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Review of support for Anaerobic Digestion and micro-Combined Heat and Power under the Feed-in Tariffs scheme
26 May 2016
Department of Energy and Climate Change 3 Whitehall Place London SW1A 2AW Telephone: 0300 068 4000 © Crown copyright 2016 Copyright in the typographical arrangement and design rests with the Crown. This publication (excluding logos) may be re-used free of charge in any format or medium provided that it is re-used accurately and not used in a misleading context. The material must be acknowledged as Crown copyright and the title of the publication specified. SW1A 2AWTelephone:mail: [ ] The consultation and Impact Assessment can be found on DECC’s website: https://www.gov.uk/government/consultations/review-of-support-for-anaerobic-digestion-andmicro-combined-heat-and-power-under-the-feed-in-tariffs-scheme The core 2015 FITs Review consultation and Government response can be found here: https://www.gov.uk/government/consultations/consultation-on-a-review-of-the-feed-in-tariffscheme Published by the Department of Energy and Climate Change
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Contents
General information .................................................................................................................... 4 Executive Summary ................................................................................................................... 6 1.
Background ......................................................................................................................... 8 History of the Feed-in Tariffs scheme ................................................................................................. 8 The Levy Control Framework (LCF) .................................................................................................... 8 Implementation of key measures from the core 2015 FITs Review ..................................................... 9 Performance of AD and mCHP under FITs ......................................................................................... 9
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Securing Value for Money ................................................................................................. 12 Degression mechanism .................................................................................................................... 18 Caps ................................................................................................................................................. 19 Questions ......................................................................................................................................... 22
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Anaerobic digestion feedstock: sustainability and carbon cost effectiveness ................... 24 Questions ......................................................................................................................................... 30
Annex A: Full list of consultation questions .............................................................................. 32
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General information Purpose of this consultation: This consultation proposes revised support levels for anaerobic digestion and micro-combined heat and power technologies currently eligible for the Feed-in Tariffs scheme. Proposals include revised tariffs, amended degression levels, and a revision to the cap for microcombined heat and power. It also proposes other measures to ensure the scheme is more closely aligned with other DECC policy measures. Issued: 26 May 2016 Respond by: 11:45pm on 14 July 2016 Enquiries to: FITs Review Team, Clean Electricity Directorate Department of Energy & Climate Change, 4th Floor Area D, 3 Whitehall Place, London, SW1A 2AW Email:
[email protected] Consultation reference: 16D/041 – Review of support for Anaerobic Digestion and micro Combined Heat and Power under the Feed-in Tariffs scheme Territorial extent: Great Britain How to respond: Your response will be most useful if it is framed in direct response to the questions posed, though further comments and evidence are also welcome. Where possible, responses should be submitted electronically via the e-consultation available at https://econsultation.decc.gov.uk/decc-policy/review-of-support-for-anaerobic-digestion-andmicr/consult_view. Responses emailed to
[email protected] and hardcopy responses sent to the postal address above will also be accepted. Additional copies: You may make copies of this document without seeking permission. An electronic version can be found at www.gov.uk/decc. Other versions of the document in Braille, large print or audio-cassette are available on request. As there is a need to consult promptly on this issue a Welsh version of this document has not been produced.
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Confidentiality and data protection: Information provided in response to this consultation, including personal information, may be subject to publication or disclosure in accordance with the access to information legislation (primarily the Freedom of Information Act 2000, the Data Protection Act 1998 and the Environmental Information Regulations 2004). If you want information that you provide to be treated as confidential please say so clearly in writing when you send your response to the consultation. It would be helpful if you could explain to us why you regard the information you have provided as confidential. If we receive a request for disclosure of the information we will take full account of your explanation, but we cannot give an assurance that confidentiality can be maintained in all circumstances. An automatic confidentiality disclaimer generated by your IT system will not, of itself, be regarded by us as a confidentiality request. We will summarise all responses and place this summary on the GOV.UK website. This summary will include a list of names or organisations that responded but not people’s personal names, addresses or other contact details. Quality assurance: This consultation has been carried out in accordance with the Government’s Consultation Principles. If you have any complaints about the consultation process (as opposed to comments about the issues which are the subject of the consultation) please address them to: DECC Consultation Co-ordinator 3 Whitehall Place London SW1A 2AW Email:
[email protected]
