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Renewal Energy Cost Control Measures

Volume 603: debated on Thursday 17 December 2015

The Government are committed to cost-effective decarbonisation of our electricity supply and to protecting consumer bills by controlling costs under the levy control framework. Levy control framework projections published in July showed a significant overspend. This underlined the fact that we cannot afford to continue providing unchecked support for the renewables industry via demand-led schemes. As we transition to a low-carbon economy as cost effectively as possible, finding new sources of energy that are cheap, reliable and clean is essential.

Earlier in the year, we announced a package of proposed cost control measures that would help tackle this projected overspend on renewable support schemes. This included:

Measures to constrain support for sub-5MW solar under the renewables obligation (RO)—our monitoring of this technology scale since the closure of the RO to solar over 5MW demonstrated much higher levels of deployment than expected.

A review of the feed-in tariff (FIT), designed to put the scheme back on an affordable, sustainable footing and to ensure that we were not overcompensating projects—a requirement of our state aid approval.

We have consulted extensively on these proposals and taken on board views from a wide range of stakeholders. In considering their responses, we have sought to balance the different needs of industry, consumers and communities —and to target support where it is most needed. We consider that we have struck the right balance in the final policy decisions we are publishing today.

Today DECC is publishing a package of documents setting out measures to introduce cost control under for renewable energy support schemes. This includes:

the Government response to the consultation on the feed-in tariff review;

the Government response to the consultation on ending support for small-scale solar PV under the RO;

a consultation on a banding review for small-scale solar PV under the RO.

Government response to the feed-in tariff review

DECC launched a consultation on the future of the feed-in tariffs (FITs) scheme on 27 August 2015. This proposed a number of measures to meet two core objectives: to comply with our state aid approval requiring that the UK Government review the support offered by the FITs scheme every three years; and to control the cost of the scheme to limit the impact on consumer bills.

Today we are publishing our response to this consultation. Our measures seek to maintain a solar industry which, in the medium term, can continue to reduce its costs and move towards subsidy-free deployment, and to provide other technology sectors with tapered support over the coming years.

The Government response to the consultation sets out the following key decisions:

Updated generation tariffs, revised in response to evidence on technology costs received during the consultation.

Introduction of deployment caps to limit spend on the scheme to £100 million by the end of 2018-19.

The reintroduction of pre-accreditation for solar PV and wind generators over 50kW and all hydro and anaerobic digestion generators. We removed pre-accreditation last October to control costs under the scheme by limiting the value of the deployment surge in response to tariff reductions. Under the revised, cost-controlled scheme, pre-accreditation can play an important role for projects with longer lead-in times, such as those developed by the community energy sector.

Measures to pause acceptance of new applications to the scheme for up to four weeks in the new year. This will allow time for the implementation of cost-control measures, ensure better value for money for the bill payer by offering revised tariffs to investors, and preserve budget for the future of the scheme.

On several other areas in the consultation DECC does not intend to introduce changes now, but will build on the points made in responses to this consultation to produce more detailed future proposals. These include energy efficiency criteria, the export tariff, smart meters, grid issues and sustainability criteria for anaerobic digestion. DECC also intends to consult on revised tariffs for new anaerobic digestion and micro-CHP installations in the new year.

Renewables obligation—support for small-scale solar and banding review

When DECC confirmed the closure of the renewables obligation (RO) to solar PV projects of 5MW and above last year, we made it clear we would monitor the pipeline of smaller solar PV projects, and take action if needed to control costs.

Because the monitoring indicated deployment was growing more rapidly than previously forecast, on 22 July 2015 we published a consultation relating to sub-5kW solar PV projects proposing the early closure of the RO, the removal of grandfathering for projects not accredited on 22 July, and a banding review. We received 94 responses in total, from across the solar industry, and from local authorities, community groups, NGOs and individuals.

Having reviewed the responses carefully, we consider that the approach we set out for the RO remains the right one, so today we are announcing that we intend to implement the measures largely as consulted upon. Specifically, we will be:

Closing the renewables obligation across Great Britain to new solar PV capacity at 5MW and below from 1 April 2016.

Introducing grace period arrangements to protect those developers who have preliminary accreditation, or have already made a significant financial commitment on or before 22 July 2015—the date of which the consultation document was published—or who experience grid delay beyond their control.

Removing grandfathering from 22 July 2015 for solar projects in England and Wales, unless they have made a significant financial commitment on or before 22 July 2015.

We do intend to make two minor changes to the policy consulted upon:

A change to prevent projects that made invalid or incomplete planning applications from benefiting from the grace period or exception to the changes to grandfathering policy.

A change to confirm our intention that projects meeting the criteria for the exception to the removal of grandfathering will receive the currently applicable support rate when they commission.

Updated evidence on costs published today highlights a risk that we could be overcompensating projects under the RO if support is paid at current levels while it remains open.

So we are also publishing a consultation document proposing new bandings for solar PV at 5MW and below, and proposals for an additional banding grace period.

Decarbonising electricity generation—progress report

I am also providing a report to Parliament on progress in decarbonising electricity generation in the period 2012-14, a requirement under the Energy Act 2010. Good progress has been made, for example low-carbon electricity’s share of generation increased to a record 39% in 2014. The Government remain committed to affordable, reliable clean energy to ensure we can meet our climate change commitments.