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Feed in Tariff and Renewable Heat Incentive - the key points

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Following of the government’s announcements on the Feed in Tariff and our
online question and answer session last Tuesday (to read the debate, visit
http://ow.ly/14aLF), the team at Regen SW has scoured the reports and
pulled out the key points for you (below).

There are still some unanswered questions on the Feed in Tariff, which we
will be feeding back to DECC, and even more on the Renewable Heat Incentive
that we expect to come out of our consultation event on 16 March (to sign
up, visit http://ow.ly/14aTI), but the points below should give you a good
overview of the key elements.

Feed In Tariff (FIT)
To read the government’s full report, visit: http://ow.ly/14aY
To see the below information as a word document, visit:
www.regensw.co.uk/downloads/RegenSW_424.doc

The cornerstones of the Feed in Tariff have not changed following the
consultation period, but some of the detail has been refined. Changes are
highlighted.
Tariffs
      From April 2010, the FIT will offer a fixed payment per kilowatt hour
      generated
      The levels of these generation tariffs have largely been increased in
      the final version of the scheme, by up to 5p per kWh (see table below
      for the values)
      The  FIT  will  also offer a guaranteed minimum payment of 3p per kWh
      exported  to  the  market  –  this  figure  has  decreased  from  the
      originally proposed 5p per kWh
      Tariffs  will  now  be index-linked to the Retail Price Index so that
      they  increase  in  line  with  inflation  – this is in response to a
      strong lobby on this issue
      The  FIT  will be offered for a 20 year period, with the exception of
      solar PV projects for which the period will be 25 years
      FIT  income for domestic properties generating electricity mainly for
      their own use will not be taxable
      The aim is for the FIT to offer standard renewable projects a 5-8 per
      cent return on investment.
      Where  appropriate,  support  will  degress  in  line  with  expected
      technology  cost  reductions.   In  the  latest document, rather than
      expressing   degression   as   a  percentage  (as  they  did  in  the
      consultation  document,  tariff  levels for the first 11 years of the
      scheme  have  been  set out.  Only solar PV and wind below 100kW have
      degressed tariffs for this period, starting from year 3 of the scheme
      (see table on reverse for details)
      Support  levels  will  be  reviewed  periodically  and in response to
      sudden  changes  in technology costs.  However, tariff levels will be
      ‘grandfathered’,  so that projects continue to receive the generation
      tariff offered at their registration throughout their 20 year support
      period  (25  years  for  PV.  For  example,  if  you  register  a 2kW
      retrofitted  panel  in  year  1  of  the  scheme  you  will receive a
      generation  tariff  of  41.3p/kWh  for  25  years.   The  same  panel
      registered  in year 3 of the scheme would receive 37.8p/kWh generated
      for 25 years.
      Changes  have  been  made  to  the banding of the anaerobic digestion
      (AD),  hydro  and  wind  tariffs to provide more effective support to
      these  technologies. A band has been introduced to provide additional
      support  to  farm-scale  (<500kW)  AD  projects.   The wind and hydro
      banding  structure  has  been  improved to introduce a new “community
      scale”  band providing additional support between 100 kW and 2 MW for
      hydro projects, and 500kW and 1.5MW for wind projects

