Feed-in Tariff Review workshop. BIS Conference Centre, London, 5 October 2015

Transcription

1 Feed-in Tariff Review workshop BIS Conference Centre, London, 5 October 2015

2 Agenda Presentation on FIT Review consultation Gareth Redmond, Head of Renewables Programme Team, DECC Sarah Lowe, Lead Analyst, Feed-in Tariffs Q&A session chaired by Gareth Redmond Break for coffee Roundtable discussions Summing up of discussions 2

3 Context and rationale

4 State aid requirement The European Commission s State aid approval for FITs places an obligation on the Government to review scheme performance every three years. Previous tariff review took place as part of the comprehensive review of the scheme in

5 Levy Control Framework Spending in is projected to be 1.5bn above the 7.6bn LCF budget in 2020/21 (in 2011/2012) prices. FITs accounts for around 475m of this increase. These costs are paid through consumer electricity bills. 5

6 FIT deployment We are on track: to meet or exceed the EMR Delivery Plan 2020 deployment ranges to deliver at least 30% of our electricity from renewable sources by Since its launch in 2010, the FIT scheme has seen deployment and spend significantly outstrip expectations, including for nonsolar techs. Over 740,000 installations registered as of August In 2010 we anticipated 750,000 renewable installations by

7 FIT Review proposals

8 FIT Review proposals These proposals are intended for immediate implementation. Proposal Generation tariffs Description Revised generation tariffs and revision of some tariff bands for new installations. Degression Default degression for all technologies will be quarterly. Contingent degression will now be 0%, 5% or 10% for all technologies depending on deployment rate, and will be in addition to default degression. Deployment caps New expenditure under FITs is limited to an overall budget of m to 2018/19. Proposals to implement deployment and degression band caps to meet this budget. Closure of generation tariff to new installations Remove the generation tariff for new FIT applications from January 2016 if proposed cost control deployment caps are deemed unable to place the costs of the scheme on an affordable and sustainable trajectory or, alternatively, further reducing the size of the scheme s remaining budget available for the cap. 8

9 FIT Review proposals These proposals are intended for immediate implementation. Proposal Inflation indexation Installation extensions New technologies Extend FITs to projects based in Northern Ireland Buying overseas renewable electricity MCS standards Funding scheme administration Description Move from RPI-linked tariffs to a CPI-link for new installations. Prevent extensions to existing installations from claiming FITs. FITs should not be extended to any other technologies We are not proposing to extend FITs to Northern Ireland. Limit the amount of renewable electricity purchased from overseas which can be offset against market contribution for levelisation process. Link eligible technologies to specific MCS standards. Use interest accrued in the Levelisation Fund for scheme administration. 9

10 Future measures We are consulting on the following measures for future consideration: Proposal Export tariffs Remote reading of generation meters Grid management Anaerobic digestion sustainability criteria Minimum energy efficiency criteria Description Options to move to fully metered export for all generators and revise the export tariff so it is more reflective of system costs and benefits in the future. Views sought on how to move to remote generation meter reading. Views sought on obligation for all new FIT generators to inform their Distribution Network Operator (DNO) of their installation. Views sought on the introduction of sustainability criteria for feedstock to bring FITs into line with existing RHI and RO criteria. Views sought on increasing energy efficiency criteria for new FIT applications in the future 10

11 Where did we get our evidence from? FIT Review Stakeholder events

12 The evidence came from a survey-based research project run by consultants. 1. Parsons Brinckerhoff (PB) were awarded the contract to provide evidence 2. They used a survey based approach supplemented with literature reviews and internal expertise 3. DECC and AEA Ricardo provided peer review 4. AEA Ricardo gave additional support on hurdle rates. 12 FIT Review Stakeholder events

13 How did we set the proposed tariffs? FIT Review Stakeholder events

14 We set the proposed generation tariffs to target a specific rate of return The target rate of return (RoR) is set at the low end of the overlap between hurdle rate ranges for domestic and commercial investors Example: selecting a target rate of return for solar PV Investor categories Non-energy professionals Utilities Commercial Domestic Target rate of Technology return PV 4.0% Wind 5.0% Hydro 9.0% Hurdle rate ranges (%) 2.5% 4% 5% 10% 11% 14 FIT Review Stakeholder events

15 We considered several cash flows when setting the proposed generation tariffs. Income streams: Costs: 1. Bill savings = (home usage rate * generation * retail electricity price) 2. Export income = (export rate * generation * export tariff) 1. Capital Expenditure 2. Operating Expenditure Given these, set generation tariff to give target RoR We have deviated from calculated tariffs in 2 cases: 1. Large wind because the calculated tariff was negative. This implies some projects are already at grid parity. 2. Standalone PV this was capped at the large building mounted rate 15 FIT Review Stakeholder events

16 The proposed tariffs are set to target wellsited installations In line with the original intention of the scheme and in light of budget constraints, we are proposing to target well-sited installations that are assumed to have the following: 1. Central capex 2. High load factors (apart from hydro) By targeting support at sites with high load factors we aim to support the most efficient sites, which will deliver better value for money 16 FIT Review Stakeholder events

