New feed-in tariffs: The impact for the construction industry

Following weeks of rumour, speculation and accidental uploads of material, on Monday the Department for Energy and Climate Change (DECC) commenced consultation on its proposed changes to feed-in tariffs for PV. This is the first of two planned consultations that will be published by DECC, with a second consultation (covering tariffs for other non-PV technologies, cost control mechanisms and other administrative changes) planned for the end of the year.

The proposed changes may also stimulate significant activity in the market in an effort to maximise installations ahead of the planned deadline of 12 December 2011

The planned changes set out in the consultation could leave landlords, tenants and investors alike dangerously uncertain about the future of energy efficiency. Moreover, the planned changes could leave residential tenants in the poorest properties the least likely to benefit from measures designed to address fuel poverty; and the current lack of certainty in the sector could undermine confidence, leading to an adverse impact on private investment and participation in the Green Deal going forward. Here, we outline the key changes and their potential impact.

Reduction in Generation Tariffs

DECC are proposing a significant reduction in the generation tariffs for PV installations with a total installed capacity of less than 250kW. In particular, the FIT for retrofit installations under 4kW (covering most domestic scale installations) is planned to reduce from the current level of 43.3p/kWh to a proposed tariff of 21p/kWh.

These reduced tariffs are intended to apply from 1 April 2012, but they are also planned to apply from that date for PV installations that have an eligibility date that is on or after a defined deadline (planned to be 12 December 2011).

The proposed reductions are likely to have a significant impact on the viability of financed roof-rental deals that have been structured on the basis of the current FIT rates. The proposed changes may also stimulate significant activity in the market in an effort to maximise installations ahead of the planned deadline of 12 December 2011.

The consultation confirms that existing installations with an eligibility date that is on or before 12 December 2011 will not be affected by the planned changes, and will remain on the current Generation Tariffs.

New multi-installation tariff rates

The proposed new multi-installation tariff rates are intended to apply to aggregated PV schemes (ie where the FIT generator or nominated recipient owns or receives FITs from one or more PV installation located on different sites). The rates are set at 80% of the proposed reduced tariffs, and are planned to apply to all new PV installations forming part of an aggregated PV scheme from 1 April 2012.

These proposed multi-installation rates will have a further impact on the viability of roof-rental deals, but will also concern landlords seeking to self-fund PV installations across property portfolios.

New energy efficiency requirements

The proposed energy efficiency requirement is aimed at linking the level of FITs to energy efficiency. These requirements, if implemented, would mean that all new PV installations that are attached to or wired to provide electricity to a building will only be eligible for the proposed reduced FITs if the relevant building meets a certain level of energy efficiency.

DECC is seeking views on this energy efficiency requirement, and the consultation suggests that this could include:

(a) an obligation to bring the property up to an energy performance certificate (EPC) rating of level C or above; or
(b) an obligation to undertake all of the measures that are identified on an EPC as potentially eligible for Green Deal finance.

The proposed energy efficiency requirement is planned to apply to all new PV installations from 1 April 2012. As a transitional arrangement, it is proposed that installations with an eligibility date of 1 April 2012 - 31 March 2013 would have twelve months from the eligibility date to install any necessary energy efficiency measures.

The proposed multi-installation rates … will also concern landlords seeking to self-fund PV installations across property portfolios

If such measures are not installed at the end of this period, then DECC propose that the FIT would be reduced to 9p/kWh for the remainder of the 25 year eligibility period. This may incentivise owners to bring forward plans for other energy efficiency works.

The consultation also notes that DECC are considering what could be done to enable “genuine community projects”, although there is little clarity on what constitutes a community project or the proposed timeline at this stage. More details are to be provided in the second consultation, due out by the end of 2011.

The planned changes are likely to have a significant impact on the PV sector. As this is a consultation process, the final position is unknown. It will depend on the responses received and completion of the due process. However, many will feel that the planned changes are moving the goalposts too far and too fast - leaving a string of failed procurements in the pipeline, associated wasted costs and disappointed tenants.

Chris Paul is a partner in the energy and sustainability group at Trowers & Hamlins