The UK solar industry is today anticipating the future feed-in tariff rates as we move from the month of April into May. After Government announced its intention to base the new rates on installation figures seen between March 3 and the end of April 2012, all eyes have been on the FiT database.
The Department of Energy and Climate Change (DECC) modelled three scenarios that could take affect from July 1, 2012 – each of which is based on the amount of solar added during the past two months.
All three models were based on advice and evidence supplied by Parsons Brinckerhoff (PB). Published on February 8, the PB report provided anecdotal evidence after discussions with the UK solar industry. This report has caused an amount of controversy since its publication, as it was compiled in just four days and is largely based on out of date data.
Nevertheless, DECC went ahead with this advice and proposed the following:
Option A
The first option targets average rates of return under PB’s central cost scenario of around 5-8 percent, with around 5 percent for domestic installations. This produces a tariff of 13.6p for ≤4kW installations. DECC states that this rate would go ahead if deployment exceeds 200 MW.
Option B
The second rate is slightly higher at 15.7p for ≤4kW installations and is based on deployment figures of between 150MW and 200MW. This reduces the current tariffs by around 25 percent from July 1. Again PB suggests this will yield an average return of 5-8 percent for most bands.
Option C
The last, and highest tariff option, is set at 16.5p for ≤4kW installations. This imposes a cut of around 21 percent from April and is expected to produce a mid-range ROI of 6.1 percent, according to PB. This option would be DECC’s preference if deployment during March and April is less than 150MW.
The proposed July 1 tariff rates are outlined below:
| Band (kW) | 1 April tariff | Option A | Option B | Option C |
|---|---|---|---|---|
| ≤4kW | 21p | 13.6p | 15.7p | 16.5p |
| >4kW-10kW | 16.8p | 10.9p | 12.6p | 13.2p |
| >10-50kW | 15.2p | 9.9p | 11.4p | 11.9p |
| >50-150kW | 12.9p | 7.7p | 9.7p | 10.1p |
| >150-250kW | 12.9p | 5.8p | 8p | 10.1p |
| >250-5000kW | 8.9p | 4.7p | 6.8p | 7.1p |
| Stand alone | 8.9p | 4.7p | 6.8p | 7.1p |
At the time, DECC also published a table indicating how it foresees the baseline and contingent degression model working in the future. The table below has been modelled on central assumptions about costs reductions over the next three years and with a starting tariff of 13.6p in July:
Proposed generation tariffs for solar PV from 1.4.2012 to 1.4.2015
| Band (kW) | Tariff Pt 1 April 2012 | Tariff Pt 2 July 2012 | Tariff Pt 3 Oct 2012 | Tariff Pt 4 April 2013 | Tariff Pt 5 Oct 2013 | Tariff Pt 6 April 2014 | Tariff Pt 7 Oct 2014 | Tariff Pt 8 April 2015 |
|---|---|---|---|---|---|---|---|---|
| < 4kW | 21p | 13.6p | 12.9p | 11.6p | 10.4p | 9.4p | 8.5p | 7.7p |
| >4-10kW | 16.8p | 10.9 p | 10.4p | 9.4p | 8.5p | 7.7p | 6.9p | 6.2p |
| >10-50kW | 15.2p | 9.9p | 9.4p | 8.5p | 7.7p | 6.9p | 6.2p | 5.6p |
| >50-150kW | 12.9p | 7.7p | 7.3p | 6.6p | 5.9p | 5.3p | 4.8p | 4.3p |
| >150-250kW | 12.9p | 5.8p | 5.2p | 4.7p | 4.2p | 3.8p | 3.4p | 3p |
| >250-5000kW | 8.9p | 4.7p | 4.5p | 4.1p | 3.7p | 3.3p | 3p | 2.7p |
| Stand alone | 8.9p | 4.7p | 4.5p | 4.1p | 3.7p | 3.3p | 3p | 2.7p |
Source: DECC
Today, since the period of deployment has ended, those in the solar industry are speculating on what the tariff rates will be based on these tables.
Taking a quick look at Ofgem’s installation figures for the period March 3 to April 30, we see that figures of just over 190MW has been recorded. Based on that DECC is likely to choose Option B, providing a tariff of 15.7p for ≤4kW installations.
Commenting on the possibility of Option B tariff rates, Alex Hagan, Energy Consultant at Strutt & Parker, said: “The cut for option B is not as severe as option A and should be welcomed by investors, but returns will be hit despite the anticipated falls in the cost of solar panels. Returns of between 7 percent and 8 percent for a 50kW system are still available with the installation of good quality panels if 50 percent of the electricity is used on site. Therefore when sizing a PV array it is important to first establish the quantity of daytime electricity used on site, the more you can use (reducing your reliance on bought electricity from the grid) the higher your returns with be.
“It is proposed that there should be a baseline digression timetable which would set out in advance the tariff reductions that would be applied in line with deployment levels; this is designed to incentivise all those involved in the supply chain to progressively reduce their costs. Whilst we do expect panels to fall in price it will be gradual; and certainly not at the same speed that we have previously seen when there have been falls of up to 30 percent.”
However, this rate is not set in stone.
Behind the times
Ofgem’s solar installation figures have quite often been out-of-date, and not truly representative of the actual capacity installed between certain periods. This means that there was perhaps more solar installed between March 3 and April 30, and the bracket could therefore be moved as a result.
More accurate installation numbers are ordinarily published on DECC’s website, however these are yet to be updated and only record up to April 22.
All is not lost
While the above point is a rather negative one, and leans towards the tariff rates being lower than hoped, the next two provide some hope:
- DECC’s wording in the consultation document states that each feed-in tariff rate will be the Department’s “preferred rate if deployment during March and April is X”. The use of the word “preferred” alludes to the fact that while that might be DECC’s favoured tariff rate, it may not be the one that eventually goes through. This means that the tariff could be higher than expected (although it also means that it could be lowered).
- Many in the UK solar industry responded to the consultation on these rates stating that using the March and April figures would be a mistake, as there would be a rush of installs during that period due to the new EPC requirements going through coupled with the impact of those hurrying to install before any changes are made before July 1. At the Solar Power UK Roadshow: Coping with the Cuts, this problem was raised and DECC agreed to at least reconsider its use of this period. However, whether the Department decided to actually take this into consideration will only become apparent in the consultation result.
These points show that DECC’s decision on which tariff rate will go through on July 1 is still unclear. In fact, some are currently campaigning for the cuts to be halted altogether.
Our Solar Future has today launched a call for those in the UK solar industry who are concerned about the upcoming cuts to sign a letter to the Prime Minister urging him to “freeze cuts to feed in tariffs before the sun sets on the solar industry for good.” This decision was made following the campaign group’s recent survey which found that many businesses are currently suffering as a result of policy adjustments.
As with most things in Government, we will just have to wait until the response is published before anything is concrete. The Solar Power Portal expects these results to be announced in the next few weeks.
Update:
DECC has now published its figures for systems installed between March 5 and April 29, showing that around 76MW was completed. This figure is likely to be more accurate than the 190MW Ofgem number quoted above, as it records the amount of installations actually completed within that timeframe. We will have to wait until the offical and final figures are announced before we can say for sure what the rates are likely to be, yet this new total offers some hope for the higher tariff rates.