Making Feed in Tariffs Work

Size: px

Start display at page:

Download "Making Feed in Tariffs Work"

Michael Hicks
5 years ago
Views:

1 Making Feed in Tariffs Work A Solar Trade Association Policy Paper August 2016 Overview The Feed-in Tariff (FiT) is not working for the solar industry. In some FiT bands the quarterly deployment caps are too low, constraining meaningful markets. In other FiT bands the tariffs themselves are too low to stimulate investment. This is damaging the industry and its potential to drive down costs in future. We therefore propose a series of logical improvements to the scheme that we would like to see enacted via a consultation in autumn We believe these improvements can help restore healthy functioning of the FiT scheme and support a meaningful solar industry in the UK, goals we hope the Government shares. These improvements come at little extra cost but leverage potentially very large investment. The two key objectives of our improvements are to: Develop a meaningful commercial rooftop market Previously identified by government as a strategic area of focus, with lots of cost-effective deployment potential, the current caps limit commercial bands severely. The capacity caps for the >50kW band must be increased. The increase can be part-funded by redistributing savings gained to date from sharper-than-expected tariff degressions against the budget to increase capacity in the >50kW band. This would be a one-off quarterly volume top-up at no extra cost. Remove unnecessary barriers Removing barriers to deployment such as the inhibitive EPC requirement and guaranteeing seamless eligibility for FiTs at the next available tariff would make the system simpler for installers, at no extra cost. Summary of Feed in Tariff Policy Asks - highly relevant, - relevant <10 kw 10-50kW >50 kw alone One-off emergency cap top up of 70MW at no extra cost Increase caps by 3x from Q1 2017, rising to 5x by Q (cost of around 6.1m, see impact assessment) Monitor deployment levels, allowing for tariff increases where required Lower degression rate from 10% to 5% Change energy efficiency requirements to match RHI scheme Re-introduce extensions to be made eligible for FiTs Guarantee eligibility and seamless accreditation in next FiT when cap is reached Extend pre-accreditation from 6 months to 12 months Introduce pre-accreditation for the 10-50kW degression band Publish near real-time information on progress towards caps Base deployment reporting on FiT applications, not MCS certificates 1

2 Commercial rooftop solar potential Using Ofgem data, it is estimated that there was 450MW of >50kW solar across 2,000 rooftop installations as at the end of December Commercial deployment therefore represented only 4.5% of the estimated 10GW total cumulative UK capacity at this time. The government previously encouraged a refocus on this sector for good reason; two thirds of electricity demand is used in the industrial and commercial sectors and, with self-consumption upwards of 50%, this is a highly efficient application. Many solar companies including Engineering Procurement & Construction companies (EPCs) consequently redirected their resources to the commercial segment, developing their expertise and market offer. With the ~ 72% drop in tariff, and the introduction of a stringent cap, the market is now struggling and few projects are coming through. Breaching the cap is not an indicator of market vitality, as the cap has been set too low. Our members have indicated that many of the pre-accredited September 2015 projects were never built out within the 6-month window, suggesting actual deployment is even lower than the official data presents. Solar is a sector which needs volume markets to deliver cost reductions, to secure jobs and to deploy in line with the CCC s 40GW of solar modelled under their high renewables scenario by The technical potential of commercial rooftop solar is vast. A Kingspan study in October 2014 showed there are 2,500km 2 of south facing commercial rooftops in the UK. This equates to 382GW of solar, but the technical potential is far higher if east and west roofs are considered. 3.4% of domestic homes currently have solar. If the commercial sector was to match this domestic percentage of solar deployment, it would take over 200 years to achieve at the current constrained cap of 60MW/year. Put another way, we would need a run rate of 919MW/year from 2017 to 2030 to achieve just 3.4% solar on commercial rooftops. Since the changes to the FiT scheme in January there has been a 78% drop in the average quarterly deployment for <50kW compared to , i.e. we are installing 1/5 of the rooftop solar we were last year. Rooftop solar PV deployment under Feed-in Tariff MW >50 kw >10-50 kw >0-10 kw Q1'15 Q2'15 Q3'15 Q4'15 Q1'16* Q2'16 Q3'16 (to 16 Aug) Old FiT regime New FiT regime *Q1'16 only showing deployment under new FiT regime (since 15 Jan) 1 Average quarterly deployment for all solar <50kW in 2015 was 228MW compared to 50MW in Q1 and Q

