Guidance Note for CLA members

Guidance Note for CLA members Feed in Tariff (FIT) for Solar Photovoltaic (PV) Installations Date: 10 February 2015 CLA Guidance Note Reference: GN11-15 Introduction The Feed in Tariff (FiT) scheme was introduced in April 2010 to support the installation of small scale, low carbon electricity generation technology up to capacities of 5 MW. Under the scheme solar photovoltaic (PV) panels that generate electricity have been and remain extremely popular with nearly 91,000 separate installations accredited by the end of 2014. As a result of the rapid growth seen in the PV industry various Government reviews of the scheme have been carried out resulting in significant changes since its launch. This guidance note provides an overview of how the FiT scheme works for PV following the changes. This guidance primarily relates to and considers how the FiT scheme applies to roof mounted schemes although much of the information is equally applicable to small ground mounted schemes. Anyone considering large scale ground mounted scheme should refer to the CLA Guidance Note on Solar Farms. Background When the FiT was first introduced in 2010 the tariffs were significantly higher than they are in 2015. This led to a rapid and unexpected expansion of the PV sector and threatened to exceed the schemes allocated budget. As a result government carried out a series of emergency reviews which reduced the generation tariffs available to PV to manage the schemes budget as well as introducing a series of changes. Despite the substantial reductions in the incentives paid for PV technology, good returns can still be achieved as panel costs have also reduced significantly over the past few years. Since the changes have been finalised and implemented the roof mounted PV sector has seen more stability. The lower panel costs have also benefitted consumers by allowing many projects to be more easily financed. Other changes to the scheme have included a system of preliminary accreditation for projects over 50kW capacity which provides greater project certainty for larger projects which take time to implement. The best rates of return are achieved by installations which can use the power generated to directly displace existing electricity use. For example PV installations on cold stores or any other building where there is high electricity consumption during summer daylight hours can have paybacks of fewer than 6 years. Page 1 of 11

Benefits of PV Under the Feed in Tariff PV panels offer a range of benefits to the owner of an installation including: A government guaranteed, index linked income for 20 years. Reduction in energy costs Generate an income from sale of energy Opportunity to become more self sufficient in energy reducing risk of future price rises Environmental benefits from emissions reduction Potential improvement in energy performance rating of buildings to help meet future legislation PV has been the most popular technology to install under FiTs for a number of reasons including: Relatively low capital cost when compared to other technologies e.g. wind, hydro Ease of planning PV on roof tops can benefit from permitted development (see CLA Guidance note GN14-01 PDR Non Domestic Microgeneration) Applicable to many locations nationally Flexible and versatile technology Passive technology with no mechanical parts so low maintenance requirements Consistent and reliable outputs achievable year on year Many installers and suppliers so relatively well tested and available How does FiT work? Although this guidance focuses solely on PV, the FiT supports the installation of the following renewable energy technologies: Wind Solar photovoltaic (PV) Hydropower Anaerobic Digestion (AD) Rather than providing a grant towards the capital cost of an installation as previous incentives scheme have, the FiT provides an ongoing income for renewable electricity generated and is available to both domestic and non-domestic customers. The FiT is split into two different payment tariffs: 1. A generation tariff paid for all the electricity generated by an eligible installation no matter how that power may be used. 2. An export tariff paid in addition to the generation tariff for any electricity exported to the grid. In addition to the incentive which is paid, a PV system will in most cases displace a proportion of a buildings energy use and so reduce the energy bills of the building to which it is attached. Page 2 of 11

A basic worked example of how the income for a PV system could accrue is shown in appendix 2 of this note. The income from FiT payments for domestic microgeneration is generally tax free for individuals where it is mainly supplying power to a home, but is taxable income for businesses. Generation Tariff The generation tariff is paid for every kwh of electricity generated by the PV system (as measured by a generation meter) whether it is used on site or not. The generation tariff is index linked and is paid for 20 years from the date of accreditation to the scheme. Once accredited the rate of generation tariff is fixed for the 20 year life time of the scheme and will not change accept for adjustment in line with RPI on 1 st April each year. The generation tariff is banded according to the scale of the installation based on the total installed capacity i.e., the larger the system the lower the tariff rate paid. The bands are as follows 0-<4kW >4-<10 kw >10 kw-<50kw >50kW-<100kW >100kW-<250kW >250kW There is also a separate band for standalone solar panels which are defined as panels which are not wired to provide power to a building. The tariffs and bands available are shown in appendix 1. The tariffs bands for systems in excess of 50kW are due to be subdivided into tariffs for ground and roof mounted systems from April 2015 with differentiating tariff rates as a means of encouraging roof mounted sites. Export Tariffs The export tariff is paid for any electricity exported from the generator back to the grid. Export tariff is paid at a fixed rate which is index linked being adjusted on the 1 st April each year. The export rate under FiT is now 4.77p/kWh for installations with an eligibility date after 1 st August 2012. To claim the export tariff systems in excess of 30kW capacity will need to have installed a suitably certified export meter to measure the energy exported to the grid. For systems of less than 30kW capacity, the cost of additional export metering was considered to be prohibitively expensive compared to the level of payments that would be received for exported energy. Instead it was decided to use a system of deeming to estimate the quantity of electricity exported to the grid. This means that currently for systems under 30kW capacity it is assumed that 50% of the electricity is used on the site and the rest is exported back to the grid. For systems under 30kW the export tariff is therefore paid for 50% of the output of the panels no matter how energy is actually being used on site i.e. even where 100% of the power may be consumer on site a payment for exported power will still be made. Page 3 of 11

