Investors Backtrack in Wake of FiT Announcement

Tip of an iceberg

Investment may begin to stall for the renewables industry after the announcement of changes to the FiT. Even before the cuts are due to be implemented in January next year, damage is already being done to our ability to go green on a large scale.

When the Government and DECC announced proposed changes to the FiT subsidy recently, many insiders voiced their opinion that it will cause severe damage to the renewables industry. At best, it could see a dramatic slowing down of much needed investment and the possibility that some major players will begin to seriously reconsider their positions. At worst, it may cause such uncertainty that the green energy cause will be pushed back and crippled for many years to come.

It didn’t take long for things to start happening in the industry when the news was first announced at the end of August.

Drax and Carbon Capture

In Selby in Yorkshire, one of the biggest coal-fired power stations in the country has been the scene of quite a lot of investment and innovation over the last few years. Owned by Drax, developments have been ongoing to capture carbon dioxide produced by the plant and send it out to the North Sea.

This ambitious, £1 billion project may now be put on the back burner because the Government has removed tax exemptions. The day the policy change was announced, Drax saw their share price drop and it caused them to quickly reconsider whether they are going to proceed with the project.

Towards the end of September, Drax published a press release on their website:

“We are confident the technology we have developed has real potential, but have reluctantly taken a decision not to invest any further in the development of this project.  The decision is based purely on a drastically different financial and regulatory environment and we must put the interests of the business and our shareholders first.”

Swansea Tidal Lagoon

We reported not too long ago on the investment going into one of the biggest renewable projects the UK has ever seen with the Swansea Tidal Lagoon. Initial investment in the project has been good with many companies coming on board to help finance what could be the first real large scale innovation to harness the power of our coastline to produce clean, renewable energy.

The problem is that investment depends on the investors getting a return on their money and the changes to subsidies or the uncertainty of them may cause them to lose their nerve and back out. This hasn’t happened yet with the Swansea Tidal Lagoon but the start date has been delayed and the completion moved back two years as the project waits to see what kind of subsidy they can expect.

The delay has caused some considerable frustration in the region despite MP Byron Davies stating:

“When such huge sums of money are involved, it is incumbent on everyone to ensure that the taxpayers, who will be buying the electricity produced, get value for money. Everybody, from David Cameron and George Osborne down, are totally behind this exciting project, which will be a world first for Swansea.”

The Future of Investment in Renewables

With two of the biggest projects in the UK suddenly exhibiting ‘cold feet’ the question remains how many others are going to be affected by changes in subsidies such as the Feed in Tariff. If investors aren’t sure of their return then why, indeed, would they want to put their money into new projects?

The truth is that subsidies aren’t just about making it easier for green energy to thrive in the UK, they are a vital part of the incentive to get businesses to invest. Without that initial investment, the industry will struggle to innovate and grow and the prospect of a lower carbon economy, that is less dependent on fossil fuels and nuclear energy, becomes less likely.

How precarious it can be for businesses was highlighted this week when one of the country’s top solar panel installers filed for administration with the loss of almost a thousand jobs. Admittedly the company was encountering problems but it had a turnaround plan to get things moving again and this had already been implemented. Unfortunately, proposed changes to the FiT announced in August suddenly meant that their recovery plan was not going to work.

A spokesman for the Mark Group commented:

“The turnaround plan, which was already under way, focuses on solar PV, but the government’s recent policy announcements mean this is no longer viable.”

BREAKING NEWS: Within a few hours of news that the Mark Group was going into administration, another solar company, Climate Energy, has gone bust with the loss of 100 jobs.

There is no doubt that even before the measures of reducing the Feed in Tariff have been introduced, the simple announcement of the policy has already caused damage to the renewables industry. It could be approaching much stormier waters in January if the cuts go through and more investors start pulling the plug on green energy.

 

By Stephen M.

