What is the FiT scheme?
The Feed-In Tariff (FiT) scheme was introduced in 2010 to encourage small-scale, clean power generation. Suppliers would pay local power producers a fixed-fee per unit to generate power (generation tariff) and an additional fee to feedback excess usage (export tariff) onto the grid. These would be fixed term contracts, typically over 20 years, where the price per kilowatt hour value increased annually at a rate matching the Retail Price Index.
The scheme was paid for by contributions from large UK energy suppliers, pro-rata to their sales volumes. Suppliers effectively paid for their contributions by adding a surcharge to their customers’ bills at an amount based on their own expected sales volumes. As a result of the larger than expected uptake in recent years of small-scale power generation, the Government’s expected cost of the scheme has quadrupled to a projected £1.6 billion by 2020.
What are the changes?
Using the argument that the cost of providing clean, renewable energy has already been driven down, and that further growth should be encouraged by innovation and competition rather than subsidy, the Department for Business, Energy & Industrial Strategy (BEIS) held a consultation in 2018 and concluded that the FiT scheme should be closed to new entrants from 31st March 2019. However, the scheme will continue as before for current FiT scheme accreditations.
This decision has proved unpopular with energy stakeholders, with the biggest argument against the decision being that small-scale generators would be providing free excess energy to the national grid. This decision is also seen by many to be incompatible with the UK’s climate change & pollution targets, and ending the scheme will undoubtedly have a destabilizing effect on the energy industry.
Where does this leave us?
The FiT scheme is seen by many to be inefficient, admin heavy (based on projection and reconciliation of supplier sales) and bureaucratic, but perhaps should have been wound-down over a longer period of time, instead of a sudden cut off on 31st March 2019. Perhaps subsidies to encourage local power storage (battery technology) to ease the peaks and troughs of daily energy demand could have been considered as a replacement to the scheme?
The Government has started a ‘Smart Export Guarantee’ consultation for suppliers to recompense small-scale providers, but this will not be legislated for some time. As a result, a number of small power infrastructure projects due to be completed after April this year have no guarantee of payment for any energy that they produce, but they will instead presumably be able to negotiate market rates for what they can provide to suppliers.
If you have any questions of what the changes to the FiT scheme could mean to your business, this resource may prove valuable: https://www.ofgem.gov.uk/publications-and-updates/faq-fit-scheme-closure