Closure of the FiT, investors need a positive signal

By Stephen Roberts September 11, 2018 4:38 pm

This  was originally published as a guest blog on Low Carbon’s website.

Government published two policy documents for the energy industry to consider over the summer. The first, a consultation to understand what the impact of closing the Feed-in-Tariff (FiT) in March 2019 will be. The second, a call for evidence on what could or should follow the closure to ensure there continues to be small-scale renewable deployment in the UK.

The FiT has been remarkably successful. Between 2010 and March 2018 the Government’s own expectations for deployment were exceeded with over 800,000 installations – equal to roughly 6GW of capacity being registered on the Central FiT Register. The widespread rollout, particularly of solar, has also helped to drive down the costs of technologies significantly.

But, its closure has caused waves in the renewables industry. For some, the FiT has proved an invaluable and necessary mechanism, without which deployment of renewables would have been impossible, and for many projects this remains the case. For others, the FiT has been an enabler and as it comes to a close they are looking for an alternative route to realising projects that can provide a return on their investment.

The question that Government is looking to establish in their call for evidence, is whether the market is currently ready to provide for small-scale renewables following the closure of the FiT, or whether there needs to be a new supporting mechanism in place. An answer to this is impetrative to ensure that there isn’t a rush up until March 2019 to install more small scale renewables under the FiT, followed by a lull in installations whilst next steps are considered. The Government’s own impact assessment concludes that the closure of the FiT is likely to lead to a significant downturn in renewables deployment.

Government has already said that it will not provide new levies on low carbon power until at least 2025, meaning the flexibility that Government has to influence the market may be limited, asking the question – “whether there is a need for government intervention to enable competitive market based solutions, for example a guaranteed route to market for small-scale low-carbon generators”.

In short the answer is yes, and although Government wants to avoid further subsidies, it is possible to create a viable route to market for renewables by ensuring that the regulatory framework in place doesn’t present unnecessary hurdles to those trying to commercialise innovative technologies and alternative funding models.

For example. restrictions on revenue stacking is a clear barrier to the greater roll out of renewable generation. Lifting this would increase the financial attractiveness of projects by enabling generators to maximise returns, keep costs low, and ensure the long-term viability of those projects. Whilst Government and Ofgem both jointly set-out this ambition in their Smart Systems and Flexibility Plan in 2017, it has yet to be implemented or regulations changed to facilitate the shift.

Given that the FiT closure date is fast approaching, this is a simple change that needs to be implemented sooner rather than later.

If the UK is to become the place that ambitious clean energy entrepreneurs come to in order to launch innovative new products and services, close collaboration between Industry, Ofgem and BEIS will be crucial to ensure that the market is truly open for all.

Investors are constantly assessing both the market and the regulatory landscape for opportunities to invest. However, in the absence of the FiT and with no replacement mechanism in sight, there are fewer opportunities available to them beyond large corporate PPAs that are highly competitive to attain.

With the FiT closing, green investors are looking for a clear demonstration from Government of its ambitions. The recent announcement for continued Contracts for Difference auctions is a positive start, but we need to see an equivalent signal for the small-scale renewables space.

We are already playing catch up on our next carbon budget target, a slip in renewables deployment over the coming years would significantly reduce our ability to meet future ones. Is it worth the risk to let market forces play out in the hope that renewable projects can continue to be viable without some form of support?

By Stephen Roberts September 11, 2018 4:38 pm

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