Teal blue graphic

How will government plans impact renewables projects in 2016?

Today the government issued the long-awaited response to the consultation on the review of the Feed-in Tariffs (FIT) Scheme. The reintroduction of pre-accreditation from 8 February 2016 is a small positive step but is very unlikely to be enough to reinvigorate investor confidence.

The government's decision to reduce tariff rates significantly for a number of technologies and to introduce maximum deployment caps across all technologies is going to severely hamper the deployment of projects.

A response to the consultation on changes to financial support for solar PV, together with a consultation on the level of banded support for new solar PV under the Renewables Obligation have also been released today.

Key points from the response to the review of the FIT scheme

As feared, a number of generation tariff rates have been reduced very significantly. For example, a "stand-alone" (non-building wired) solar project which commissioned this month would be eligible for a tariff rate of 4.28p per kWh. However, for projects of this kind which commission on or after 15 January next year, the rate will be only 0.87p per kWh.

Maximum caps on deployment will be introduced from 8 February 2015

All new installations applying for FITs on or after 15 January 2016 will be subject to the new system of caps. A maximum of £100 million per year for new installations will be divided between technologies and degression bands.

The caps are low. For example, in the first quarter of 2016 it is estimated that the maximum cap would be met by the deployment of just 20 wind installations in the 100-1500 kW band.

Whether or not an installation qualifies for a particular cap will be determined by the date and time of the installation's MCS certificate or application for ROO-FIT accreditation or pre-accreditation. If a cap has already been reached, any further applications will miss out and will not be eligible for the tariffs in place at that time. They will be placed in a queue ready for when the next cap opens.

In the event that an installation causes the cap to be exceeded (so that some of its capacity would fit within the cap and the rest would cause it to be exceeded), that installation will not qualify for the cap and will be placed in a queue for the next cap.  Furthermore, that cap will be considered as having been hit and no further deployment will be eligible for the tariffs under that cap.

Pre-accreditation to be reintroduced from 8 February 2016

As before, solar and wind of over 50kW and all anaerobic digestion and hydro projects will be eligible for pre-accreditation. Validity periods will be 6 months for solar, 1 year for wind and 2 years for anaerobic digestion and hydro projects. Community projects will benefit from an additional 6 month period, on top of the time allowed for the relevant technology.

Extensions

The right to receive a generation tariff for extensions will be removed for all installations which commission on or after 15 January 2016. There will be no grace periods; the view being that there has been sufficient time since the consultation was released to accredit an extension.

Pause to the scheme

The FIT scheme will be paused from 15 January until 8 February 2016, when the new tariff and deployment caps will be in place. During this pause, no new installations will be accredited for FITs unless they have pre-accreditation that was granted before 1 October 2015 or are applying for accreditation within the period of validity of the pre-accreditation.

This pause does not mean that you cannot apply for FITs within this pause period; applicants will be placed in the queue when the new deployment caps and tariffs come in on 8 February 2016.

Which tariffs apply if you commission a project before 15 January 2016?

Slightly different rules apply for the different technologies and generation capacities. Taking solar PV and wind installations of above 50kW, and hydro and anaerobic digestion projects as an example: if the installation is commissioned and the application for ROO-FIT accreditation is received by Ofgem on or after 15 January 2016, it is clear that the installation will count towards the maximum deployment cap and will be subject to the new tariffs.

However, what happens if you commission your installation and apply for accreditation by Thursday 14 January 2016? The consultation response does not specifically address this. It may well be that you will be within the existing rules. However, we will have to wait for the legislation to be issued before we can analyse the new rules in detail and confirm the position.

Government response to the consultation on changes to financial support for solar PV

  • Despite the majority of consultation respondents being against the closure of the scheme, the government has confirmed that the Renewables Obligation (RO) will be closed to new solar PV projects of 5 MW and below from 1 April 2016. The closure will also apply to additional capacity to existing installations.
  • Projects may benefit from a grace period if they had preliminary accreditation, or had made significant financial commitments on or before 22 July 2015. In order to be able to demonstrate a significant financial commitment, the following have to be shown:
    • A grid connection offer and acceptance of that offer, both dated no later than 22 July 2015 or a declaration that no grid works are required;
    • A Director's Certificate confirming ownership of the land, lease of the land, an option to lease or purchase the land, an agreement to lease the land or that the developer or a connected person is party to an exclusivity agreement in relation to the land as of no later than 22 July 2015;
    • Confirmation that a planning application had been received by the relevant planning authority in respect of the project no later than 22 July 2015 or a declaration that planning permission is not required.
  • Grandfathering will be removed for projects with an accreditation date from 23 July 2015 onwards. Again, a grace period may apply if a significant financial commitment had been made before this date. The removal of grandfathering comes against a backdrop of concern amongst respondents to the consultation on the negative impact that this will have on investor confidence.
  • Amendments will be made to the Renewables Obligation Closure Order to bring these changes into effect.
  • The consultation response also concludes that there is sufficient evidence to hold a technology-specific banding review for solar PV in England and Wales. A consultation on this has been released today and closes on 27 January 2016.
  • The banding review consultation contains a helpful table explaining the likely effect of the changes in financial support. For example, a station with an accreditation date between 23 July 2015 and 31 March 2016 that does not meet the grandfathering exception criteria will receive the current ROC bands until 31 May 2016. From 1 June 2016, if the funding review proceeds as envisaged, the rate will drop to a band of 0.8. However, given the withdrawal of grandfathering, that level is not guaranteed for the lifetime of the project.

The government's negative treatment of the renewables sector looks set to continue into the new year.

Contributor: Alexandra Holsgrove Jones

This publication is intended for general guidance and represents our understanding of the relevant law and practice as at December 2015. Specific advice should be sought for specific cases. For more information see our terms & conditions on www.TLTsolicitors.com

Insights & events View all