The Big Energy Subsidy Imbalance that Threatens Renewables

Fossil Fuel Subsedies

Pressure is mounting on the Government ahead of their proposed changes to subsidies for the renewable industry with some heavy hitters voicing their concerns and businesses starting to reconsider their investments in the industry. Slashing support such as the Feed in Tariff is widely seen as a negative move and many are concerned that the Tories are hell bent on stalling the renewables sector, something that will seriously affect our ability as a nation to meet those all-important carbon targets.

How we Currently Subsidise the Renewables Industry

Subsidies for the renewables industry are not funded through direct taxation. They are paid by us, the consumer, through higher electricity bills. The Tories are worried that the support needed to further grow the industry over the coming years will add something in the region of £170 to each of our bills in the lead up to 2020.

End fossil fuel subsidiesThe reason? There has been a higher than expected take up of technologies such as roof top solar panels and this success has, according to the Tories, seen subsidies spiralling out of control. In other words, renewables are more popular than everyone thought they would be and, if we are going to continue with them, we are going to have to pay more through our utility bills.

There is much play in the Government about making hard spending decisions that will reduce the deficit, something that we have all been listening to over the last 5 to 6 years whilst they have been in power. This year alone, the DECC has to find savings of around £70 million within the department. That’s on top of previous reductions under the coalition government.

The problem is that reducing the deficit also relies on us doing good businesses and growing industries such as renewables which provide valuable jobs and boost tax revenue. Cutting them off at the root too early could well see a decline in investment which could then also impact on all the work that has been done so far to reduce the budget deficit.

We may well all want to see a cleaner and more productive energy structure in the UK but the Government are saying we don’t want it at any cost. According to a DECC source in July, before news of the proposed cuts to FiT were announced:

“The public is in favour of action to cut carbon, but not at any cost and the bottom line is that subsidies should help industries get off the ground, not be relied on indefinitely. We’ll continue to meet our environmental commitments and power our economy with clean energy, but in a way that keeps costs under control and doesn’t leave consumers paying over the odds for green projects.”

The Future of Renewables

Let’s be clear: The industry itself is not against eventually reducing subsidies but the speed with which it is being done is potentially damaging and could have a massive impact for many years to come. Yes, we may have to pay more on our utility bills over the next few years with the current way of funding, but we will incur huge price in the next couple of decades if we don’t give renewables a firm enough foundation.

The other question that needs to be answered is why the Government is still providing large subsidies to both the fracking and fossil fuel industries. This is not just a UK problem – the IMF recently came out to say that fossil fuels are being subsidised to the tune of an eye watering $1.9 trillion a year globally. When the Government says that subsidies ‘should not be relied on indefinitely’ it raises the question as to why the fossil fuel industry gets them at all.

Surely the issue is that we should be reducing subsidies to less carbon friendly industries rather than to the renewable sector. The tax breaks and subsidies that the fossil fuel industry enjoy are backed up by the Government view that they also create investment in the UK and produce valuable jobs that boost the economy. The very thing that they do for the renewables industry.

Unfortunately, whilst the subsidy levels for the fossil fuel industry seem incompatible with our green agenda, the simple fact is that it pays a good deal of tax to the country’s coffers. As the Guardian recently reported:

“There is tangible public hunger to tax big corporations, and oil and gas companies do pay a lot of tax: their corporation tax made up nearly a 10th (£4.7bn) of the national total last year. As demands for public spending escalate, the Treasury cannot afford to choke off such an important source.”

If we want to create a renewables industry that works then we need to nurture it as much as possible. The future benefits are huge – energy independence and security, lower bills and a much cleaner environment. The Tories make much of leaving a better legacy to our children. The shame is that they seem to have forgotten this when it comes to green energy.

 

 

Getting your head around commercial RHI degression

Commercial RHI

The Renewable Heat Incentive (RHI) is a government-funded initiative for those who use renewable energy to heat their homes and businesses. These payments come from taxpayers’ money and therefore the onus is on the government to ensure that the budgets surrounding the incentive are sustainable. Index-linked, the RHI offers annual payments for 20 years to the owners of the equipment for the heat they generate and use.