|---------------+--------------+                              --------------+--------|
|   Technology  |     Scale    |  Tariff level               |              |  Tariff|
|               |              |    for new                  |              |  lifeti|
|               |              |  installation               |              |    me  |
|               |              |  s in period                |              |  (years|
|               |              |  (p/kWh) [nb                |              |    )   |
|               |              |  tariffs will               |              |        |
|               |              |  be inflated                |              |        |
|               |              |   annually]                 |              |        |
|---------------+--------------+-----------------------------+--------------+--------|
|               |              |    Year 1:   |    Year 2:   |    Year 3:   |        |
|               |              |  1/4/10-31/3/|  1/4/11-31/3/|  1/4/12-31/3/|        |
|               |              |       11     |       12     |       13     |        |
|---------------+--------------+--------------+--------------+--------------+--------|
|  Anaerobic    |   =500kW     |  11.5        |  11.5        |  11.5        |  20    |
| digestion     |              |              |              |              |        |
|---------------+--------------+--------------+--------------+--------------+--------|
|  Anaerobic    |   >500kW     |  9           |  9           |  9           |  20    |
| digestion     |              |              |              |              |        |
|---------------+--------------+--------------+--------------+--------------+--------|
|  Hydro        |   =15 kW     |  19.9        |  19.9        |  19.9        |  20    |
|---------------+--------------+--------------+--------------+--------------+--------|
|  Hydro        |   >15-100 kW |  17.8        |  17.8        |  17.8        |  20    |
|               |              |              |              |              |        |
|---------------+--------------+--------------+--------------+--------------+--------|
|  Hydro        |   >100 kW-2  |  11          |  11          |  11          |  20    |
|               |  MW          |              |              |              |        |
|---------------+--------------+--------------+--------------+--------------+--------|
|  Hydro        |   >2 MW – 5  |  4.5         |  4.5         |  4.5         |  20    |
|               |  MW          |              |              |              |        |
|---------------+--------------+--------------+--------------+--------------+--------|
|  MicroCHP     |   =2 kW*     |   10*        |   10*        |   10*        |  10    |
| pilot*        |              |              |              |              |        |
|---------------+--------------+--------------+--------------+--------------+--------|
|  PV           |   =4 kW (new |  36.1        |  36.1        |  33          |  25    |
|               |  build**)    |              |              |              |        |
|---------------+--------------+--------------+--------------+--------------+--------|
|  PV           |   =4 kW      |  41.3        |  41.3        |  37.8        |  25    |
|               |  (retrofit**)|              |              |              |        |
|               |              |              |              |              |        |
|---------------+--------------+--------------+--------------+--------------+--------|
|  PV           |   >4-10 kW   |  36.1        |  36.1        |  33          |  25    |
|---------------+--------------+--------------+--------------+--------------+--------|
|  PV           |   >10-100 kW |  31.4        |  31.4        |  28.7        |  25    |
|               |              |              |              |              |        |
|---------------+--------------+--------------+--------------+--------------+--------|
|  PV           |   >100kW-5MW |  29.3        |  29.3        |  26.8        |  25    |
|               |              |              |              |              |        |
|---------------+--------------+--------------+--------------+--------------+--------|
|  PV           |   Stand alone|  29.3        |  29.3        |  26.8        |  25    |
|               |  system**    |              |              |              |        |
|---------------+--------------+--------------+--------------+--------------+--------|
|  Wind         |   =1.5kW     |  34.5        |  34.5        |  32.6        |  20    |
|---------------+--------------+--------------+--------------+--------------+--------|
|  Wind         |   >1.5-15kW  |  26.7        |  26.7        |  25.5        |  20    |
|---------------+--------------+--------------+--------------+--------------+--------|
|  Wind         |   >15-100kW  |  24.1        |  24.1        |  23          |  20    |
|---------------+--------------+--------------+--------------+--------------+--------|
|  Wind         |   >100-500kW |  18.8        |  18.8        |  18.8        |  20    |
|               |              |              |              |              |        |
|---------------+--------------+--------------+--------------+--------------+--------|
|  Wind         |   >500kW-1.5 |  9.4         |  9.4         |  9.4         |  20    |
|               |  MW          |              |              |              |        |
|---------------+--------------+--------------+--------------+--------------+--------|
|  Wind         |   >1.5MW-5MW |  4.5         |  4.5         |  4.5         |  20    |
|               |              |              |              |              |        |
|---------------+--------------+--------------+--------------+--------------+--------|
  Existing      |              |  9           |  9           |  9           |  to    |
  microgenerator|              |              |              |              |  2027  |
  s transferred |              |              |              |              |        |
  from the RO   |              |              |              |              |        |
                 --------------+--------------+--------------+--------------+--------|

