DECC’s Phase 2A consultation document, which outlines proposals for a new cost-control mechanism, includes a number of other options that Government is looking to introduce, namely; reducing the tariff lifetime from 25 years to 20, raising the export tariff rate and introducing a different indexation method for tariff levels.
DECC is consulting on whether the current 25-year solar FiT lifetime is appropriate, given that operational lifetimes of solar PV projects have increased since the inception of the scheme. The vast majority of other technologies in the FiT scheme only benefit from payments for 20 years. DECC believes that standardising the tariff lifetimes between different technologies would allow a more transparent comparison of relative subsidy levels and, more importantly, offer a better comparison with the Renewable Obligation, which is also paid for 20 years.
Until the wide-scale rollout of smart meters, accurately and cost-effectively estimating the amount of electricity exported from microgeneration sites is impossible, as a result DECC estimate that systems less than 30kWp export 50 percent of all electricity generated. At the start of the FiT scheme the export level was set at 3p/kWh. DECC believes that the underlying value of electricity to suppliers is greater than 3p, and as a result, are suggesting that the export rate is revised to reflect this. A higher export rate will lead to a higher rate of return for PV investors. However, DECC has made it clear that it could further reduce proposed generation tariffs to broadly maintain the rate of return.
The Department is also looking for opinions on the possibility of moving from index-linked tariffs to nominal tariffs. DECC argue that the current model does not reflect the actual investor behaviour being seen in the FiT market, as technologies tend to be capital intensive with costs loaded towards the start of the project with low ongoing operational costs. As well as a move to a different indexation method, DECC are also considering whether tariffs should be index-linked for a certain number years.
The proposals outlined above will further anger the solar industry who will contest that a drop in the tariff lifetime by five years and the abandonment of Retail Price Indexation will severely limit solar PV’s appeal to investors. The raising of the export tariff could provide a welcome respite to industry. However, the possibility of revising generation tariffs downwards to reflect a rise in export tariff will cause further alarm.
Industry has eight weeks to respond to DECC's proposals, with the consultation ending on April 3.