FiT costs to reach all-time high amid COVID outbreak

Energy Third Party Charges (TPCs) have certainly been in the limelight recently, and rightly so as less consumption from non-domestic sectors is resulting in a greater recovery of money from domestic households amid the COVID-19 outbreak.

Several measures have been taken to date to protect domestic suppliers and consumers from these sharp rises in costs, including the deferral of additional costs arising from Contracts for Difference and Balancing Services Use of System charges, the latter of which is yet to be approved.

However, little mention has been given to the Feed-in Tariffs (FiT) scheme to date, which is also expected to see a sharp cost increase for the upcoming quarterly levelisation due in July.

What is FiT levelisation?

FiT costs are recovered from electricity suppliers through quarterly levelisations, and an annual reconciliation. The levelisation process spreads these costs uniformly across all suppliers so that, although FiT licensees directly make the payments to eligible generators, they aren’t the only ones baring the costs. This means that all licenced electricity suppliers pay for the costs of the FIT scheme in proportion to their share of electricity supplied.

FiT costs are typically highest in summer quarters as lower demand and increased solar output tends to drive costs up, particularly on a £/MWh basis. Quarterly costs can therefore deviate significantly quarter to quarter.

April – June 2020 sees extremes

A combination of extremes in sunshine hours and low demand resulting from the COVID-19 outbreak are expected to drive FiT costs up to an all-time high for Q220 (April – June).

Both April and May have seen an unusually high number of sunshine hours for the time of year. The Met Office reported that May 2020 was the sunniest calendar month on record with 265.5 hours of sunshine, beating the previous record of 264.9 hours in June 1957. April also saw a high number of sunshine hours, at 224.5, the highest of any April month on record.

Initial transmission system demand (ITSDO) data from National Grid has also shown that power demand has plummeted for the first two months of this quarter, due the UK’s lockdown restrictions. Average daily power demand was 0.56TWh across April and May 2020 compared to the 0.69TWh during the same period last year.

This current combination of high sunshine hours and low demand is therefore creating the perfect conditions to ramp up FiT costs this quarter.

Costs to be at an all-time high

In April – June 2019 outturn FiT costs came to £8.0/MWh. And before COVID-19, we were forecasting FiT costs for April – June 2020 to be little higher at £8.3/MWh – this is approximately the price that energy suppliers would have been preparing for in their tariffs.

But 39% higher sunshine hours and 18% lower demand in the first two months of the quarter point towards higher costs. Electricity suppliers are due to be invoiced for FiT levelisation on 28 July, with payments due 11 August 2020.

A case for deferral?

Record-high costs under such unprecedented circumstances raises questions over whether these additional costs should be deferred. Perhaps this could be done in a similar manor to the CfD scheme where BEIS has agreed to provide a one-off interest free loan to help cover the projected shortfall in CfD payments, and deferring repayment until April – June 2021.

However, the FiT scheme works differently and could be a more tricky issue to resolve. Unlike CfD payments – which are payed to generators by the Low Carbon Contracts Company – FiT costs are paid to generators by suppliers themselves (i.e. by FiT licensees).

Therefore, additional considerations would need to be made in order to protect FiT licensees from baring a disproportionate amount of the costs.

Our Feed-in Tariff Cost Forecast service projects quarterly FiT levelisation costs out five years. Please contact or t.dixon@cornwall-insight for further information, or questions on COVID-19’s impacts.

Related thinking

Net zero corporates and ESG

More details required for large-scale solar rollout in EU

Last week, our 'Financing net zero forum' gathered to discuss the role of private capital for the next wave of solar across Europe. Joining the meeting chair, Cornwall Insight's Daniel Atzori, were our guest panellists from a leading developer and the Global Infrastructure Investor Association (GIIA). With the European Commission...

Net zero corporates and ESG

Data critical for sustainable investments

On 24 June, attendees to our 'Financing net zero forum' tuned in to hear the expert panel discussions on the role of data in sustainable investment. Joining the meeting chairs, Cornwall Insight's Daniel Atzori and Emma Bill were our guest panellists from Mercatus and Victory Hill Capital Group LLP. For investors to make...

Low carbon generation

Our Renewables Pipeline Tracker: In with the new – scoping projects and progression through planning stages

Our latest Renewables Pipeline Tracker was published on 11 June, and this blog provides a summary of some of the recent developments in our coverage of the pipeline for new build and repowering renewables assets in GB. What’s new? Seabed leasing rounds, scoping projects and CfD announcements Since our previous...

Regulation and policy

How will consumers take to Market-wide Half Hourly Settlement?

Ofgem published its decision to implement the move to Market-wide Half Hourly Settlement (MHHS) on 20 April. This confirms plans to move to new settlement arrangements over a four and a half year time period, with the Elexon-led Design Working Group’s Target Operating Model to be used as the blueprint. Meters...

Net zero corporates and ESG

Financing net zero panel advises policymakers for a long-term view of net zero to boost merchant renewable confidence

Last Thursday's 'Financing net zero forum' brought together 580 registered attendees across the renewables sector to listen to the expert panel discuss managing renewable merchant risk. Joining the chair of the meeting were experts from across the industry, with Shoosmiths sponsoring the afternoon discussions. Merchant renewables – the development of...

Regulation and policy

Calm before the storm? 2021 energy supplier compliance developments

The latest update to our Energy Supplier Compliance Portal went live on 4 May and includes changes to the compliance landscape during February to April 2021. While the previous quarter’s update reflected new principles resulting from Ofgem’s Supplier Licensing Review (SLR) and protections for prepayment meter customers facing self-disconnection, Q121...

Commercial and market outlook

In the midst of the Australian Energy Transformation Process

Australia is in the midst of an energy supply and distribution transformation. This transition is twofold and includes not just bridging the gap from conventional fossil fuels to renewable technologies (due to their reduced carbon footprint, lower levelized cost of energy and improved reliability levels by comparation), but also requires...

Regulation and policy

A look back at 2020 part 3

As we take our first steps into 2021, we continue to look back at the biggest developments in the UK energy markets in 2020, setting us up for the significant year ahead. The mergers and exits from the supply market that were seen in 2019 continued into 2020 and led...