Even for systems over 30kW capacity the additional cost of metering and ongoing admin may mean that export metering does not make economic sense, particularly where a large proportion of the electricity will be used on site. For larger systems (typically over 100kW) it is also possible to sell the electricity generated on the open market through a Power Purchase Agreement (PPA) rather than through the FiT scheme. Larger generators who export a large proportion of what they generate may be able to negotiate prices above the export tariff provided by the FiT. Generators are free to switch between claiming the FiT export or a PPA with a supplier once a year (subject to individual contract arrangements with suppliers). It should also be noted that suppliers may apply a charge for administrative costs for any export payments which should be taken into account. Appendix 2 provides a number of worked examples to demonstrate how the FiT works for different scales of roof mounted system and approximate costs and paybacks. How is the FiT paid and funded? The tariff is paid to generators (quarterly) by a FiT Licensee which is typically the generators energy supplier although a generator is free to apply to any FiT licensee and need not use their own energy supplier. FiT is funded by a levy on all consumers energy bills. The levy that can be applied to consumer bills is capped and limits the budget available for the scheme. The scheme is administered by Ofgem. The tariff levels vary according to technology and are banded within each technology according to the Total Installed Capacity (TIC) of an installation. The tariff levels are set according to the expected cost and payback of installing each technology at different scales and are index linked being adjusted with effect from 1 st April each year. Tables of tariff levels are published quarterly on the Ofgem website with the latest table for PV included in appendix 1. Applying for FiT Accreditation Microscale generating systems of less than 50kW capacity apply for accreditation directly through a FiT licensee who is usually the existing energy supplier. A full list of FiT licensees can be found via the following link http://www.ofgem.gov.uk/sustainability/environment/fits/rfitls/pages/rfitls.aspx Both the installation and the installer will need to be Microgeneration Certification Scheme (MCS) certified in order for an installation to qualify for FiT. MCS provides a list of accredited installers and equipment on their website http://www.microgenerationcertification.org/ For systems larger than 50kW capacity application is through the ROOFIT accreditation process via the Central Renewables & CHP register. This is administered by Ofgem and can be accessed via https://www.renewablesandchp.ofgem.gov.uk/ More details on how to apply can be found via http://www.ofgem.gov.uk/sustainability/environment/fits/apply/pages/apply.aspx Page 4 of 11

Applicants should be aware that there can be significant delays between accreditation, submitting of generation meter readings and receiving payments, often more than 60 days. This can vary between FiT licensees and anyone installing a system using bank finance or loans should consider how any delay in payment could affect their ability to make any repayments. Tariff Degression Due to the rapid expansion of the solar industry and concerns of budgetary over spend, in 2012 Government introduced a system of budgetary management for PV under the FiT called degression. This is a system that enables the generation tariffs available to new installations to be reduced and ensures that the technology is delivered at reduced cost overtime. Tariff reductions as a result of degression have resulted in lower income from FiTs, however, panel costs have also fallen dramatically over the same period and so returns have remained relatively consistent. Under the degression system the deployment of PV and FiT expenditure are reviewed against government targets on a quarterly basis. Where deployment is considered to be exceeding the target level of deployment a tariff reduction can be implemented. If the need for a tariff reduction is identified any changes to tariffs will be announced two months in advance of any tariff reduction coming into effect. Tariff reductions can be implemented on 1 st January, 1 st April, 1 st July, 1 st October each year. i.e. a reduction in the tariff from 1 st January would be announced on 1 st November the previous year. If deployment is analysed as being below target level degression can be overlooked and tariffs will remain the same. However, to ensure costs continue to be driven down degression also requires that tariffs are reduced at least once per year so that tariffs will be reduced every third quarter whether or not deployment is above or below expected levels. If degression is triggered in PV the minimum level of tariff reduction which can take place is 3.5%, although higher rates can be applied if deployment is significantly higher than expected. Since the introduction of degression tariffs have remained relatively stable with only base level tariff degression when it has been required. The table in appendix 1 shows the rate of tariff available up to 31 st March 2015 as well as the rates over previous months. It should be emphasised at this point that once accredited the tariffs provided to a generator are fixed for 20 years and will be unaffected by degression. Once accredited, the tariffs will be adjusted in line with RPI from 1 st April of each year. The real risk from degression is therefore during project planning stages and prior to an installation being accredited. Those planning a project should make themselves aware of the dates degression can be applied and its likely affect. In particular assurance should be sought form an installer that a system can be installed and application to the FiT achieved prior to any degression date. Energy efficiency requirements Energy efficiency is a key aspect of the Governments energy policy. As such energy efficiency criteria have been introduced to the FIT for PV installations as way to drive improved efficiency in buildings and to ensure that the FiT delivers best value for money. Page 5 of 11