During the last quarter, the tariffs dropped dramatically. However, with only a 5% decrease in the small commercial biomass (less than 200kW) for any installation on or after October 1, 2015, this has been the lowest degression in a while.

This basically translates to mean that if you got your biomass systems installed and running by September 30, 2015, you were the many who acted quickly before the new rates kicked in. However, with this low degression, all is not lost and you might still be able to benefit from the attractive tariff and therefore secure better RHI payments for years to come – but only if you are quick enough.

What is RHI degression?

RHI Degression
RHI Degression

Some technologies linked to renewable energy are likely to become cheaper as the years progress. This is true of any relatively new and developing industry, and RHI degression was introduced to protect the incentive and allow it to prosper.

However, contrary to traditional degression, RHI degression is triggered by deployment levels. This means that only particular movements and developments in the market will set off a degression. Reviewing the scheme’s expenditure forecast, the Department of Energy & Climate Change (DECC) announces any changes to the tariffs that will apply. These announcements occur quarterly. Although anyone who’s already registered in the scheme won’t be affected by a drop in tariff.

 

Beat the clock

Time is running out
Time is running out

The current commercial RHI rates mean that you will need to get your system ordered and installed before the end of December 2015 to ensure you will be able to receive RHI payments at the current levels. Making the most of these higher rates now can mean a difference of thousands of pounds to your annual RHI income. If you’ve been thinking about installing a biomass heating system, there has never been a better time.

Ease your burdens

Reduce paperwork
Reduce paperwork

When you’re trying to achieve something by a certain date, paperwork can be your biggest enemy. RHI applications are, by their very nature, a little complicated. If you want to implement a commercial biomass boiler project but aren’t sure about how to get RHI accreditation, you can talk to companies who also specialise in successfully handling your RHI applications for you. Utilising a company that boasts an in-house RHI application team who have managed hundreds of successful applications means you’ll be able to get your applications signed off far more quickly and successfully due to their years of experience and industry know-how.

 

What can you expect?

If you’re still considering whether to start your project now or to wait until next year, it might be helpful to have a look at the figures to better put everything into context.

Let’s take a 100kW project as an example. At the current rate of 4.18p per kWh, it will yield a commercial enterprise around £5,493 in annual RHI payments, and a total of approximately £147,586 in total index-linked over 20 years. Because no one is sure of what the next quarter’s degression will be, we can only make assumptions based on previous degression patterns as well as worst case scenarios. Assuming the tariff drops by 10% to 3.76 per kWh, this will result in RHI payments of £4,941 a year and a total of £132,757 – an average loss of a little over £700 a year. However, if we were to experience a 25% degression (as happened in the last quarter), this will bring this figure down to approximately £4,113 a year. That is a loss of nearly £1,400.

Looking at a bigger scale, a 199kW project would bring in around £10,930 per annum and a little shy of £300,000 over 20 years on the current RHI tariff. After a potential 10% drop, said commercial enterprise would be looking at around £9,832 RHI payments, and only £8,185 with a 25% degression – that is a loss of a little over £2,700 a year and nearly £80,000 over the 20-year period. A significant difference I’m sure you’d agree.

If you want to see some specific figures relating to your proposed project, you can use this RHI payment calculator to see how your RHI payments could stack up.

Start planning

Start Planning
Start Planning

You can start planning your biomass heating project today and beat the next drop in tariff. There are companies who can take care of the entire project from start to finish, streamlining the process and ensuring that you’re home and dry before the next quarter RHI degression hits. And if the last quarter is anything to go by, you really want to get in there quickly before the order book fills up.

So, what are you waiting for?

Time is Running Out
Time is Running Out

Disclaimer:

The annual and total RHI payments only refer to the current tariff set by the DECC on October 1, 2015 for the period starting and including October 1-December 31, 2015. All RHI payments quoted are approximate and not a guarantee of what you will receive. Actual payments will be based on heat required.

This article has been written and contributed by Treco Ltd. October 1, 2015.

www.treco.co.uk