3 Why do severe caps damage commercial rooftop solar markets? Feedback from the industry demonstrates there are many limitations of overly-stringent caps: 1. In absolute terms caps can simply be set too low. 15MW/q, or 60MW/year is an outright volume cap per year. Many larger companies contributed to a 1,500-2,500MW/year market in recent years. This very significant drop in forward volume is insufficient to sustain the sector, hence the near 80% drop in job losses for some of these organisations. 2. Low volume caps mean rapid degression. Breaching current caps results in 10% quarterly degressions across all future tariffs. We anticipate that caps will be breached in each of the next quarters. By April 2017, therefore, the >50kW tariffs will be 40% lower than the original tariff. This rate of degression is too steep to sustain the market. 3. Loss of market weakens companies and ability to drive sales. With the loss of all support schemes bar FiTs, companies must downsize significantly to reduce overheads. Volume drives jobs; capped and constrained volume reduces demand and jobs are lost. With budgets and staff significantly reduced, there is a lost push to market rooftop solar. 4. Commercial rooftop owners are deterred. The investment decision process for business owners is typically up to one year, which is very difficult to tally with the current scheme for many reasons: The 72% drop in tariffs, and a low volume cap with regular 10% degression Inability to predict which tariff they can use to model returns No guarantee of eligibility to the FiT if you miss the quarterly volume & join the queue Limited information on where you stand in the queue Possibility that spill across multiple caps means stacks of queues for eligibility Unwillingness to take degression or queue risk (unacceptable to pass to installer) The sheer loss in scale and ambition for the rooftop solar market Many barriers still remain in place e.g. landlord/tenant, EPC D etc. 5. Loss of volume stalls cost reduction. Theoretically, commercial rooftop solar should be one of the first sectors to reach socket parity, given high self-consumption. Volume is essential to achieve the economies of scale & investment needed to reach that goal. Raising the caps - what is the STA asking for? Whilst the STA membership has deep concerns about the cap mechanism for the reasons outlined, we accept the need for Treasury to control the overall expenditure on subsidy schemes. But it is a question of balance; raising the caps to support more healthy market function, while meeting the cost-control needs of the Treasury would be wise. Given current degression trajectories, the alternative risks further decline. We therefore advocate the following measures: 1. A one off increase in the >50kW quarterly cap volume for Q3 as a top-up based on the recycled underspend from the overall solar pot as proposed in DECC s consultation response in December Based on the savings within the scheme to date from degression in the >50kW and the stand alone bands, this would allow 70MW to be added for the 3q 2016 caps at NO additional spend beyond the existing maximum solar spend. 3

4 3. This immediate boost in volume would mitigate further short term degressions in this important band, allaying the immediate concerns of commercial rooftop owners. 4. There are no proposed cap increases or decreases, or transfer of underutilised volume from the <10kW or the 10-50kW bands, however the small savings to date from the automatic degression are included in the 70MW top-up. 5. A sustained increase in the cap volume is essential in the >50kW band thereafter. We calculate 6.1m would be needed for a 3 fold cap volume increase from 1q17, rising to a 5 fold increase by April This forward visibility should attract investors, solar installers and commercial rooftop owners back into the market. These measures are discussed in more detail below. Policy asks for the Feed in Tariff scheme The STA regrets the extent of the changes made to the FiT scheme, which have resulted in a very substantial drop in deployment and made forward planning for business under a capped scheme very difficult. The changes we recommend to the new scheme are discussed in greater detail below: Adjustment to caps 70MW to be added for the 3q 2016 >50kW caps at no overspend to the existing maximum solar budget, based on the savings within the scheme to date from degression in the 2 bands. The mechanism for 50kW+ solar isn t workable and cannot drive a meaningful rooftop market in the UK. The volume cap for the >50kW degression band must be increased in 1q17 by a 3 fold increase, rising to a 5 fold increase by April See budget impact assessment. The contingent degression rate (if the quarterly cap is reached) at 10% is too high it should be reduced to 5% for all bands. This would not cost the scheme anything, but would reduce the potential drop in tariff from 40% in a year to 20%. BEIS must monitor deployment levels for those bands which look like they are failing and allow for those tariffs to be paused or even increased when required. We suggest assumptions on percentage of self-consumption and electricity prices are revisited. Removal of barriers to deployment The EPC requirement should be changed to match the RHI scheme the removal of the green deal for the Renewable Heat Incentive is designed to stimulate the market and the same should be applied to FiTs. Under a capped scheme there is no longer a concern of over spend for the LCF. Furthermore, the introduction of the requirement to hold an EPC prior to the commissioning date is an unnecessary new barrier, particularly for new build. Matching the RHI scheme s requirements for cavity wall and loft insulation would streamline this administrative process and remove red tape. Allow eligibility for extensions to existing FiT installations again many companies wish to extend existing projects as they have additional funds available, have become comfortable with the risk and lower returns, and also their on-site self-consumption has changed. Preventing extensions to existing projects is an unnecessary barrier and companies should be rewarded, not penalised, for their early adoption. When the cap is reached installations should be allowed to continue seamlessly to accredit at the next available tariff, albeit that their tariff start date will be delayed until the quarter in which they 4

