Feed-in Tariff Review workshop BIS Conference Centre, London, 5 October 2015
Agenda 10.00 10.15 Presentation on FIT Review consultation Gareth Redmond, Head of Renewables Programme Team, DECC Sarah Lowe, Lead Analyst, Feed-in Tariffs 10.15 11.15 Q&A session chaired by Gareth Redmond 11.15 11.30 Break for coffee 11.30 12.25 Roundtable discussions 12.25 12.30 Summing up of discussions 2
Context and rationale
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 2012. 4
Levy Control Framework Spending in 2020-21 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
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 2020. 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 2015. In 2010 we anticipated 750,000 renewable installations by 2020. 6
FIT Review proposals
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 75-100m 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
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
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
Where did we get our evidence from? FIT Review Stakeholder events
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
How did we set the proposed tariffs? FIT Review Stakeholder events
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
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
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
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 12.47 10-50kW 3.69 4-50kW 11.30 50-250kW 2.64 50-150kW 9.63 150-250kW 9.21 250-1000kW 2.28 > 1000kW 1.03 250-5000kW 5.94 Stand alone 1.03 Stand alone 4.28 Wind <50kW 8.61 0-100kW 13.73 50 1500kW 4.52 100 500kW 10.85 500 1,500kW 5.89 >1500kW 0.00 >1500kW 2.49 Hydro <100kW 10.66 <15kW 15.45 15-100kW 14.43 100-500 kw 9.78 100-500kW 11.40 500-2000kW 6.56 500-2000kW 8.91 >2000kW 2.18 >2000kW 2.43 17 FIT Review Stakeholder events
How did we set the proposed caps? FIT Review Stakeholder events
Deployment caps are proposed to limit additional cost to 100m from Jan 2016 to April 2019. 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 75-100m from Jan 2016 to April 2019. 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
The resulting proposed deployment caps are above our central deployment projections Maximum Deployment (MW) PV Q1 2016 Q2 2016 Q3 2016 Q4 2016 Q1 2017 Q2 2017 Q3 2017 Q4 2017 Q1 2018 Q2 2018 Q3 2018 Q4 2018 Q1 2019 <10kW 17.8 18.4 18.8 19.2 19.7 19.9 19.7 19.5 19.2 19.2 19.8 20.5 21.1 10-50kW 10.3 10.4 10.3 10.2 10.1 10.0 9.9 9.9 9.8 9.9 10.4 11.0 11.5 >50kW 8.8 9.0 8.9 8.9 8.8 8.7 8.6 8.6 8.5 8.7 9.3 9.9 10.6 Stand alone 5.0 5.0 5.0 5.0 5.0 5.0 5.0 5.0 5.0 5.0 5.0 5.0 5.0 Wind <50kW 4.4 4.6 4.7 4.8 5.0 5.1 5.2 5.2 5.3 5.5 5.7 6.0 6.2 >50kW 14.6 14.8 15.0 15.1 15.3 15.5 15.7 15.8 16.0 16.2 16.5 16.7 16.9 Hydro All 13.4 13.8 14.0 14.3 14.6 14.8 15.0 15.2 15.3 15.4 15.5 15.6 15.6 AD <500kW 2.7 2.8 2.7 2.7 2.6 2.7 2.7 2.6 2.5 2.7 2.6 2.6 2.5 >500kW 4.4 3.8 3.6 3.3 3.1 3.1 2.9 2.7 2.5 2.5 2.3 2.1 2.0 20 FIT Review Stakeholder events
How did we design the proposed degression mechanism? FIT Review Stakeholder events
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
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.
Q&A session
Break for coffee: 11.15 11.30 25
Roundtable discussions Nominate a chair from around the table Discussion on consultation questions DECC official to take notes and capture responses
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
Final conclusions: Key information: Consultation will run for eight weeks to 23 October: https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/4 58660/Consultation_on_a_review_of_the_Feed-in_Tariffs_scheme.pdf Submit responses to: https://econsultation.decc.gov.uk/office-for-renewableenergy-deployment-ored/fit-review-2015 Thank you for your attendance. 28
Additional slides
Total income streams impact Revenue stream (p/kwh) Value 1st Oct 2015 Value in Jan 2016 under proposed changes % change Generation tariff 12.5 1.6-87% Export tariff 4.9 4.9 0% Bill savings 16.0 16.0 0% Total average income per kwh 22.9 12.1-47%
Default degression table Generation tariff, p/kwh Jan- 2016 Apr- 2016 Jul- 2016 Oct- 2016 Jan- 2017 Apr- 2017 Jul- 2017 Oct- 2017 Jan- 2018 Apr- 2018 Jul- 2018 Oct- 2018 Jan- 2019 <10kW 1.63 1.50 1.36 1.22 1.09 0.95 0.82 0.68 0.54 0.41 0.27 0.14 0.00 10-50kW 3.69 3.59 3.48 3.38 3.27 3.17 3.06 2.96 2.86 2.75 2.65 2.54 2.44 50-250kW 2.64 2.54 2.44 2.34 2.24 2.13 2.03 1.93 1.83 1.73 1.63 1.53 1.43 PV 250-1000kW 2.28 2.18 2.08 1.98 1.88 1.78 1.68 1.58 1.48 1.38 1.29 1.19 1.09 > 1000kW 1.03 0.94 0.86 0.77 0.69 0.60 0.51 0.43 0.34 0.26 0.17 0.09 0.00 Stand alone 1.03 0.94 0.86 0.77 0.69 0.60 0.51 0.43 0.34 0.26 0.17 0.09 0.00 <50kW 8.61 8.52 8.42 8.32 8.22 8.13 8.03 7.93 7.83 7.74 7.64 7.54 7.45 Wind 50 1500kW 4.52 4.48 4.44 4.40 4.36 4.32 4.28 4.24 4.20 4.16 4.12 4.08 4.04 >1500k W 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 <100kW 10.66 10.63 10.60 10.56 10.53 10.50 10.46 10.43 10.40 10.36 10.33 10.30 10.27 100-500 kw 9.78 9.77 9.75 9.74 9.72 9.71 9.69 9.68 9.67 9.65 9.64 9.62 9.61 Hydro 500-2000kW 6.56 6.56 6.56 6.57 6.57 6.57 6.57 6.58 6.58 6.58 6.58 6.58 6.59 >2000k W 2.18 2.18 2.18 2.19 2.19 2.19 2.19 2.19 2.19 2.19 2.19 2.19 2.19
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)
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.