Get FiTs
It is universally accepted that local authorities will have a key role to play in efforts to tackle climate change. More than 90 per cent of councils have already adopted targets to reduce emissions in their own operation or across their local area, or targets to adapt to the effects of climate change.
One measure to assist the UK in achieving the target of a 20 per cent reduction in greenhouse gas emissions by 2020 is the Feed-in Tariff Scheme (FiTs), which was introduced on 1 April 2010. FiTs will work alongside the existing Renewables Obligation (RO), which will remain the primary mechanism to incentivise deployment of large-scale renewable electricity generation, and the Renewable Heat Incentive (RHI) which will incentivise generation of heat from renewable sources at all scales.
The question is: will local authorities benefit from the FiTs? The main benefit of the FiTs is that you will have certainty in earning an income from your renewable energy investment. The FiTs provides for a guaranteed fixed rate for every kilowatt of electricity generated by renewable technologies of up to 5MW in size. The level of payment will vary by technology type and scale and will be linked to inflation.
Wind, solar PV, hydro and anaerobic digestion technologies smaller than 5MW and domestic scale micro-CHP (combined heat and power) with a capacity of 2kW or less are eligible for FiTs. Support is given for a 20 year period (except for solar PV, which is 25 years, and micro- CHP, which will be 10 years). Tariffs will be set at a lower level each year for new installations.Export tariffs will be set at 3p/kWh exported. However, generators may opt out and sell their electricity on the open market. For further confirmation on tariffs please refer to the DECC website.
The FiTs will be introduced through two principal mechanisms. The first will be a set of modifications to electricity supply licences, which set out how the FiTs will operate. The second mechanism is the FiTs Order (the Feed-in Tariffs (Specified Maximum Capacity and Functions) Order 2010), which specifies the functions and duties of Ofgem as administrator of the FiTs, and also sets a maximum capacity for the FiTs at 5MW.
While the benefits of FiTs are evident, one major hurdle stands in the way for local authorities. Local authorities can generate electricity for their own buildings but the Local Government (Scotland) Act 1973 and the Local Government (Miscellaneous Provisions) Act 1976 (for England and Wales) currently prevents them from selling electricity that is not produced in conjunction with heat (or, in Scotland, generated from heat and waste). So, in effect, a local authority would be prevented from selling electricity generated from, for example, a council-owned wind farm.
While the current regime has allowed local authorities to participate in small scale electricity and heating schemes, it has prohibited them from developing electricity generation projects.
The UK Government is keen to see local authorities play a full part in the development of renewable heat and electricity, and is consulting on changes which would allow local authorities to sell electricity generated by them from renewable sources. The consultation states that allowing local authorities to sell electricity generated from such sources would encourage the development of local renewable electricity projects by those local authorities that are well-placed to undertake them either on their own or in partnerships. It also notes that some local authorities are starting to consider developing renewable generation projects, either themselves or in partnership, as part of their role in addressing the challenges of climate change and meeting their commitments to sustainability.
Any changes as a result of the consultation would be made through secondary legislation - by the DECC in respect of England and Scotland and by Welsh Ministers in respect of Wales. The closing date for responses to this consultation is 2 June 2010.
Under the proposals set out in the consultation, local authorities would be able to benefit from FiTs if their projects met the qualifying criteria for these policies (as set out above). For example, a local authority could raise capital to install solar PV panels or a biomass CHP unit in its own housing stock the n collect the generation and export tariff to pay back the capital – providing a return for local taxpayers to cross subsidise other services, while tenants receive the benefit of lower energy bills. This means that local authorities would not just be installing new technologies on their own estate but would be acting as promoters, catalysts and partners in encouraging and enabling local households, voluntary and community organisations and businesses to install co-operatively owned renewable energy schemes onsite.
If the proposals in the DECCs consultation proceed, from a legal perspective (at least), local authorities will be able to develop FiTs-compliant renewable energy projects themselves. They will have the power to sell the electricity produced and benefit from the variety of incentives aimed at encouraging renewable electricity generation in the UK with the added FiTs benefit of certainty in earning income from renewable energy investment.
Alongside this opportunity for local authorities, the FiTs provides a real chance for households, businesses, communities, farmers and others to take some degree of control over their energy supply (away from the energy companies), to cut their carbon emissions, protect themselves against future fossil fuel price rise and gain a stake in creating a low-carbon economy.
Without having to wait for the outcome of the DECC consultation in terms of selling electricity, local authorities will be able to access the RHI to support investments in renewable heat measures, for example, in their own buildings. The RHI will come into force in April 2011 - guaranteeing payments for technologies such as ground source heat pumps, biomass boilers and air source heat pumps. The RHI proposes to pursue the same objective for renewable heat at all scales as the FiTs does for smallscale renewable electricity installations.
The proposed tariff rates of return are 12 per cent across all technologies (except for 6 per cent for solar thermal). This attractive rate of return is due to the technology involved being considered comparatively well known and not presenting particularly complex installation challenges – unlike FiTs. The Government is keen for local authorities to work with other partners on community-scale renewable heat schemes which can be supported by the RHI.
It’s worth noting that the Pre Budget Report included a commitment from Government to consider the scope for local authorities to borrow against the income streams from both RHI and FiT schemes. It remains to be seen when and how this will happen – watch this space.
The electricity supply industry is complex and heavily regulated. The most beneficial and cost effective approach for local authorities might be a combination of both FiT and RHI schemes. To maximise the benefits of renewable energy any local authority wishing to take advantage of the opportunities presented by the proposed changes, including the FiTs (and RHI), will need to be well prepared and well advised.
