Feed-in Tariffs
Friday 12 December 2008
After initially opposing use of feed-in tariffs alongside its existing renewable electricity incentives scheme, the Renewables Obligation (RO), the government changed its mind in late 2008.
It agreed that the RO could be somewhat cumbersome for smaller renewable energy projects to deal with, and that a feed-in tariff would offer a more simple option for encouraging households, communities and public-sector buildings to generate their own renewable power.
Feed-in tariffs are effectively long-term contracts where electricity companies promise to buy renewable energy generated and fed into the grid at a certain price for long-term periods, perhaps as much as 25 years.
They have been used successfully in some European countries like Germany, but while they set a market price for renewable energy being incentivised, they do not provide any guarantee that renewable energy targets will be met in the way the RO does.
The UK system could go slightly beyond a pure feed-in tariff system by including within the contracts the power used by the generators of renewable electricity, not just the power fed into the grid.
Powers allowing the government to introduce feed-in tariffs for projects below 5MW in scale were included within the Energy Bill, which was passed by Parliament as the 2008 Energy Act late in November 2008.
The precise details of the scheme are yet to be decided, however, and will need secondary legislation to enact.
Ministers have said there will be a fairly rigorous process of consultation to decide what level feed-in tariff payments will be, and exactly how the tariffs will be organised. Expectations are that the tariffs could be in place by April 2010.
The tariffs will be brought into play through changes to the licensing system for electricity suppliers.
5MW limit
The 5MW cap on projects eligible for feed-in tariffs, as stated within the Energy Act will not necessarily be the final upper limit chosen for the scheme - the government could set a lower limit.
5MW represents the absolute maximum size of generation project the government can include within its scheme, without going back to Parliament with new primary legislation.
There has been some debate in industry over whether the 5MW limit is too high, threatening investment in renewable energy schemes between 1MW and 5MW in size. Some believe investors may decided to wait until the feed-in tariff system is set before backing new renewable energy projects, preferring the security of long-term price contracts to the uncertain income from Renewables Obligation Certificates, which have their value based on how well the UK is doing compared to its annual renewable energy targets.
On the other side of the debate, there are some who believe the 5MW cap itself was too low, and that to incentivise community-scale projects, feed-in tariffs should be available for larger projects, perhaps even 10MW.
Ministers have decided 5MW would provide enough room for schemes suitable for schools and hospitals, while also offering enough leeway to "future proof" feed-in tariffs against the rising efficiency and capabilities of renewable energy technology. But, consultation could see the cap lowered for the final form of the scheme.
Price differentials
Feed-in tariffs are to be made available to renewable energy of any type - including bioenergy systems, solar power, geothermal power, wind power, hydropower and marine energy technologies - as long as installations are small enough to meet the government's chosen cap.
At present, the Energy Act also allows feed-in tariffs to be made available to domestic CHP units, even if they use fossil fuels like gas or oil, as long as they are smaller than 50kW in size. This is because these units - often no larger then a dishwasher - can replace standard gas boilers and offer much more efficient electricity and heating for households.
As with the Renewables Obligation, which is being changed to benefit emerging technologies more than proven technologies, there is likely to be some differences in feed-in tariffs offered for different renewable energy types.
Therefore, support on offer for projects based on wind turbines would differ from support offered for those using solar photovoltaic cells or biomass boiler systems.
The exact levels chosen will be one of the hotly-debated topics within the next year or so of consultation, but it is expected that technologies with a longer pay-back time will most likely gain higher levels of feed-in tariff support.
Heat
Alongside the new feed-in tariffs for small-scale renewable electricity, the government is developing an incentive for renewable heat in the UK that looks likely to take the form of a feed-in tariff as well.
More details on this proposed Renewable Heat Incentive can be found in our Heating and Cooling legislation section.
Some of the consultation over the next year will need to work out exactly how all the new pieces of legislation - including the measures in the Climate Change Bill and the Planning Bill - work together. In particular, there will be the question of whether projects can claim both renewable electricity and renewable heat feed-in tariffs if they are eligible.
