Five take aways from our FiT Forecast

The Feed-in Tariff (FiT) scheme could once again find itself in the limelight of the energy sector later this year as the government is due to issue a consultation reviewing the scheme. Here we look at five key take aways from our latest FiT Cost Forecast, including details of what to expect from the government’s impending consultation.

New capacity is underwhelming

A significant trend of FiT year 2017-18 has been a slowing of newly accredited capacity. Q417 continued this trend, with only 54MW accredited across 5,711 installations, the lowest amount since Q1 2011. The slowdown can be attributed to deployment caps introduced by BEIS in January 2016, which limit the amount of capacity that can be accredited to the scheme in each quarter. Significantly reduced tariff rates have also been discouraging uptake in certain technologies, most notably, domestic-scale solar PV, relative to historic rates.

As of 31 December 2017, there was 5.9GW across 813,714 installations accredited to the scheme. Despite the recent slowdown, this remains significantly above levels projected at the scheme’s inception.

FiT costs rise, for now

Outturn FiT costs for Q417, as invoiced to suppliers, came to £4.57/MW, 8% above the same quarter the previous year. This was just £0.20/MWh below Cornwall Insight’s central scenario forecast of £4.77/MWh.

Although this was an 8% increase in costs on the same quarter last year, we do not expect this rising trend to continue. With new capacity now accrediting at a sedate pace, costs of the scheme are not likely to rise as sharply as they have done in the past. Furthermore, with the closure of the scheme now imminent, costs could plateau in 2019-20.

That is of course, not accounting for energy intensive industry exemptions and levy exempt power imports.

Energy intensive industry exemptions

On 19 July 2017, BEIS published its response to its consultation on Implementing an Exemption for Energy Intensive Industries from the Indirect Costs of Renewables Obligation and Feed-in Tariff Schemes. However, this response applied to the RO scheme only and gave little update regarding FiT exemptions.

BEIS said it will respond on implementing an exemption for EIIs from the indirect costs of the FIT scheme in due course. Once implemented, with the date currently uncertain, these exemptions will increase FiT costs on the consumer bill by approximately 4.1% annually.

To add to uncertainty, government announced that it will consult on widening the eligibility criteria for the EII exemptions in its Industrial Strategy, which would act to further increase costs.

Closure on the horizon

The 2017 Autumn Budget confirmed that it is government’s intention to close the FIT scheme to new applications from April 2019.

This was somewhat known in advance of the Autumn Budget, with it being implied in the Clean Growth strategy published on 12 October 2017. It suggested the Feed-in Tariff will close to new accreditations after March 2019.

We expect approximately 6.2GW to be accredited to the scheme by its closure in 2019.

A consultation expected shortly

The UK is obliged by its EU State Aid notification to consult on the performance of the FiT scheme every three years. With the last review in 2015, we understand the next review to be in 2018, and there are many areas of the scheme that may feature in the consultation.

The consultation could provide an opportunity to review the structure of the export tariff, revisit the current support levels for technologies (although we see this as unlikely), scrutinise the arrangements for deemed and metered export, as well as consult on the intended closure of the scheme in 2019.

There is much pressure on government for this review to provide clarity on the future of small scale renewables in GB. A group of trade associations recently wrote to Business and Energy Secretary Greg Clark to express concern over the delay to its consultation on the FiT scheme. They expressed a concern that the loss of subsidies such as the FiT could remove the benefits of small-scale renewable generation and detrimentally affect investment. The letter called on the government to “consult on both outstanding operational issues and the overall future of the FiT with urgency.”

Cornwall Insight publishes a FiT cost forecast which projects the costs of the scheme on a quarterly basis out five years. If you are interested, please contact us on 01603 604400, or enquiries@cornwall-insight.com.

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