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Executive Summary 1. Government is committed to moving to a low-carbon economy and meeting its carbon reduction and renewable energy targets. Alongside other measures, the Feed-in Tariffs (FITs) scheme has been part of our progress against these objectives. The scheme is funded through levies placed on consumer energy bills. In order to restrict the impact on bills, Government set a limit on the annual low-carbon energy subsidy expenditure which could be collected from consumers, known as the Levy Control Framework (LCF). The current final LCF year of 2020/21 sets an expenditure limit of £7.6bn (2011/12 prices). 2. Deployment under the FITs scheme has exceeded expectations. While this shows the success of the scheme in attracting investment in small-scale renewable electricity deployment, this has come at a cost to the bill payer, with the scheme projecting to spend beyond its initial projections. In August 2015, Government launched a consultation1 setting out the impact of the FITs scheme on consumer bills, and proposing measures to limit it (the core FITs Review consultation). The consultation sought views on a number of issues but focussed on placing the FITs scheme on a sustainable footing, seeking to change the demand-led nature of the scheme. The consultation also reviewed the level of tariff support for solar PV, wind and hydro – a requirement of our State aid approval to ensure Government is not over-compensating supported generators. 3. The core FITs Review consultation did not seek views on the level of support for anaerobic digestion (AD) or micro-combined heat and power (mCHP), technologies also eligible for the scheme. AD has deployed successfully under the scheme. When the scheme was launched in 2010, Government projected 100 installations equating to 160 MW of installed capacity by 2020/21. By the end of March 2016, the number of installations accredited under the FITs scheme was 250, with an installed capacity of 177 MW. In contrast, mCHP has not seen a sustained level of deployment, with only 501 installations deployed since the scheme started in 2010. 4. This consultation seeks input on the future level of support for these technologies, and builds on proposals in the previous consultation on sustainability for AD. The proposals on future support levels in this consultation continue the principles set out in the core review of 2015: to ensure value for money for consumers in delivering our renewable energy targets. 5. Subject to stakeholders’ views, Government will aim to implement any changes as soon as legislatively possible, and Government expects measures to be in place for January 2017. On the proposals for sustainability criteria and feedstock restrictions for AD, Government aims to set out its intentions in the response to this consultation, although any feedstock restriction changes may be implemented alongside the same proposed changes to the Renewable Heat Incentive (RHI). Government will confirm changes and the legislative timetable in the response to this consultation.
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https://www.gov.uk/government/consultations/consultation-on-a-review-of-the-feed-in-tariff-scheme
6. Government reiterates its commitment to the principle of grandfathering generation tariffs under the scheme and therefore existing installations will not be affected by the proposed changes to tariffs. Any new AD installations from 1 January 2017 will be subject to new tariffs. New installations are those that apply for pre-accreditation or (where installations have not applied for pre-accreditation) apply for full ROO-FIT accreditation from the date when the legislation implementing the proposals come into force. 7. We do not expect that implementation of the proposed changes will adversely affect our ability to meet our renewable electricity and carbon reduction targets. The UK is making good progress towards the EU target of 15% final energy demand from renewables by 2020 and the pipeline of projects towards 2020 remains healthy. The UK is on track to meet its next interim target of final average energy consumption over 2013/14. 8. We do not consider that any of the proposed changes, other than where indicated, would give rise to us having to re-notify the change to the European Commission. This is in line with the Commission’s decision of 15 March 20132. 9. With the exception of the ‘Background’ section, each chapter of this consultation opens with a proposal, explains the reasoning of the proposed change, and then ends with consultation questions. A summary of all the consultation questions can be found at Annex A.
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Paragaph 20 : http://ec.europa.eu/competition/state_aid/cases/247528/247528_1418847_115_2.pdf
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1. Background History of the Feed-in Tariffs scheme 1. The FITs scheme was introduced in 2010. Alongside the Renewables Obligation and, more recently, the Contracts for Difference regime, the FITs scheme is part of a set of initiatives to encourage the deployment of renewable energy across the UK. 2. The objectives of the scheme on its introduction were to: Encourage deployment of small-scale (up to and including 5 MW) low-carbon electricity generation; Empower people and give them a direct stake in the transition to a low-carbon economy; Assist the public take-up of carbon reduction measures; Foster behavioural change; and Help develop local supply chains and drive down energy costs. 3. The European Commission’s State aid approval for FITs places an obligation on Government to review scheme performance every three years. A review was carried out in 2012, and a further review (with the exception of AD and mCHP support levels) was carried out in 2015 with final implementation in February 2016. We are required by our approval to consider whether generation and export tariffs continue to give investors an appropriate rate of return and prevent overcompensation. This consultation seeks to undertake that process for AD and mCHP technologies.
The Levy Control Framework (LCF) 4. Subsidies for low-carbon electricity generation are paid for through levies on consumer bills. This includes payments made through FITs, the Renewables Obligation, Contracts for Difference, and Final Investment Decision Enabling for Renewables. 5. In order to restrict the impact on consumer bills, Government set a limit on the annual lowcarbon energy subsidy expenditure which could be collected from consumers, known as the LCF. The LCF is designed to control impacts of support for low-carbon generation on consumer bills. There are annual caps but the current final LCF year of 2020/21 sets an expenditure limit of £7.6bn (2011/12 prices). 6. Table 1 below shows that projections for spending on the FITs scheme under the LCF have consistently increased over time. The increased spending puts increasing pressure on consumer bills and is not sustainable.