Since 1 st April 2012 PV generation tariffs have been split into a higher and lower level of tariff. Installations which will be providing electricity to a building need to have an EPC level D or above in order to receive the higher rate of tariff. If the building does not have an EPC at level D at the time of accreditation then the lower rate of generation tariff will be applied. Directive 2002/91/EC on the energy performance of buildings defines building as a roofed construction having walls, for which energy is used to condition the indoor climate; a building may refer to the building as a whole or parts thereof that have been designed or altered to be used separately. This means some agricultural buildings which do not have heating or ventilation may be exempt from the EPC requirements. However, if an installation, for example, on a barn roof is connected to a building requiring an EPC e.g. a house then the generator will need to have an EPC level D for the house in order to receive the higher rate of tariff. For systems supplying multiple buildings only one of the buildings needs to achieve EPC level D in order to be eligible for the higher rate of generation tariff. For listed buildings the energy efficiency requirements still apply and will likely be difficult to achieve given the constraints to making changes to listed properties resulting in a lower rate of generation tariff being available with projects becoming less viable. The EPC needs to be at level D at the time of application to the FiT scheme. It is therefore sensible to have the EPC assessment carried out taking into account the PV system, but before accreditation to the FiT scheme. This way any improvement in the buildings performance as a result of the PV system is reflected in the EPC rating. i.e. a building at EPC level E before PV is installed may reach level D after the installation without any further measures being required. Be careful to ensure that the building will achieve EPC level D after the installation to ensure that the best rate of FiT is achieved and that the building is at level D prior to applying for accreditation. Once accredited to FiT at level E or below this cannot be changed. Most installers will be able to provide an indication of the likely EPC rating of the building prior to undertaking a project. The EPC requirements do not apply to installations in excess of 250kW capacity. Preliminary Accreditation Preliminary accreditation has been available since 1 st December 2012 in recognition that tariff uncertainty caused by degression could prevent larger projects with long implementation times from proceeding. Preliminary accreditation allows those planning projects in excess of 50kW capacity to pre accredit to the FiT and lock into the level of tariff they will receive thus reducing the risk of tariff rate reductions. In order to be eligible for preliminary accreditation an installation needs documentary evidence that it has been granted planning permission and a grid connection agreement. Documentation must be dated on or before the date the application is submitted. Installations granted preliminary accreditation which successfully go on to receive full accreditation will have their tariff guaranteed at the date the preliminary accreditation was Page 6 of 11

