better generation

First it was November of last year, then December, then we were told it would come in January and now an annoucement on the follow up to the FIT consultation that closed on the 15th October 2009 is due to come out on either the 1st, 2nd or 3rd of February. John Moriarty of DECC (Department of Energy and Climate Change) broke the news to the audience gathered at Ofgem yesterday for the Microgeneration Forum. All parties interested in Renewable Energy (RE) are waiting with baited breath to see what the final confirmations are. Will tariffs change? What will be the outcome for those generators who installed capacity before 15th July 2009? How long will rates be guaranteed for? What will be the digression rates? The answers to these and all other questions will be made public at the beginning of February.

This doesn't leave much time before the 1st April kick off for the first FIT scheme in the UK. Rumour has it that the initial IT system in place for the launch will be rudimentary at best, with a more sophisticated framework scheduled for the beginning of July. However as soon as the February confirmation is given we can all expect a surge in interest in, applications for and installments of RE technologies.

For many years the UK has been stuck with the Renewables Obligation (RO) scheme which hasn't really done a great deal to stimulate investment in RE. Under this scheme, licensed electricity suppliers are given a quota for the amount of RE they have to generate each year. RE generators receive a ROC (Renewables Obligation Certificate) for every MWh of clean energy produced, which they can then sell to suppliers. The problem with a quota system is that there is little financial security; prices for ROCs fluctuate depending on electricity supplier demand and supply. As a result, one cannot be sure of what price a ROC is or will be worth tomorrow, next year or in ten years. Such financial risk discourages smaller players and inevitably leads to a market dominated by large centralised energy generators who can deal with the price uncertainty; a situation which does little to promote widespread RE acceptance. In addition, a quota system doesn't differentiate between alternative RE technologies; a ROC is a ROC regardless of whether the MWh comes from a wind turbine or a solar panel. This leads to increased development in the cheapest technologies, whereas more costly ones are neglected.

The advantages of a well designed Feed-in Law are exactly the reverse to the disadvantages of a quota system like the RO. With FITs there is ease of entry for all sizes of generator. Decentralised energy generation leads to greater public awareness surrounding the benefits of RE and helps to avoid NIMBY and other negative attitudes towards such technologies. There are differentiated prices for different technologies which helps to broaden the technology portfolio and doesn't lead to investment in only the cheapest options. In the initial DECC consultation, proposed tariffs were guaranteed for 20 years for all technologies except solar (which is proposed to be 25 years). Guaranteed tariffs equal financial security, which pleases investors interested in committing funds to RE projects. Increased investment leads to technological advancement which gives rise to lower prices.

In choosing to implement a FIT scheme, the UK government is taking a positive step towards promoting RE, albeit more than 30 years later than the US (who installed the world's first FIT in 1978). In Germany, their FIT has given rise to a RE sector that employs 214,000 people and which in 2006 generated a turnover of €21.6bn. One of the reasons Germany has seen such success is due to complementary supporting mechanisms that surrounded their FIT. For example there was a fade out of nuclear power, a tax was put on mineral oil (e.g. petrol and diesel) and the Government launched the 100,000 solar roof programme.

When I quizzed John Moriarty as to whether the UK was going to implement similar supporting schemes, he responded saying that 'it was difficult enough getting the FIT started, and now that it's there we don't want long waiting lists'. Indeed DECC doesn't want to create a market environment that is so profitable that it attracts all types of cowboy outfits. Germany has just announced how it will increase annual tariff digression rates in response to fears that their RE market is overheating. No one wants to see a RE bubble in the UK.

Once the FIT is implemented, DECC will monitor how the scheme is running, with a view to carry out a full review in 2012. The slides from yesterday's forum can be found here.

For anyone interested in finding out more about Feed-in Tariffs, I would highly recommend the book by Miguel Mendonça entitled 'Feed-in Tariffs: Accelerating the deployment of Renewable Energy', which can be found on this page.