Over the past few weeks there’s been a fair amount of online cant about the government’s changes to subsidy regimes for FITs. Ex Energy Secretary Greg Barker has called this ‘doom-mongering’.
So what has the government done, and what does it mean? There are three changes to different bits of the byzantine subsidy setup. How does the this affect small rooftop developers like Energy Coops?
Despite all the recent hyperbole the answer is simple: not much.
Changes to the Renewables Obligation
First – and the most financially significant – is proposed changes to the Renewables Obligation, a subsidy similar to Feed in Tariffs, but used almost uniquely used by large developers on big projects (like solar farms). The government is now consulting on removing the renewable obligation after April 2016.
Very few (if any) community schemes use ROs. RO schemes are simply too big.
But for big solar developers it’s important to note that there are two subsidy options – ROs or FITs. The financial benefit marginally favours ROs. But solar developers can still develop solar farms at a profit – just perhaps less than the rates they are used to.
Changes only come in by April 2016, so there’s still a fair window to get schemes done (although the proposal to remove grandfathering from ROs – i.e. guaranteeing a rate for the systems lifetime – is unwelcome). After that solar farms will have to use FITs.
Removing exemption from Climate Change Levy
More esoterica. The Climate Change Levy is a tax, the aim of which is to provide an incentive to increase energy efficiency and to reduce carbon emissions. Renewable energy is obviously exempt from paying this tax. Except now it won’t be – because the government has removed this exemption.
In effect, renewables will therefore now be paying for carbon reducing mechanisms.
Aside from askew logic (why aren’t fossil fuels paying for carbon reductions: they produced it in the first place), the financial implications are small. Firms will be paying 0.541p per kWp on the energy they generate. For a 100kWp system that’s a reduction of roughly 3% of income. If a business – community or otherwise – can’t sustain a reduction in income that small then I would argue they shouldn’t be in business at all.
Changes to pre-accreditation
If you’re in solar land then you’re lucky! Well, only if you’re a solar geek because if you find yourself a solar site then you can pre-accredit the site at a specific FIT rate. FIT rates fall over time, so if you pre-accredit you save up for yourself a nice FIT at the previous rate while you kick back and, er, get on with developing the site (signing leases etc, sigh).
The government is consulting on removing pre-accreditation, largely because a bunch of developers pre-accredited a bunch of big solar farms on FITs, which caused DECC to overshoot its FIT budget – duh.
Now schemes won’t have the ability to pre-accredit. But hang on – subsidy rates fall every three months, by a maximum of 3%. So if a site takes 6 months to develop, then you’ve potentially lost 6% of income because your FIT will be 6% lower.
Again – if you can’t sustain a reduction in income that small then… (see above)
Overall the impact of subsidy changes is small. While the solar industry is prone to proclaim disaster every time a subsidy regime gets changed, the reality is that we work in an environment where costs continually fall, as well as revenue. Solar PV subsidies are regressive, so they will fall until we get to the frankly relieving point of grid parity and there’ll be no subsidies at all.
At which point people like myself will heave a sigh of relief – not simply because it will get the government out of our lives but it will also save us from the continual bleating that accompanies any subsidy announcements.
In addition to the £680,000 we’ve raised in the past few years, Brighton Energy Coop is currently running its third share offer. You can find details of joining here.
