Matt Hancock, the minister of state for energy has suggested that SMEs should use the feed-in tariff (FiT) to support renewable projects instead of the new contracts for difference (CfD) mechanism.

The minister told the Energy and Climate Change Committee on Tuesday that: “As far as small businesses are concerned we have feed-in tariffs, especially on the renewables side. FiTs are precisely there to have a much lower cost of entry; CfDs are designed for the big stuff and that’s expensive and we have a simpler, much more cheaper to apply for subsidy system for the little stuff.”

Hancock made his comments in response to concerns that the structure of the CfD penalises SMEs. The minister added: “The proof of the pudding will be in the eating when we have the auction in the next few weeks to find out how successful SMEs are. If we are signing up bill payers to a very long-term contract to provide energy we have to have reasonable certainty that the businesses on the other side are going to be able to deliver on their part. That means that we have to do some serious due diligence, in order to make it practicable we have to have some size limits.

“I’m also the small business minister so I bow to no one in my support for small businesses but the practicalities of signing up bill payers to these long-term contracts means that you have to pretty sure that the other side will see it through.”

The minister was quizzed on the cost of entering a bid, using the Solar Trade Association’s estimate that it would cost around £200,000 to meet all of the pre-qualifying criteria to enter a bid, a risk SMEs could not take if they failed to bid successfully. Hancock responded: “These are multi-million, in some case billion, pound contracts – there is a huge amount of bill payers money at stake and I feel keenly the fact that when I am making ministerial decision about how this works and the design of it that we are forcing bill payers to part with their hard-earned cash.”

Reacting to the minister’s comments, Paul Barwell, CEO of the STA said: “CfDs and FiTs are very different mechanisms. CfDs are only eligible for projects >5MW, FiTs are designed for systems <5MW so minister Matt Hancock should be actively promoting both schemes.”

He continued: “If the message here is that SMEs have to move to smaller schemes under FiTs because CfDs are not designed for SMEs then that is obtuse. SMEs have used the RO for all sizes of large-scale deployment helping to provide much needed competition in the electricity generation market. The RO >5MW rug was pulled by DECC in May last year, with CfDs being the new route to market. DECC needs to fix CfDs to enable and encourage competition in the market and SMEs are perfectly suited to providing that given some changes to the mechanism – whatever happened to the call for the big 60,000 rather than the Big 6?

“In addition, if everyone moves to smaller installs under FiTs, then the tariffs will hyper-degress very quickly. Our modelling shows that with only modest growth the FiT standalone tariff could be too low too quickly and will restrict deployment – where does that leave all the community owned solar projects which are being actively promoted by DECC as well as industry?”

Hancock also defended the CfDs appeal process which is currently holding up process, but admitted that it could be reviewed to ensure that some risk would apply to appealing to stop it becoming the default option. The minister also confirmed that there will only be one allocation round a year.