Eligibility
      Projects   up   to   5   MW  will  be  eligible,  including  off-grid
      installations.
      Technologies  that  will be eligible for the FIT from April 2010 are:
      wind,  solar  PV,  hydro, anaerobic digestion, and a pilot scheme for
      30,000   non-renewable   micro   combined   heat   and   power  (CHP)
      installations.   Electricity  from biomass will no longer be eligible
      for the FIT, though it can continue to receive ROCs.
      Projects  installed in the interim period between the announcement of
      the  FIT (15 July 2009) and the start of the scheme (April 2010) will
      be  eligible  to  receive  the  tariff  regardless  of  whether  they
      registered  in this period for ROCs.  They will not receive a reduced
      period  of  support  as  suggested in the consultation document; they
      will  be  eligible for the full 20 years of FIT payments (or 25 years
      for solar PV).
      Regardless  of  technology,  projects installed prior to 15 July 2009
      will  be eligible to receive generation payments of 9p/kWh and export
      payments  of  3p/kWh, provided they were previously receiving support
      under  the  RO  scheme.   If the project was installed before 15 July
      2009  and  not  registered  for ROCs, it will not be eligible for the
      FIT.
      Projects  up  to  50  kW  in  size  will not be able to claim the RO;
      existing  installations will be automatically transferred to the FIT.
      New  and  interim  period  (15  July  2009  to 1 April 2010) projects
      between  50  kW  and  5  MW  will  be  given a one-off choice between
      claiming  support  under the FIT or the RO. Existing projects between
      50  kW and 5 MW in size will remain under the RO, with no opportunity
      to transfer to the FIT.
Accreditation
      Wind,  solar PV and hydro projects below 50 kW in size, and micro CHP
      projects  must  be  installed by microgeneration certification scheme
      (MCS) accredited installers and be MCS accredited products.  View the
      current   list   of   certificated   installers  and  products  here:
      www.microgenerationcertification.org/Home+and+Business+Owners
      50  kW  to  5  MW projects must register their installation through a
      process based on the existing renewables obligation process, known as
      the  ROO-FIT  process,  in  order  to  be  eligible for FITs support.
      Details of this process are not clear at this stage.
Grants
      Domestic  projects  that  have  received  grant  funding from central
      government will not have to pay back the grant to be eligible for the
      FIT.   While  this was not reconfirmed in the government’s 1 February
      response, it was set out in the UK Renewable Energy Strategy 2009.
      Any  non-domestic  projects (commercial or community) that receive or
      have  received  grant  funding  from central government might have to
      return  the  grant  before  they  can  receive  FIT  payments.   This
      situation  was  not clarified by the government’s response to the FIT
      consultation.   Regen  SW  will  be  lobbying for clarity on this key
      issue.
Scheme launch
      The  FITs  scheme  will start from 1 April 2010. In the run-up to the
      scheme,  information  will  be available for individuals, households,
      community  groups  and  small  business  on  how they will be able to
      benefit from the scheme. Guidance will be provided by Ofgem, and help
      will be available from the Carbon Trust, Energy Saving Trust and DECC
      Central   government  will  not  provide  a  mechanism  for  up-front
      capitalisation  of  FITs  revenues.  This  does  not  preclude  other
      organisations  from  offering such schemes.  However, building on the
      experience of pilot projects for ‘pay as you save’ financing and Warm
      Front,  the  government  will  consult later this year on measures to
      help  low-income  households  take  advantage  of  the  FIT  and  the
      Renewable Heat Incentive.

Renewable Heat Incentive (RHI)
To read the government’s full report, visit: http://ow.ly/14XZG
To    see    the   below   information   as   a   word   document,   visit:
http://www.regensw.co.uk/downloads/RegenSW_425.doc

The  proposed  Renewable Heat Incentive is similar in design to the feed in
tariff,  with  some  distinctive  features,  due to the differences between
producing heat and generating power.  It is a consultation document at this
stage, so it is subject to change.

