Feed-in Tariff Consultation response

We have written to the Department of Energy & Climate Change with our response to the Feed-in Tariff consultation

 

Below is our response – please feel free to copy/edit and send your own, or a similar version to: FITReview@decc.gsi.gov.uk

The more responses submitted, the better.

 

Feed-in Tariff Review Team
Department of Energy & Climate Changelogo round transparent 2nd Floor Area D
3 Whitehall Place
London
SW1A 2AW

 

19th October 2015

Dear Madam or Sir,

SJ1 Renewables Ltd is a 3 year old company who specialise in the design and installation of micro hydro projects throughout the UK. We refer to Micro hydro projects as schemes with a total installed capacity of <100kWs. These projects are typically run-of–river projects and can be situated in rural upland and lowland areas, or within urban conurbations utilising existing weir structures from our industrial heritage. Hydro turbines hold a fascination to many and those who work within the industry hold a passion for utilising the harnessed power of water to provide sustainable, clean electricity.

Hydro has many benefits:

  • Low environmental impact;
  • Low visibility;
  • A historic and proven technology;
  • High capacity factors;
  • Longevity – a well maintained turbine can operate for 50+years;
  • Skilled employment;
  • British supply chain.

The business case for Hydro, like so many infrastructure projects, puts the burden of cost at the planning and building stage. Once operational, hydro installations have steady, low level, operational costs. This means projects start off in large debt, then through revenue generated by the sale of electricity and the FIT, the project recuperates its capital cost and slowly becomes profitable.

The FIT is a subsidy that bridges the gap between the market price of electricity (~5p/kWh) and the consumer sale price of electricity (~19p/kWh). Without this, most projects will remain in debt and will therefore not be financially viable.

Micro hydro projects provide a small, but important part of the UKs energy mix. We would like to develop hydro projects free from subsidy, but in this climate, it is not currently possible. However, the following factors would allow micro hydro to succeed without the FIT.

  1. Fast tracked direct supply, allowing generators to sell their electricity to consumers at a higher price available from a PPA or export tariff.
  2. Low cost long term Government loan/bond to cover capital costs, with repayment through sale of electricity over 25 years.
  3. Carbon tax – Currently the market price of electricity is very low, skewed through years of fossil fuel subsidy which does not include the embedded costs of carbon.
  4. Government funding for environmental works.
  5. Government funding for grid connections.

Hydro installations were forsaken as rural electrification came to the fore. They have enjoyed a well-founded revival in recent years and it will be to our detriment if we allow them to fall to this fate once more.

Yours sincerely,

SJ1 Renewables Ltd

CONSULTATION QUESTION RESPONSES

Section 2 – Securing value for money

Question 1 – Do you agree or disagree with the proposed generation tariff rates set out above?  Please provide reasons to support your answer.

SJ1 Renewables Ltd strongly believes that the new tariff levels for <100kW and the removal of the 0-15kW band for micro hydro will render the majority of schemes within the UK financially non-viable. This is especially the case for low-head schemes, which predominately make up the <100kW schemes in England and generally have a higher capital cost than high head schemes that proliferate in Wales and Scotland.

Having reviewed evidence from the Poyry report, commissioned by the BHA, we can conclude that the Parson Brinkerhoff report underestimated the cost of building the <100kW schemes leading to their suggested tariff rate not being fit for purpose.

With the removal of pre-accreditation and further degression, hydro projects, which generally have a lead time of 2-4 years, will face such a diminishing and unpredictable business case that it is hard to envisage anyone embarking on this journey.

With additional and increasing costs posed by the Environment agency, the likely increased impact of climate change induced deluge and drought on river flows, micro hydro installations will become a thing of the past.

Question 2 – Do you agree or disagree that the updated assumptions produced by Parsons Brinckerhoff are reflective of the current costs of deployment for UK projects in your sector?  If you disagree, please set out how they differ and provide documented evidence, such as invoices and/or contractual agreements to support this evidence.  Please also mark this evidence as commercially sensitive where appropriate.

As proved by the BHA commissioned Poyry report, the Parsons Brinckerhoff report did not provide a realistic review of the costs for installation and operation. The Poyry report reflects a more accurate review of costs.

It should also be noted that costs for hydro are not coming down, but rather going up due to rising construction and environmental costs. Each site will pose its own construction issues. Construction around the river environment poses specific issues and specialist equipment and knowledge. Weather is a determining factor, alongside environmental considerations and limitations, such as fish migration.

Question 3 – Do you consider the proposed default degression pathways fairly reflect future cost and bill savings assumptions in your sector?   Please provide your reasoning, supported by appropriate evidence where possible.