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Table 1. Changes to FITs spending projections over time Time of estimate 2010 (introduction of FITs) 2012 (review) 2015 (review)
Estimated spend by 2020/21, £m (2011/12 prices) 490 1,160 1,740
7. As part of the core 2015 FITs review consultation, an overall cap of £100m was introduced for new spend under the scheme between February 2016 and March 2019 to limit the impact on consumer bills. MCHP already had an eligibility limit of 30,000 installations. On reaching this 30,000 unit limit, the technology was to become ineligible for FITs. However, spending on mCHP was not set within the £100m budget.
Implementation of key measures from the core 2015 FITs Review 8. Individual caps were introduced as a key cost control measure for solar PV, wind, AD and Hydro. They operate on a quarterly basis with new capacity allocation becoming available at the start of each calendar quarter, and have been set until the end of March 2019. The level of these technology caps and how they were calculated is set out in the core FITs review consultation Impact Assessment published in December 20153. 9. Other measures were announced to provide more certainty to developers in light of the introduction of caps. We set out tariffs levels through to 2019 based on default degression, and pre-accreditation – the ability to secure a tariff before commissioning and therefore before committing significant funds – was reinstated. 10. The current consultation is focused on aligning support for AD and mCHP with the changes introduced last year. At the time of last year’s review, Government stated its intention to consider the mechanism for recycling underspend in deployment caps; Government also stated it would review eligibility and the balance of caps between technologies this year, as well as considering whether there are grounds for reviewing the proposed tariffs following implementation of these changes. This consultation does not prejudge Government’s decisions on these matters.
Performance of AD and mCHP under FITs Anaerobic Digestion 11. AD technology supports Government’s aims of decarbonising electricity generation and reducing greenhouse gas emissions from waste and agriculture. 12. Support is currently available for up to 5 MW of capacity in each quarter under FITs. As at the end of March 2016, 250 installations had been accredited onto FITs via ROOFIT (including pre-accredited sites), representing 177 MW of installed capacity. Including FITsscale sites awaiting full accreditation, the number of sites commissioned by end March 2016 was 270, with an installed capacity of 184 MW.
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https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/486084/IA__FITs_consultation_response_with_Annexes_-_FINAL_SIGNED.pdf
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Review of support for Anaerobic Digestion and micro-Combined Heat and Power under the Feed-in Tariffs scheme
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13. AD can be configured to generate heat as well as electricity (known as combined heat and power (CHP)). Utilising the heat as well as the electricity generated by an AD CHP plant is beneficial as it maximises its overall energy output. CHP plants can be eligible for both FITs and the Renewable Heat Incentive (RHI). 14. DECC believes that an increasing proportion of new AD plants choose to accredit under both schemes. Micro-Combined Heat and Power 15. Micro-combined heat and power (mCHP) was originally included in the FITs scheme as a pilot. Under this pilot, support has been available for up to 30,000 installations (with an electrical capacity of 2 kW or less), with a policy to review the limit when deployment reaches 12,000 installations. Despite an increase in generation tariffs following the 2011/12 FITs Review, deployment of mCHP has remained low with only 501 installations supported under the scheme by the end of 2015, with a further 158 commissioned, and awaiting accreditation. Annual deployment rates have continued to fall since 2011 with only 18 installations deployed in 2015.
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Graph 2: Cumulative commissioned mCHP installed capacity 0.8
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16. Industry has suggested a number of reasons for these low levels of deployment over the past six years. Suggestions include high technology costs that are not fully reflected in current tariffs, and a dampening effect of the long-standing deployment cap. The unfamiliarity of the technology and a lack of awareness of its potential benefits amongst householders may also be factors. 17. The current review of FITs provides an opportunity to look again at the support available for mCHP and learn the lessons from the pilot to date. However, this needs to be in the context of the increased emphasis on affordability and the introduction of a new expenditure limit of £100m between 2016 and 2019.
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2. Securing Value for Money This chapter sets out changes to ensure Anaerobic Digestion (AD) and microCombined Heat and Power (mCHP) tariffs under the scheme provide value for money. The proposed changes include:
Generation tariffs for AD
A revised default degression mechanism for AD
The introduction of annual deployment caps for mCHP
The introduction of contingent degression for mCHP
Proposal 18. We propose to amend generation tariffs from 1 January 2017 as set out in Table 2 below. Table 3 sets out to whom the new tariffs will apply. 19. As stated in the Government Response to the core FITs Review consultation4, applications for pre-accreditation or full accreditation that miss out on a cap, and are therefore being held in a queue until the next cap, have no guarantee of FITs support or of eligibility for support at a particular tariff. This will apply equally here for applications made before 1 January 2017 that are still being held in the queue by that date. Table 2 – Proposed generation tariffs Proposed Generation Tariffs for 1 Jan 2017 (p/kWh, Nominal prices)
Ofgem Tariffs for installations with an eligibility date on 1st April to 30th of June 2016 (p/kWh, 2016/17 values)
AD 0 – 250 kW 250 – 500 kW 500 - 5000 kW
