 8.5p/kWh
For a modest 900sq m solar roof rated at 100kW, this equates to a 42% cut in its generation tariff, while larger solar installations on rooftops or in fields would see a massive 72% reduction in support.
The consultation also proposes a small increase to FiT payments for farm-scale anaerobic digestion projects in an attempt to encourage uptake. Current FiTs for AD are 11.5p/kWh for systems smaller than 500kWh and 9p/kWh for systems over this size. DECC suggests changing these bands and payments rates to:
• <250kW: 14p/kWh
• 250-500kW: 13p/kW
“Current market indications are that a rapid increase in the number of larger solar installations entering the scheme could distort funding for smaller and domestic scale installations as well as other technologies,” the DECC consultation said. “Conversely, the current tariff levels have failed to spur a meaningful uptake for anaerobic digestion which means that this technology is not fulfilling its potential contribution to our energy mix.”
Figures suggest that between the launch of the FiT scheme last April and the announcement of the review, proposals for at least 10 solar PV farms between 250kW and 5MW have received planning permission and another 30 applications have been made. In contrast, only two AD plants have been accredited for FiTs and only one of those is sub-500kW.
The consultation sparked a fierce response from industry organisations and the NFU. The Renewable Energy Association said the coalition government was making a “horrendous strategic mistake” with its plans to slash rates for solar.
Chief executive Gaynor Hartnell said the economies of scale from larger PV projects played a major role in driving down costs. “We don’t want boom and bust in this sector either, but pulling the rug out from under the feet of those that have ventured into this market was precisely the wrong response.
“The UK will return to the solar slow-lane. It’s as good as a retrospective change and that does untold damage to investor confidence. It’s not acceptable and we will fight it.”
NFU chief renewable energy adviser Jonathan Scurlock said the plans were an “ill-judged slash-and-burn decision” that sent an extremely damaging message to investors in UK renewable energy.
“We are horrified to see solar electricity incentives snatched away from our farmers and growers, many of whom have invested substantial amounts of their own project development money in good faith.
“The fast-moving international solar industry will be driven from Britain, and the government will struggle to decarbonise power generation without the confidence of investors in land-based renewables. The timing could hardly be worse – this is a ghastly strategic mistake.”
Many solar projects could effectively be rendered unviable, Miles Thomas at Savills warned. Solar PV was a proven, reliable technology particularly suited to larger rooftop schemes and more complex solutions would now have to be found, he said.
Knight Frank‘s Oliver Routledge added: “We understand the potential impact of large ground-mounted schemes absorbing a disproportionate amount of the £360m tabled for 2014-15, however, it is very disappointing that returns for roof-mounted schemes over 50kW have also been targeted.
“A large number of our clients have agricultural roof space which lends itself to schemes up to 200kW. Sadly these schemes are likely to be reduced to 50kW, which is a loss both for these landowners and the nation in terms of renewable energy targets. In our view, it is exactly these sorts of schemes that should be incentivised.”
Steve Edmunds, director of Mole Valley Renewables, said: “Agriculture has the ability to be a major provider of renewable energy and to do so in a safe, “low impact” way while having little effect on food production. The new proposals at least give some support to systems over 50kW up to 250kW although at much lower levels now which will reduce the level of interest.”
‘Meagre’ increase for AD
The proposed increase in tariffs for anaerobic digestion was also less than the industry had wanted. Many industry experts had suggested a tariff of closer to 18p/kWh was needed to drive small-scale deployment of AD, somewhat higher than the 1-2p increase that has been put forward.
Ms Hartnell said the “meagre” increase was unlikely to provide the boost needed for farm-based AD. “That’s a missed opportunity, as methane emissions from agriculture can be reduced by on-farm biogas plants.”
Country Land & Business Association president William Worsley agreed. “The additional penny a kilowatt proposed is not enough to make a significant difference to the numbers of farm-scale plants coming forward.”
Lucy Hopwood, head of biomass and biogas at the National Non-Food Crops Centre, was a little more optimistic though. She suggested a 10% increase in the value of the power output, either in electricity market terms or as an incentive, could increase the Internal Rate of Return (IRR) by 2-3% on a small-scale plant, typical of a UK dairy farm.
“This 2-3% may not sound like much but it can be the tipping point between a potential developer investing in anaerobic digestion or an alternative technology or business opportunity.”
At the larger end of the scale, around 0.5MW, the increased tariff was also likely to put a couple of percentage points on potential returns, Mr Thomas said. “This may make all the difference.”
Energy crop concerns
The consultation document also reiterated government concerns about the use of energy crops in anaerobic digestion – as highlighted in the recent Renewable Heart Incentive launch (Farmers Weekly, 18 March). It recognised such crops were often required in combination with slurries, but said it did not want to encourage energy crop-based AD.
“We note concerns that an increase in FiT tariffs for farm-scale anaerobic digestion would lead to wholesale expansion of the diversion of land and food to energy crops. This is not the intention of the proposed tariff changes and the government will ensure that any necessary controls are put in place to ensure that this does not happen.”
But Mrs Hopwood said there was still a place for crop material in AD to boost energy output, despite the government’s cautious attitude. “It is very much a case of crops being acceptable ‘in the right place, at the right time’ with no blanket policy to include or exclude them from the mix.”
What happens now?
The deadline for responses to this consultation is Friday 6 May 2011 and any changes could take effect from 1 August this year, subject to the outcome of the consultation and Parliamentary approval.
The government said it would not act retrospectively and any changes to generation tariffs would only affect new entrants to the FiT scheme. Installations already accredited for FiTs at the time would not be affected.
The consultation can be found on the DECC website, www.decc.gov.uk – click on “Consultations” then “Open consultations”.
Have your say
Are you considering investing in a solar or AD project? If so, we’d like to know what the proposed Feed-in Tariff changes could mean for your plans – is it still worth pushing ahead, or has the recent announcement made projects unrealistsic? Tell us at www.fwi.co.uk/forums or email email@example.com