SJ1 Renewables Ltd does not think degression should be use in the <100kW hydro sector for the following reasons:

  • The technology is mature and will not see reductions in cost;
  • Sites have been cherry picked, so the most favourable and lowest cost to build have already been developed, leaving more complex and therefore expensive to build.
  • If there is a Cap on total installed capacity giving an overall static budget, why is degression needed? This leads to investor uncertainty and higher costs of debt.
  • Hydro has such a long lead time that multiple degressions could affect a project during its progression.

Question 4– Do you consider it appropriate to harmonise the triggers for contingent degression across all technologies, and do you consider the proposed triggers will ensure tariffs reflect falling deployment costs?  Please provide your reasoning, supported by appropriate evidence where possible.

As stated above, SJ1 Renewables Ltd does not feel the hydro sector should have contingent degression applied at all. Hydro projects take considerably longer than other technologies and individual projects would have multiple degeressions across the project lead time.

As stated above, SJ1 Renewables Ltd believe that degression is unnecessary when there is a cap placed on installation.

 

Question 5 – Which of the options for changing the export tariff outlined above would best incentivise renewable electricity deployment while controlling costs and enabling the development of the PPA market?  How should we account for the additional and avoided costs to suppliers associated with exports in setting the export tariff?  Please provide reasons to support your answer.

SJ1 Renewables Ltd would like to see the hydro industry move away from the FIT subsidy, as intended by DECC. However, this cannot happen until there is a fair and reasonable market price for clean, green electricity. Currently there is no differentiation at market between the electricity generated from fossil fuels and green electricity. The market offers the lowest common denominator of fuel costs, skewed by the years of subsidy the fossil fuel industry has enjoyed and not accounting for the cost of climate change from high carbon fuels. This price does not allow green electricity to be competitive.

SJ1 Renewables Ltd believe that either:

  • a two tiered price structure for the market price of electricity is created to account for the benefits of green energy.
  • A carbon tax is applied to electricity generated from fossil fuels.

Clean, green electricity should be treated as the valuable commodity it is. Hydro offers great value for money when we consider the 20 year FIT weighted against 50 years of electricity generation.

Question 6 – Do you agree or disagree with the proposed changes to the indexation link under the FiTs scheme?  Please provide reasons to support your answer.

If DECC were to agree to the removal of degression and hold the FITs at a rate whereby schemes can be built with a reasonable payback, SJ1 Renewables Ltd would propose that FITs are not linked to either RPI or CPI and therefore do not increase with inflation. This would remove some of the uncertainty for DECC and would help align support for projects when most needed, at build stage.

Question 7 – Do you agree or disagree with the proposal not to include any additional technologies in the FiTs scheme?  Please provide reasons for your response.

SJ1 Renewables Ltd believe that DECC should encourage innovation in the clean energy sector and should support new technologies to achieve a market base. However, this should not be to the detriment of other technologies that still need support to be competitive within the market place. As stated above, hydro cannot be competitive with the current skewing of market price electricity.

Section 3 – cost control measures

Question 8 – Do you agree or disagree with the proposal to introduce deployment caps under the FiTs scheme?  Please provide your reasoning.

Although SJ1 Renewables Ltd agree with the proposal to introduce deployment caps under the FiTs scheme, we feel that this cap should have bands within it to protect the 0-15kW and 15<100kW scale of hydro. 75% of installations are <100kW, therefore a minority of large schemes could engulf the cap leaving none for Micro hydro which is a speciality in itself.

As hydro has a much longer lead time than other technologies, it is appropriate for hydro to have its own cap.

Question 9 – Do you agree or disagree with the proposed design of the system of caps (ie quarterly deployment caps broken down by technology and degression band)?  If you disagree, are there any alternative approaches?  Please provide your reasoning, making clear your answer is different for different technologies or sectors.

Quarterly caps (combined with the re-introduction of pre-accreditation) will enable the deployment across all technologies to be better spread between now and the end of the FiTs scheme. However in order to account for seasonal variations – particularly in hydro where construction requires dry weather and commissioning requires wet weather – we propose that unused capacity from one quarter can be carried forward to the following 1 or 2 quarters and indeed between years.

Question 10 – Do you agree or disagree with the proposed approach to implementing caps?  If you disagree, are there any alternative approaches that you’d suggest?  Please provide your reasoning, making clear if your answer is different for different technologies or sectors and provide any views on what should happen to applications for FiTs installations which miss out on a cap.

SJ1 Renewables Ltd feel that the system will be more levelled if pre-accreditation is re-introduced. This allows a steadier flow of projects to be progressed and reduces overall risk, which smaller developers, who are more likely to work on micro hydro projects, will need if they are to stay in business.

