Yesterday the government announced a further consultation on PV tariffs, in an attempt to bring transparency and certainty to the industry. Some issues have been clarified, but other remains highly uncertain. Our current understanding is:

What tariff will I get at different installation times?

Now to 3rd March 2012: uncertain, the government’s intended tariff is:

* These are the current tariffs which were not changed through the phase 1 consultation but which, like all other current tariffs (but not the new tariffs) will be adjusted in line with the Retail Price Index from 1 April 2012 to the levels set out in the table.

In other words from the date of installation until 31/3/12 a generator receives the tariff in the first column, and the tariff rate falls to the rate in the second column for the remainder of the 25 year life of the tariff on 1st April.

This has been subject to legal challenge and the government will be obliged to allow such installations to keep the higher tariff for their full tariff life, unless it is successful in a Supreme Court appeal to overturn an earlier judicial ruling.

3rd March to 31st March 2012: Subject to successful completion of a current ongoing Parliamentary process between these dates the government will achieve its preferred tariff above – i.e. a higher tariff for a short period and then the lower tariff for the remainder of the tariff life.

1st April 2012 to 30th June 2012: The lower tariff above will apply for the duration of the tariff life, subject to some further potential limitations on which the government is consulting:

• Energy efficiency: The tariff will be reduced to 9p/KWh where otherwise it would have been higher unless:
• If the installation is attached to, or wired to provide electricity to a building, that building has an Energy Performance Certificate of D or above
• All buildings which the installation is attached to, or wired to provide electricity to, if they do not have an EPC of D or above, cannot have EPC’s obtained for them
• Indexation: Currently tariffs are uplifted each year with RPI which will continue to apply for existing FIT generators. DECC is consulting on the merit of changing, for new installations, the indexation measure to CPI or removing altogether and having a “flat” tariff
• Export tariff: Currently the export tariff is at 3.1p/KWh, which it is proposed remain for existing installations. DECC is consulting on whether there is a case for raising this and, possibly, introducing a commensurate fall in generation tariffs for new installations
• Multi-installations/aggregators: Where a FIT generator receives or is the nominated recipient for FITs from 25 solar PV installations or more (or connected parties considered in aggregate reach this threshold), tariffs for installations up to 250kw will be cut by a further 20%. Note that there is a further separate proposal to reduce tariffs for non-community-owned multi-installations to a level equivalent to the standalone tariff from October 2012.
• Tariff life: DECC is consulting on reducing the longevity of PV tariffs to 20 years from the current 25 years

Communities and proposed community schemes are the subject of additional consultation as regards how they can adequately be defined and supported. Subject to satisfactory definition, they may keep the multi-installation tariff post October 2012 and also have some additional support to help funding processes, in particular being able to “lock in” a certain tariff in advance to assist the financing process.

1st July 2012 onwards: Uncertain

Tariffs from 1st July 2012 will, say DECC, depend to an extent on the deployment levels in March and April this year; three given options are:

DECC is proposing much sharper degression in tariffs in future with both a baseline degression rate and deployment-contingent degressions. In other words tariffs would be programmed to fall every 6 months, but if deployment exceeded a proposed 125% of anticipated levels additional and sooner degression would be applied.

DECC is consulting on these degression levels and the associated tariffs with the three given options. For instance, if Option A above is adopted, the baseline degression will be:

What does this mean for clients?

The wide range of outcomes from July 2012 mean that this latest consultation certainly does not end the uncertainty. What is clear, is that having been caught out in the past on how quickly PV costs have fallen, and hence the level of demand for the tariff, DECC does not want it to happen again.

For clients currently installing, finishing the installation prior to 3/3/12 makes sense, all other things being equal.

For clients which have buildings for which they can obtain an EPC but where achieving D or higher will be difficult or prohibitively expensive, 1st April 2012 could be an effective cut off date for any tariff greater than 9p/KWh.

For other clients that are keen to install but unable to comply with the above deadlines, they should certainly put themselves in a position where they can install in May or June this year, as there is a risk of further sharp falls in tariffs afterwards which are unlikely to be matched short term by commensurate falls in the capital cost of equipment.

For further information, please contact me at matthew.willmott@francisclark.co.uk or Bob Meier at bob.meier@francisclark.co.uk

Please see also the blog on other aspects of the consultation.