Tariff payments
      Tariff levels are proposed to provide a rate of return of 12 per cent
      on  the  additional  capital cost of renewables, with a lower rate of
      return  of 6 per cent for solar thermal (see table of tariff rates at
      the end of this document)
      RHI  will remain open to new projects until at least 2020. Its design
      and  tariff  levels  will  be  reviewed  from  time  to  time for new
      projects,   to  adapt  to  changes  in  technology  costs  and  other
      circumstances.
      Annual  payments  will  be  made  for  installations  below 45 kW and
      quarterly for those above this level.
      The  number  of  years  of  support  proposed varies depending on the
      technology,  from  23  years for small ground source heat pumps to 10
      years for biogas onsite combustion.
      The  issue  of  tax  on the payments is still to be determined by the
      Treasury
      It is unclear whether the payments would be index-linked to inflation
      or not.
      It  is  proposed  that  payments  are ‘grandfathered’, meaning that a
      project  installed  in  year  one  of the scheme continues to receive
      payments  at the level set in year one throughout the time that it is
      eligible  for  RHI  support.   Tariffs  are  reduced for new projects
      installed in later years.
      The  market  is  expected  to  develop  up-front  financing  schemes.
      Central  government  is  unlikely to provide products (outside of the
      Pay as You Save scheme that is currently being piloted).

Calculating payments
      Payments  will  be  calculated  on  the annual amount of heat output,
      expressed in kilowatt hours (kWh). At the small and medium scale (see
      the tariff level tables for details of what is classified as small or
      medium), the amount of heat generated by the equipment is proposed to
      be  estimated  (or “deemed”) when installed, in most cases. This will
      allow  the beneficiary of the incentive to receive a set amount based
      on  the  deemed  output,  to  encourage  low0energy  consumption  and
      discourage wasting heat.
      Deemed  payments for small-scale installations will be based upon the
      estimated  heat  demand  for a building, calculated for each property
      using  the  Standard  Assessment  Procedure (SAP) rating for domestic
      properties or Simplified Building Energy Model (SBEM) for nondomestic
      situations,  as  well as the assessments carried out to create Energy
      Performance Certificates (EPCs) for new buildings in particular.
      Medium-scale  installations  will  follow  the same approach as small
      scale,  with  solid  biomass  installations  being  allowed to choose
      between  deemed  payments  and metering.  Installations choosing this
      approach  would  still  receive  the  same tariff for the same deemed
      number  of  kWh, but where the metered number of kWh used exceeds the
      deemed  number,  an additional lower tariff per kWh would be paid for
      the metered excess.
      Large-scale  and process-heating (and medium-scale, where not covered
      by SAP/SBEM/EPC) support would be calculated as the metered number of
      kWh  multiplied  by  the  tariff  per  kWh.  Biomethane injection and
      district heating would be metered at all scales.

Eligibility
      The  scheme  should  support  a range of technologies, including air,
      water  and  ground-source  heat  pumps (and other geothermal energy),
      solar  thermal,  biomass  boilers, renewable combined heat and power,
      use of biogas and bioliquids and the injection of biomethane into the
      natural gas grid.
      Woodstoves are not included, though the issue of backboilers needs to
      be clarified
      To  ensure  that  the  incentive  is  paid only to installations that
      function  correctly,  regular  evidence  of  ongoing  maintenance and
      repair  may be required within a fixed time period, or payment of the
      incentive would be at risk.
      As  announced  in  the RES, eligible installations completed after 15
      July  2009,  but  before  the start of the RHI, will benefit from the
      scheme as if they had been installed on the date of its introduction.
Accreditation
      In   small   and  medium-sized  installations,  both  installers  and
      equipment  must  be certified under the Microgeneration Certification
      Scheme (MCS) or an equivalent standard.
      For  larger  installations, it is proposed that similar standards are
      not imposed.  The government would instead expect those involved with
      larger  projects  to  have  or obtain the necessary expertise to make
      appropriate choices and ensure they get value for money.

Auditing
Ofgem  will administer the RHI, making incentive payments to recipients and
taking responsibility for auditing and enforcing the scheme. DECC will work
with   Ofgem   to   devise   a   simple  process  for  accrediting  smaller
installations. This is to ensure that standards are met and payments can be
made.

Funding of the scheme
Following  informal  consultation  with  stakeholders  and appraisal of the
issues  associated  with  raising funds for RHI payments, the government is
considering what would be the most effective way to fund the RHI, including
reviewing  the levy provisions in the Energy Act 2008. The government plans
to  make  a further announcement at Budget 2010. Work to assess options for
funding  the  RHI  scheme will not impact on DECC’s intention to launch the
scheme in April 2011.