Schemes that have pre-accredited  are essentially in the ‘cap’ queue, but should be asked to update OFGEM if they have not started building within the year. These schemes should have to give further evidence about their intention to build, to ensure there are no ‘cap queue hoggers’. Accredited schemes should receive the FIT when they have commissioned.

If pre-accreditation is revived, this will give an indication of when the Cap queue is nearing capacity and which quarter the queuers should aim to be built and accredit by.

Question 11 – If it is not possible to sufficiently control costs of the scheme at a level that Government considers affordable and sustainable, what would be the impact of ending the provision of a generation tariff for new entrants to the scheme from January 2016, ahead of the 2018-19 timeframe or, alternatively, further reducing the size of the scheme’s remaining budget available for the cap?  Please consider the immediate and broader economic impacts and provide your reasoning.

As already stated, the market price of electricity is not sufficiently high enough to allow electricity generated from Micro hydro schemes to be cost effective. This is not because hydro power does not offer good value for money, but that the market is not sophisticated enough to appreciate that low carbon electricity has a much higher long term value.

The Conservative manifesto statement: “cut emissions as cost-effectively as possible to “keep your bills as low as possible” is oxymoronic. Without suitable investment in low carbon infrastructure we are locking the UK into much more serious issues. Lord Stern’s most recent paper highlights that spending money now on climate change mitigation, is considerably more cost effective than leaving this issue for the next generation.

Throughout these consultations, DECC have failed to give further evidence on how and why the LCF is overspent?

If the FIT scheme is closed, then the micro hydro industry will be savagely curtailed loosing potential schemes, skills and experience.

Question 12 – What would be the impact of pausing applications to FiTs for new generators for a short specified period to allow the full implementation of the cost control mechanisms?  Please consider the immediate and broader economic impacts and provide your reasoning.

Clearly a pause is better than losing the FIT scheme, but either way the industry will be decimated and the UK will lag behind where previously it was spearheading.

Question 13 – What would be the impact if FiTs continued as an export-only tariff for new generators on reaching the cap of £75-100m additional expenditure?  Please provide your reasoning.

As previously stated, the market price of electricity is not high enough to support hydro. If the market price accounted for the price of carbon in electricity from fossil fuels (Carbon tax), then there would be a significant rise in this market price and Hydro would be more cost competitive. If this was married to a low cost loan/bonds from Government for initial capital costs, then hydro, viewed over a longer investment period, could well be financially sustainable.

The difference in market price ~5p/kWh and domestic consumer price ~19p/kWh is very large. If Hydro could sell for nearer the consumer price, then it would be financially viable without the FIT. Fast tracking ‘direct supply’ would enable this to happen.

Question 14 – Do you have any views on the use of competition to prioritise applications within a system of caps?  What do you think are the advantages and disadvantages of this approach?  What forms of competition may be appropriate and is this different for different sorts of installations?  Please provide your reasoning.

Providing a stable policy landscape that allows developers to match supply with demand will allow the UK renewable energy industry to flourish. There are finite Hydro sites within the UK, it is within DECC’s interest to create a system by which each of those viable sites is developed and creating renewable energy for multiple years ahead.

Question 15 – Should FiTs be focussed on either particular technologies or particular groups (e.g. householders)?  Please provide your reasoning.

The FIT should be focused on generating as much low carbon electricity as possible. Each technology has its merits and is suited to different environments. Co-operative ownership should be favoured as a way to allow maximum benefit within communities in proximity to the installation.

Question 16 – Do you agree or disagree with the proposal to remove the ability of new installations to extend their capacity under the FiTs scheme?  Please provide your reasoning

SJ1 Renewables Ltd believe that extending capacity should be allowed as this may well provide value for money if civils costs and other capex can be minimised by shared installations.

Section 4 – metering

Question 17 – Given our intention to move to fully metered exports for all generators, do you agree with the proposal that new and existing generators should be obliged to accept the offer of a smart meter (or advanced meter) when it is made by their supplier?  Please provide reasoning for your response.

SJ1 Renewables Ltd supports the idea that smart meters should be used as part of a supplier led roll out.

Question 18 – Do you agree or disagree with the alternative proposal that new applicants must have a smart meter (or advanced meter) installed before applying to the FiTs scheme, with existing generators being obliged to accept the offer of a smart meter (or advanced meter) when it is made by their supplier?  Please provide reasoning for your response.

SJ1 Renewables Ltd disagrees with the requirement that new applicants must have a smart meter when this is not led by their supplier. There is still significant confusion around smart meters and consumers should take the lead from their supplier.