17 Current Tariffs for installations with an Proposed Generation Tariffs for Jan eligibility date on or after 1 October 2016 (p/kwh, Nominal prices) 2015 (p/kwh, 2015/16 values) Solar PV 0-10kW 1.63 <4kW kW kW kW kW kW kW 2.28 > 1000kW kW 5.94 Stand alone 1.03 Stand alone 4.28 Wind <50kW kW kW kW ,500kW 5.89 >1500kW 0.00 >1500kW 2.49 Hydro <100kW <15kW kW kw kW kW kW 8.91 >2000kW 2.18 >2000kW FIT Review Stakeholder events

18 How did we set the proposed caps? FIT Review Stakeholder events

19 Deployment caps are proposed to limit additional cost to 100m from Jan 2016 to April Tariffs are proposed to target a certain rate of return, and lead to a certain amount of projected deployment in the absence of caps. Caps are proposed as a back-up spend control tool in case actual deployment exceeds our projections. We have an agreement for new spending of m from Jan 2016 to April Ideally we d cap spend but this is too difficult to monitor in a timely way, so we propose caps based on deployment The central spend projection from new tariffs is c 90m from Jan 2016 to April 2019, so we propose caps that would allow 100m - c. 10% above the deployment projection. 19 FIT Review Stakeholder events

20 The resulting proposed deployment caps are above our central deployment projections Maximum Deployment (MW) PV Q Q Q Q Q Q Q Q Q Q Q Q Q <10kW kW >50kW Stand alone Wind <50kW >50kW Hydro All AD <500kW >500kW FIT Review Stakeholder events

21 How did we design the proposed degression mechanism? FIT Review Stakeholder events

22 We are proposing to maintain the 2 different types of degression Type of degression Aim Implementation Default (regardless of deployment) Contingent (depends on deployment) Ensure that the RoR of installers remains constant over time Prevent overcompensation if inputs change more than our assumptions e.g. costs are falling faster than expected Table published outlining how tariffs fall each quarter 5% degression if central projection is hit and 10% if cap is hit. 22 FIT Review Stakeholder events

23 Next steps Consultation closes on Friday 23 October. We will aim to produce a Government response by late November/early December. Changes to tariffs and introduction of caps would require changes to the Feed-in Tariff Order. This is subject to a 40 day procedure before changes could come into effect.

24 Q&A session

25 Break for coffee:

26 Roundtable discussions Nominate a chair from around the table Discussion on consultation questions DECC official to take notes and capture responses

27 Consultation questions: tariffs and cost control Do you agree or disagree with the proposed generation tariff rates set out above? Do you agree or disagree that the updated assumptions produced by Parsons Brinckerhoff are reflective of the current costs of deployment for UK projects in your sector? Do you agree or disagree with the proposal to introduce deployment caps under the FITs scheme? Do you agree or disagree with the proposed design of the system of caps? Do you agree or disagree with the proposed approach to implementing caps? If you disagree, are there any alternative approaches that you d suggest? 27

28 Final conclusions: Key information: Consultation will run for eight weeks to 23 October: /Consultation_on_a_review_of_the_Feed-in_Tariffs_scheme.pdf Submit responses to: Thank you for your attendance. 28

29 Additional slides

30 Total income streams impact Revenue stream (p/kwh) Value 1st Oct 2015 Value in Jan 2016 under proposed changes % change Generation tariff % Export tariff % Bill savings % Total average income per kwh %

31 Default degression table Generation tariff, p/kwh Jan Apr Jul Oct Jan Apr Jul Oct Jan Apr Jul Oct Jan <10kW kW kW PV kW > 1000kW Stand alone <50kW Wind kW >1500k W <100kW kw Hydro kW >2000k W

32 FiTs Model explanation Demand in the FIT model Hurdle rates are input as a distribution, aiming to represent the population of investors in each category They are combined with cost distributions and load factor assumptions to produce a distribution of levelised costs The available revenues in each tariff band are then compared with this distribution to determine the level of deployment in the period Example distribution of levelised costs The shaded area corresponds to the % of demand which will be incentivised to deploy Levelised costs ( /kwh) Levelised revenues available through tariffs and bill savings ( /kwh)

33 Definition of good evidence The tariffs proposed in the consultation are based on evidence gathered by independent consultants but subject to revision in light of fresh evidence submitted by industry. In order to consider changes to tariffs, we are looking for robust and verifiable evidence submitted through the e- consultation portal. Where available, this should include a range of data points from recent FIT-eligible installations. Examples include: Capital expenditure and operating expenditure: invoices and company reports Load factors: regular meter readings taken over a substantial period of time, designed power output for specific technologies Hurdle rates: Legal documentation of project finance agreements This is an indicative list and intended to be illustrative of the preferred kind of evidence. We will consider a range of evidence sources but unverified data may have to be discounted based on our assessment of its reliability. Commercially sensitive data will not be made public.