Small installations

|----------------+-----------+--------------+------------+---------|
|  Technology    |  Scale    | Proposed     | Deemed or  | Tariff  |
|                |           | tariff       | metered (3)| lifetime|
|                |           | (pence/ kWh) |            | (years) |
|                |           | (2)          |            |         |
|----------------+-----------+--------------+------------+---------|
| Solid biomass  | Up to 45kW| 9            | Deemed     | 15      |
|                |           |              |            |         |
|----------------+-----------+--------------+------------+---------|
| Bioliquids (7) | Up to 45kW| 6.5          | Deemed     | 15      |
|                |           |              |            |         |
|----------------+-----------+--------------+------------+---------|
|  Biogas on-site| Up to 45kW| 5.5          | Deemed     | 10      |
| combustion (5) |           |              |            |         |
|                |           |              |            |         |
|----------------+-----------+--------------+------------+---------|
| Ground source  | Up to 45kW| 7            | Deemed     | 23      |
| heatpumps (8)  |           |              |            |         |
| (9)            |           |              |            |         |
|----------------+-----------+--------------+------------+---------|
| Air source     | Up to 45kW| 7.5          | Deemed     | 18      |
| heatpumps (9)  |           |              |            |         |
|----------------+-----------+--------------+------------+---------|
| Solar thermal  | Up to 20kW| 18           | Deemed     | 20      |
|                |           |              |            |         |
|----------------+-----------+--------------+------------+---------|

Medium installations

|----------------+-----------+-------------+------------+--------+ 
|  Technology    |  Scale    |  Proposed   | Deemed or  | Tariff | 
|                |           | tariff      | metered (3)| lifetim| 
|                |           | (pence/ kWh)|            | e      | 
|                |           | (2)         |            | (years)| 
|                |           |             |            |        | 
|----------------+-----------+-------------+------------+--------+ 
| Solidbiomass   |  45-500 kW| 6.5         | Deemed     | 15     | 
|----------------+-----------+-------------+------------+--------+ 
|                |           | 2           | Optional:  | 15     | 
|                |           | (fueltariff)| for metered|        | 
|                |           |             | kWh  above |        | 
|                |           |             | deemed     |        | 
|                |           |             | number of  |        | 
|                |           |             | kWh        |        | 
|----------------+-----------+-------------+------------+--------+ 
|                |           |             |            |        | 
|----------------+-----------+-------------+------------+--------+ 
|  Biogas on-site| 45-200 kW | 5.5         | Deemed     | 10     | 
| combustion (5) |           |             |            |        | 
|                |           |             |            |        | 
|----------------+-----------+-------------+------------+--------+ 
| Groundsource   | 45-350 kW | 5.5         | Deemed     | 20     | 
| heat  pumps    |           |             |            |        | 
| (8)(9)         |           |             |            |        | 
|----------------+-----------+-------------+------------+--------+ 
| Air source heat| 45-350 kW | 2           | Deemed     | 20     | 
| pumps (6)(9)   |           |             |            |        | 
|----------------+-----------+-------------+------------+--------+ 
| Solar thermal  | 20-100 kW | 17          | Deemed     | 20     | 
| (6)            |           |             |            |        | 
|----------------+-----------+-------------+------------+--------+ 

Large installations

|----------------+----------+--------------+-----------+----------|
| Technology     | Scale    |  Proposed    | Deemed or | Tariff   |
|                |          | tariff       | metered   | lifetime |
|                |          | (pence/kWh)  |           | (years)  |
|                |          | (2)          |           |          |
|----------------+----------+--------------+-----------+----------|
| Solid biomass  | 500 kW   | 1.6-2.5      | Metered   | 15       |
| (4)            | and above|              |           |          |
|----------------+----------+--------------+-----------+----------|
| Groundsource   | 350 kW   | 1.5          | Metered   | 20       |
| heat pumps     | and above|              |           |          |
| (8)(9)         |          |              |           |          |
|----------------+----------+--------------+-----------+----------|