5 can be accepted into the scheme. There needs to be a guaranteed eligibility for all applications providing sufficient quarterly caps are maintained to March Extend pre-accreditation from 6 months to 12 months to improve decision making for large projects or portfolio projects Pre-accreditation should be introduced for the 10-50kW degression band Administrative changes The biggest barrier resulting from volume caps is the difficulty this presents installers in accurately informing prospective customers what tariff they will be eligible for, and therefore what return they can expect to receive. A requirement should be placed on Ofgem to publish near real-time information on progress towards quarterly caps, which would go some way towards alleviating the difficulty in predicting the tariff a project will receive. For <50kW installations that apply through the MCS database, there is evidence e.g. under new build, that a significant share of projects do not go on to apply for FiTs, yet they are still recorded in the data and still count towards the cap. The accounting should be changed such that only capacity that applies for FiTs counts towards the cap. Ofgem should be given additional resources to allow the accreditation period under FiTs to be significantly reduced. In March 2016, Ofgem admitted that there was a backlog of 2,500 installations awaiting full accreditation under Fits. We ask for BEIS to implement an appropriate and fair process for the six monthly reallocation of underspend in the FiT budget. 5

6 Impact Assessment Cost impact for one off increase in 3Q16 >50kW cap by 70MW: We have used the actual deployment of 27MW in 2q16 for the <10kW band, 10MW for the 10-50kW band and >14.5MW for the >50kW band, causing a 10% degression in the >50kW band only. The net savings across the solar budget are 3.5k. Caps using estimates in yellow to 3Q16 and proposed new cap in orange for 3Q16 1Q16 2Q16 3Q16 4Q16 1Q17 2Q17 3Q17 4Q17 1Q18 2Q18 3Q18 4Q18 1Q19 <10kW kW >50kW alone Cost impact of proposed changes net impact saving 3.5k By year 1q16 16/17 17/18 18/19 Total <10kW 1,040, ,943 4,515 4,524 60, kW 346, ,269 1,650 1,685 18, kW 130, , , , , kW - 30, ,840-23,418-22, ,577 > 1000kW - 10,041-90,386-6,125-3, ,139 alone 0 25,552 23,154 12,223 60,930 Total 1,476,604-2,087, , ,204 3,405 Cost impact for increased caps in 1q17 by a 3 fold increase, rising to a 5 fold increase by April 2019: The same deployment assumptions have been considered as above. We have increased caps in 1q17 3 fold, rising by 0.25 per quarter up to a 5 fold increase in 1q19. Net increase in solar budget is 5.8m. Caps using estimates in yellow to 3Q16 and proposed new caps in orange for 3Q16 to 1q19 1Q16 2Q16 3Q16 4Q16 1Q17 2Q17 3Q17 4Q17 1Q18 2Q18 3Q18 4Q18 1Q19 <10kW kW >50kW alone Cost impact of proposed changes net impact costing 6.1m By year 1q16 16/17 17/18 18/19 Total <10kW 1,040, ,943 4,515 4,524 60, kW 346, ,269 1,650 1,685 18, kW 130, ,350-1,678,020-2,417,922-4,865, kW - 30, , , ,006-1,139,578 > 1000kW - 10, ,653-96,286-75, ,948 alone 0 25,552 23,154 12,223 60,930 Total 1,476,604-2,555,957-2,116,573-2,962,464-6,158,391 6

REA response to DECC Consultation on changes to financial support for solar PV

REA response to DECC Consultation on changes to financial support for solar PV Part A: Controlling spending on large-scale solar PV within the Renewables Obligation Part B: Promoting the deployment of