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Britain to Launch Innovative Feed-in Tariff Program in 2010

Posted on Thursday, July 23rd, 2009 at 4:24 pm by Paul Gipe

They said it couldn’t be done, but Britain has risen to the challenge. Britain’s Secretary of State for Energy and Climate Change Ed Miliband has released long-awaited details on the Labour Government’s feed-in tariff policy.

Miliband, an up-and-coming politician in the cabinet of besieged Prime Minister Gordon Brown, has done what was once unthinkable, put a British stamp of approval on feed-in tariffs as a policy mechanism for developing renewable energy.

The move has potentially far reaching ramifications in the English speaking world where there has been reluctance to use full-fledged systems of feed-in tariffs, sometimes on ideological grounds. Now that Britain, Ontario, and South Africa, two of Britain’s former colonies, have definitively moved toward implementing sophisticated feed-in tariff programs, there may be less reticence to do so elsewhere in the Anglophone world.

Of course, like politicians everywhere, Miliband had to rebrand feed-in tariffs to something more to his liking. His “clean energy cash back” creates yet another term for what everyone else calls, sometimes grudgingly, feed-in tariffs.

Nevertheless, the program’s designers took their task seriously and didn’t opt for a system of faux or false feed-in tariffs, what North American campaigners have begun derisively calling FITINOs, feed-in tariffs in name only.

The British proposal has also contributed several innovative new twists on feed-in tariff design that will mark the program as “made in the United Kingdom”.

One new feature is the inclusion of tariffs for Combined Heat & Power (CHP). While not a first, it is one of the few programs to do so. Another feature of the proposed program is a distinct tariff for small solar PV systems on new homes, and a separate tariff for existing homes.

Most significantly, program designers have included a mechanism to encourage homeowners and small businesses to reduce their electricity consumption. For example, a solar PV generator will be paid for all their generation. However, they will receive a bonus, currently at £0.05/kWh ($0.08 USD/kWh, $0.09 CAD/kWh), for electricity delivered to the grid over and above their domestic consumption. Thus, if a homeowner is able to cut their domestic consumption, and sell more electricity to the grid as a result, they are paid the bonus on top of the posted feed-in tariff.

The proposed program, like the successful programs it was modeled after, was designed to “set tariffs at a level to encourage investment in small scale low carbon generation.” This is in contrast to faux feed-in tariffs that set the tariffs on the “value” of renewable energy to the system as in the California Public Utility Commission’s largely ineffective program.

British designers were instructed to calculate tariffs not on ideology or economic theory but on the tariffs needed so “that a reasonable return can be expected for appropriately sited technologies” to meet the country’s renewable energy and carbon mitigation targets.

Unfortunately, the program’s targets are timid at best, two percent of Britain’s electricity consumption by 2020, and the tariffs are limited by law to projects less than 5 MW to protect the country’s stumbling Renewable Obligation, the preferred mechanism for developing larger projects.

The two percent target requires the generation of only 8 billion kWh (TWh) per year. For comparison, Germany generated 40 TWh in 2008 from wind energy and more than 4 TWh from solar PV. France, Britain’s longtime cross-channel rival, generated nearly 6 TWh from wind energy in 2008 from its system of feed-in tariffs.

Some of the proposed tariffs are not competitive with those on the continent, or those in Ontario. “For community-scale or larger on-site projects,” says David Timms, a senior campaigner with Friends of the Earth (UK), “the rates [tariffs] are inadequate.”

The tariff proposed for large wind turbines is low by international standards. Britain has some of the best winds in Europe. Nevertheless, many of the smaller projects that may be built under the feed-in tariff program may not be as advantageously sited as commercial projects under the Renewable Obligation. Consequently, the proposed tariff for wind projects from 500 kW to 5 MW may be insufficient to drive development.

Timms also adds that the “degression for solar PV is quite aggressive” at 7 percent per year and that the bonus payment of £0.05/kWh for export to the grid may not be bankable. Because the bonus payment will fluctuate with the “market price” it won’t necessarily have a fixed value and, consequently, it will be discounted by banks providing debt for projects financed under the feed-in tariff.

If implemented as proposed, though, the British program will offer some of the highest tariffs for small wind energy in the world. The tariffs will rival those in Italy, Israel, Switzerland, and Vermont, possibly reflecting the British government’s belief that it can encourage development of a domestic small wind turbine industry. For example, the tariff proposed for small wind turbines from 1.5 kW to 15 kW is £0.23/kWh ($0.38 USD/kWh, $0.42 CAD/kWh) about that paid in Italy and Israel.

The proposed program also includes a number of anti-gaming provisions to avoid breaking up bigger projects into several small ones to fit within the 5 MW project size cap. These will prevent companies from moving big wind projects from the Renewable Obligation to the feed-in tariff program.

Britain’s feed-in tariff program is expected to begin in early April, 2010 after an extensive consultation. Below is a summary of the program’s key elements.

Program Cap: 2% of Supply, 8 TWh in 2020
Project Cap: 5 MW
Generator can be green field (doesn’t have to be a metered customer)
Contract Term: 20 years
Program Review: 2013
Costs for the program will be borne by all British ratepayers proportionally

While limited in scope, Britain’s proposed feed-in tariff program is as sophisticated, if not more so, as any proposed in the United States, and will put the country on the world map of innovative renewable energy policy.

Consultation on Renewable Electricity Financial Incentives 2009: Program Details

Consultation on Renewable Electricity Financial Incentives: Background Documents & Reports

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