Question 19 – Do you have any views on possible approaches to introducing remote reading for generation meters?  Please provide reasoning for your response.

As we move to the ‘internet of things’ and smart grids it is wholly acceptable that remote metering is used.

Section 5 – Effects of the Feed-in Tariffs scheme on grid management and costs

Question 20 – Do you agree or disagree that recipients of FiTs should be required to notify the relevant DNO of new installations as a condition of the scheme?

If a scheme isn’t required to notify a DNO currently then introducing that requirement will create an additional administration burden on DNOs with no benefit.  If smart meters are used, this will give the DNO sufficient information.

Question 21 – Do you agree or disagree the FiTs scheme should be amended to include requirements that help mitigate and limit the impact on grids such as requiring generation to be co-located with demand or storage?

Hydro is geographically limited in its locations and gird connection is often a prohibiting factor for schemes. Many schemes can’t go ahead and others have to limit their total installed capacity according to grid capacity. The DNOs have been slow to respond to the grid moving from centralised to decentralised generation. With ‘smart’ technology evolving rapidly, the DNOs are not keeping pace and the consumer and developer are paying the costs for this. The FIT scheme is designed to encourage the generation of renewable electricity; the scheme should not be used to accommodate the intransigent DNOS.

Question 22 – Do you agree or disagree that the FiTs scheme or wider networks regime should be amended to ensure generators pick-up the costs they impose on networks?

Generators already pick up the costs to re-enforce the grid which is allocated on a first come, first served basis. This is a large burden on developers, that isn’t represented in the FIT subsidy. There should be a infrastructure allowance that allows the DNOs to work towards a smarter grid.

Section 6 – Ensuring sustainability for anaerobic digestion

Question 23 – Do you agree or disagree that payment s to newly accredited AD installations, at all scales, are conditional on meeting the proposed sustainability criteria?  Please provide your reasoning.

No Comments

Question 24 – Do you agree or disagree that the proposed criteria and GHG trajectories set out above would set the necessary bar to meet our objective to incentivise the multiple benefits from waste-fed AD?  Can you suggest alternative criteria which would help to achieve this goal?  Please provide reasoning and evidence for your answer.

No Comments

Question 25 – Do you agree or disagree with the proposed reporting system to underpin sustainability criteria?  Please provide your reasoning.

No Comments

Section 7 – Administrative changes to the Feed-in Tariff scheme

Question 26– Do you agree or disagree that only imported renewable electricity produced by generators in other EU Member States that are under 5MW and commission on or after 1 April 2010 should be used to offset levelisation costs?  Please provide your reasoning.

SJ1 Renewables Ltd strongly believe that suppliers must be obligated to purchase their renewable electricity within the UK.

Question 27 – Do you agree or disagree that we should introduce a cap on the amount of overseas generated renewable electricity that can be exempt from the costs of the scheme?  Do you agree that the cap for 2015/17 should be calculated based on the number of GoOs recognised in 2013/14, increased by 10% twice to match the cap under the CFD Supplier Obligation?

SJ1 Renewables Ltd strongly believe that suppliers must be obligated to purchase their renewable electricity within the UK.

Question 28 – Do you agree or disagree with the proposed change to the FiTs legislation to refer to specific versions of relevant MCS standards?  Please provide your reasoning.

Hydro is currently exempt form MCS requirements and in order to continue with any deployment of schemes <50kW, this needs to remain the case.

Question 29 – Do you agree or disagree with the Government’s proposal to use the interest accrued on the FiTs Levelisation Fund to part-fund administrative changes to the scheme which would otherwise be borne through public funding?  Please provide your reasoning.

SJ1 Renewables Ltd believe that any interest accrued should be used to further the generation of renewable electricity.

Section 8 – Energy efficiency criteria

Question 30 – Do you agree or disagree with the revision being considered to increase the energy efficiency threshold to EPC band C for anyone with an installation to which the criteria apply?  Please provide your reasoning.

No Comment

Hydro is not linked to a building and therefore building energy efficiency is not applicable to hydro.

Question 31 – Do you agree or disagree with the revision being considered to remove FiTs eligibility from anyone with an installation to which the criteria apply who does not have at least an EPC band C?  Please provide your reasoning.

No Comment

Hydro is not linked to a building and therefore building energy efficiency is not applicable to hydro.

Question 32 – Do you agree or disagree with the exceptions for community groups, schools and fuel poor households to the revision of energy efficiency criteria being considered?  Please provide your reasoning.
No Comment

Hydro is not linked to a building and therefore building energy efficiency is not applicable to hydro.