The government’s response to the consultation on the Feed in Tariff has slightly relaxed cuts to domestic scale systems from an 86.4% cut (against the January 2016 tariff) to a 63.5% cut. All solar PV tariffs will still be subject to cuts of between 58% and 72%. Once prices have normalised following the rush to complete systems before the cuts, it is likely that individual domestic systems will receive paybacks in 12 years or so assuming 50% on site usage.
Social housing PV retrofits and other similar multi-site generators are unlikely to be able to pursue new installations however, as excluding bill savings which accrue to tenants, and adding VAT which can’t be reclaimed on tenanted properties, the impending removal of reduced rate VAT, and additional tax payable on export the tariff means these PV investments would fall well short of payback.
The remaining opportunities with PV are for systems installed on larger sites with system sizes matched to high electrical baseloads are to make full use of the generated energy on site, and for such systems, Rates of Return exceeding 10% are still likely for well-designed systems, and some may still be attractive to funders. Optimal positioning and minimising shading will also be much more critical under the new tariffs, and CIS are on hand to help clients ensure performance and return is maximised.
Other changes such as the use of deployment caps on installed capacity per quarter are likely to cause confusion, as new applications may be held in a que if received after a cap is exceeded, requiring developers to keep a close eye of live deployment figures from Ofgem to avoid falling into lower tariff in subsequent quarters. Further tariff degressions to be applied when deployment is exceeded will also be severe than under the current structure. It remains to be seen whether this impact, the removal of majority of social housing PV installations and the greater than expected reductions in the >250kWp tariff band will still allow the PV industry to maintain the projected deployment and the consistently falling prices exhibited since 2010.
- Deployment caps limiting uptake to a fixed MW capacity each quarter. If over-deployed, new systems will be held in a que to be reconsidered under the next cap (i.e. in the next quarter). If under-deployed, budget may be reallocated to the next quarter, but through bi-annual reviews, may also redistribute underspend to first ‘address any budgetary pressures’ and then top up deployment caps according to policy priorities. The deployment cap for PV is set to 84MW in Q1 of 2016, increasing to 107MW in Q1 2019, which includes a projected 15,330 and 19,360 new sub 10kWp installations respectively.
- The degression mechanism is still quarterly but now based on the new quarterly deployment caps. If exceeded, a 10% degression will be applied. This contrasts with the current mechanism which has seen 3.5% quarterly degressions imposed in spite of uptake being consistently in the ‘low corridor’ deployment for all tariff bands.
- We’ve gained two weeks until the 15th Jan before any intervention over the existing degression structure, before the scheme is closed to new applications between 15th Jan and 8th Feb 2016 to circumnavigate a required 40 day standstill period required to amend the feed in tariff order without having to pay for more systems at the current rate.
- Pre-accreditation of PV systems over 50kWp has been reintroduced, but the tariffs will be much lower at 2.7p/kWh (from 9.29p/kWh).
24th December 2015