submitted to Ofgem i.e. any degression will not apply to pre accredited installations. The eligibility period will still begin from the commissioning date of the installation. The guaranteed tariff provided under preliminary accreditation is valid for 6 months for PV. Applications for pre accreditation received between 1 st January and 31 st March each year will be assigned the tariff available at 1 st April that year. All other applications for preliminary accreditation will be assigned the tariff appropriate at the time of application. If an installation is likely to be installed between January and April it achieving preliminary accreditation by 31 st December may result in a higher FiT rate. Energy efficiency requirements for PV installations are not assessed in the pre accreditation and will still apply. Also if there are any material changes to the installation then the tariff guarantee will not apply. Extensions In 2011 DECC took action to close a loop hole in the FIT legislation which allowed extensions to PV installations to receive higher rates of FiT than an installation of the same size installed in one go. The new rules surrounding extensions are best summarised in the DECC response to a 2011 consultation as below: For extensions to PV the tariff for the original installation (excluding the extension) will remain unchanged, but, once it has been commissioned and accredited, the extension will be given a separate Tariff Code and have a different Eligibility Period. The tariff for the extension will be based on the aggregate total installed capacity of the original installation and the extension and on the tariff rates applicable at the eligibility date of the extension. In this way, developers can still choose to extend an installation but the tariff assigned to the extension will be the current tariff, rather than the tariff at the time the original installation commissioned. 2015 Changes DECCs Solar PV Strategy published in 2014 has indicated government s intention to try and focus the industry away from ground mounted PV arrays and onto larger scale roof mounted systems. As such government are looking at ways to reduce the barriers and encourage the greater uptake of roof mounted schemes. One change has been to split the tariff for >50kW installations into two separate bands for ground and roof mounted PV installations. This change has been confirmed and will be implemented from 1 st April 2015. This will likely result in the tariff available for ground mounted schemes being reduced at a faster rate, but may slow the rate of tariff degression for roof mounted schemes. Additionally the FiT legislation has been changed to allow PV panels mounted at one location to be removed and remounted at another site whilst maintaining FiT eligibility. This was not possible previously and was thought to act as a deterrent to companies installing panels on buildings which they were renting. It is not clear how useful this change will ultimately be although it does increase the flexibility of the scheme Finally Government also consulted on proposals to increase the area of panels that can be installed under permitted development rights (See CLA Guidance note GN01-14) from 50kW up to 1MW. Although this has not yet been confirmed it would remove some costs and barriers to Page 7 of 11

the installation of larger schemes in excess of 50kW and, accordingly, the CLA would encourage such a move. Summary FiT provides an index linked income for 20 years from date of accreditation. Currently PV typically pays for itself within 8-10 years although higher returns can be achieved in buildings with high day time energy use Tariffs are reducing for new accreditations EPC level D is required for any PV installation supplying electricity to a relevant building. Systems over 50 kw TIC can apply for preliminary accreditation which will guarantee a tariff rate for up to 6 months. Current generation and export tariff rates shown in table in appendix 1 Stand alone systems have a separate tariff rate see table appendix 1. For detailed guidance on the FiT scheme members are advised to review the guidance documents provided by Ofgem which can be accessed from the website below http://www.ofgem.gov.uk/sustainability/environment/fits/documents1/fit%20generator%20gui dance.pdf Ofgem also provide tables showing the latest tariffs, regular updates on deployment and a range of guidance to help with application to the scheme which can be found on their website. http://www.ofgem.gov.uk/sustainability/environment/fits/pages/fits.aspx For further information please contact: Tom Beeley Renewable Energy Adviser CLA, 16 Belgrave Square London SW1X 8PQ Tel: 020 7235 0511 Fax: 020 7235 4696 Email: Tom.Beeley@cla.org.uk www.cla.org.uk CLA reference (for internal use only): Important Information. No responsibility for loss occasioned to any person acting or refraining from action in reliance on or as a result of the material included in or omitted from this publication can be or is accepted by the author(s), the CLA or its officers or trustees or employees or any other persons. Country Land & Business Association 2014. All rights reserved. No part of this publication may be reproduced or transmitted, in any form or by any means, electronic, mechanical, photocopying, recording or otherwise, or stored in any retrieval system of any nature without prior written permission of the copyright holder except as expressly permitted by law. Page 8 of 11

USEFUL LINKS: Energy Savings Trust Useful information and advice for domestic installations including a calculator tool: www.energysavingtrust.org.uk/generate-your-own-energy/sell-your-own-energy/feed-in- Tariff-Clean-Energy-Cashback-scheme#eligible Ofgem For queries regarding Ofgem Renewables please email renewable@ofgem.gov.uk or you can call 020 7901 7310. Details and useful downloads at: www.ofgem.gov.uk/sustainability/environment/rchpreg/pages/rchpreg.aspx If you need to find a supplier with whom to register for your FIT you may choose from the list at www.ofgem.gov.uk/sustainability/environment/fits/rfitls/pages/rfitls.aspx Energy Networks Association Provide useful guidance on grid connection and contact details for Distribution Network Operators http://www.energynetworks.org/electricity/engineering/distributed-generation/distributedgeneration.html Microgeneration Certification Scheme Information on MCS standards, a database of MCS certified products and installers as well as details on the Renewable Energy Consumer Code, complaints process and warranties http://www.microgenerationcertification.org/consumers/consumers Page 9 of 11

Guidance Note for CLA members Appendix 1: Ofgem Table showing FiT PV Tariffs available until at least 30 th June 2015 A more extensive table showing tariff rates going back to the start of the scheme in 2010 can be accessed via the following link https://www.ofgem.gov.uk/ofgem-publications/87072/010214rpiadjustedtariffspv1.pdf Page 10 of 11

Guidance Note for CLA members Page 11 of 11