New FiTs rate jeopardise future of on-farm AD

FiTs regime
  • FiTs are paid to encourage installation of small-scale (5MW or smaller), decentralised, low-carbon energy systems
  • Administered by Ofgem and subject to annual tariff degression reflecting expected cost reduction in installation of new technologies over time
  • Once a system is installed and registered for FiTs, tariff levels are fixed and subject only to index-linking for inflation
  • Tariff reductions are triggered automatically once generating capacity reaches set levels
  • Solar photovoltaic FiTs rates from 1 April had already been fixed, with installations of 0-10kW and 10-50kW subject to an automatic reduction of 3.5%, while those larger than 50kW will remain unchanged.

Feed-in Tariffs (FiTs) rates for new hydro, wind and anaerobic digestion (AD) projects from 1 April have been announced.

While the reductions are lower than feared for some technologies, farm-scale AD plants are still threatened with a 20% rate cut despite the government promising in November to conduct a review of the sector for plants smaller than 500kW.

A consultation on this was supposed to be conducted in January and time was running out, warned Jordan Marshall of trade body the Anaerobic Digestion and Biogas Association. “It’s very important that the government takes urgent action to ensure on-farm AD projects are properly supported under FiTs – a 20% cut will severely undermine the growth of this sector,” he said.

A key flaw in the operation of the scheme was that projects that gain pre-accreditation in order to secure a certain FiTs rate were added to the deployment figures that determine by what level future rates are automatically cut.

As the FiTs regime enters its fifth year, hydro schemes will suffer lower FiTs rates cuts than feared, with new projects up to 2MW facing a 5% reduction in subsidy. Wind scheme support will also fall by 20%, triggered by an increase in capacity.

Overall, the levels of degression or reduction in FiTs rates were broadly in line with expectations and in some cases less severe than anticipated, said Nick Green of Savills Energy.

“With a stable rate of degression, payback time will only increase marginally; we’re talking a few years, rather than decades, with room still for good return on investment. As intended, the FiTs degression rate is likely to see only the best projects proceed.”

Developers would be looking at costs such as professional fees and perhaps challenging business rates in a bid to improve project margins.

“The hydro industry is now breathing a sigh of relief, in particular those who were unable to get their pre-accreditation applications in before the end of December,” said Mr Green, who currently has 15-20 hydro projects in the pipeline.

Hydro projects often had a two- to three-year lead, time but the consenting process was more transparent, so it was easier to see if a project was likely to go ahead, he said.

Lower wind tariffs would result in many low or average wind resource sites not proceeding and rents may start to come under pressure.

 FiTs rates on new installations from 1 April 2014   
Technology  Scale  Degression  FiTs rate (p/kWh) 
AD  0-500kW  20% (capacity trigger)  11.22-12.13 
AD  500kW-5MW  Unchanged  9.24 
Hydro  Up to 2MW  5%  11.86-19.20 
Wind  All  20% (capacity trigger)  3.32-17.32 
PV  0-10kW and 10-50kW  3.5% (automatic degression)  6.61-14.38 
PV  >50kW  Unchanged   6.61-10.71 

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