The UK Government Department of Energy and Climate Change (DECC) has announced the start of the first review of the Feed-in Tariffs (FITs) scheme for small scale electricity generation.

The review, which although expected given the Government’s Spending Review, will be met with concerns by some in the renewables sector – but equally the move will be supported by the ever-growing numbers who see microgeneration as a very attractive investment vehicle.

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The FITs scheme requires Licensed Electricity Suppliers, referred to as FITs Licensees, to pay a per unit support tariff for electricity generated, predominately to ‘feed into’ the National Grid. The FITs scheme is open to small scale generators using either anaerobic digestion, biomass, hydro, photovoltaic/solar(PV) or wind generation with a capacity of up to five megawatts.

As neighbourhood sensitivities dissuade many rural landowners in the UK from entering into agreements for wind farms and smaller scale developers baulk at the infrastructure costs, a flourishing industry has arisen in the field of PV in which potential developers attempt to negotiate rights with landowners to participate in the earn out from electricity generation.

The announcement by Energy Secretary Chris Huhne – ironically, shortly after opening a solar panel manufacturing facility in Wrexham – to review the FiT scheme came amid concerns that larger scale PV projects now threaten to consume too much of the funding pot, resulting in less money being available to assist homes, communities and businesses to start up electricity generation schemes. The FiT scheme had been seen to contribute to the UK Government target of generating 30% electricity from renewable sources by 2020 to meet the overall European Union target of 20%. The tragic events in Japan, in particular the nuclear plant crisis, has only served to accelerate interest in renewable energy across the world.

The FITs scheme was never intended to be immune to review, however the rate of take up by developers of schemes in excess of 50 kilowatts has prompted the DECC to accelerate the process. The good news for smaller generators of electricity from PV is that they are unlikely to be adversely affected by the review.

But while DECC has given every indication that the tariff level will remain unchanged until April 2012, there are fears that the review will make recommendations for greater urgency that will impact on those developing larger generating projects.

It must be noted that the terms of reference of the review extend beyond determining the tariff levels, but also extends to the administration and eligibility of qualifying technologies. This has spread apprehension in the sector. It means commitments made by a number of developers which were predicated on a set of known assumptions will no longer apply, particularly given the notorious length of time that it takes to run applications for consent to develop through the planning process.

It would perhaps be considered rather glib to offer advice to potential developers that they should get their skates on if they wish to take advantage of the present tariffs available. It is simply not in the gift of a single agency or consenting body to develop a PV project through from conception, running due diligence, through to the planning process, conclusion of agreements with the FITs licensee, connection to grid, installation of the plant and machinery to final commissioning, all in the length of time it will take the DECC to conduct its review. In the circumstances, many developers may elect to sit on their hands and await the outcome. For those who have not yet committed themselves to projects, this may be sound advice. However, for those developers who find themselves caught in the middle of a project, that cannot be the answer either, and they may be advised to review their agreements and consider whether they can “park” their projects and await the outcome of the review. This may mean postponing key steps in the project such as lodging the application for planning consent, applying for other necessary consents or seeking accreditation from Ofgem through its Renewable and CHP Register, not necessarily in that order. The Minister has intimated that the review will be completed by the end of 2011, by which time stability may be restored albeit on a new playing field.

Source: John Cumming, Partner, Ennova Renewable Energy Law