The AD and mCHP industry now has welcome certainty as BEIS publishes its response to the May 2016 consultation on changes to feed-in tariffs and sustainability criteria. This brings the FIT sustainability criteria in line with the Renewable Heat Incentive.


The Department for Business, Energy and Industrial Strategy (BEIS) has finally published its response to the May 2016 consultation on feed-in tariffs (FITs) for Anaerobic Digestion (AD) and micro-Combined Heat and Power (mCHP). Our article AD Industry finds FIT proposals hard to digest sets out the changes that the Government were consulting on, so we highlight here where their response differs from the original proposals.

AD tariffs and default degression from 1 April 2017

As expected, the industry was not in favour of reducing the tariffs for AD and disagreed with the Government's assumptions used to calculate the proposed rates. In light of this, BEIS has decided not to reduce the tariffs as much as originally proposed. The table below shows the original proposed tariffs and the final revised tariffs, which will apply from 1 April 2017. They will degress quarterly by 0.7% (for up to 500kW) – a slightly higher degression rate than proposed. There will still be an extra 10% contingent degression each quarter if the deployment cap is reached – this is unchanged from the core 2015 FIT review.

Installation size Apr 2017 Jul 2017 Oct 2017 Jan 2018 Apr 2018 Jul 2018 Oct 2018 Jan 2019
0 – 250 kW Proposed 5.95 5.92 5.89 5.85 5.82 5.79 5.75 5.72
0-250kW Revised 6.93 6.88 6.83 6.78 6.73 6.68 6.63 6.58
 250 – 500 kW Proposed  5.50  5.47  5.45  5.42  5.39  5.37  5.34  5.32
 250-500kW Revised  6.56  6.51  6.47  6.43  6.38  6.34  6.30 6.25
 500 – 5000kW Proposed 0.00   0.00  0.00  0.00  0.00  0.00  0.00  0.00
 500-5000kW Revised  2.49  2.45  2.42  2.38  2.35 2.31   2.27  2.24

AD installations of 500kW and over will continue to receive a generation tariff, which whilst much lower than the present level, is better than the zero tariff proposed last Spring.

mCHP

The tariffs for mCHP will stay the same at 13.61p/kWh.

Quarterly deployment caps were brought in for all technologies except mCHP as part of the 2015 FIT review and an overall cap of £100 million was introduced for new spend between February 2016 and March 2019, but this did not include mCHP, which already had an eligibility limit of 30,000 installations (i.e. once this limit had been reached, no further mCHP installations would be able to claim the FIT).

BEIS has decided that support for mCHP will now be brought within the £100m Levy Control Framework budget. However, BEIS still thinks there needs to be some control on the total level of spending on mCHP. The consultation had proposed a deployment cap of 3.6MW to March 2019, in the form of annual caps of 1.6MW in each of 2017 and 2018 and 0.4MW to the end of March 2019, which would equate to £1m of spending.

In light of evidence from industry demonstrating significant investment in mCHP and progress in bringing a commercialised product to market, BEIS has decided to increase the proposed cap to 20MW, which would support up to £9.8m of new mCHP, split into six-monthly deployment caps of 5MW starting 1 April 2017. This would equate to around 3,840 new 1.3kWe units per six month period.

The original 30,000 installations eligibility limit would, if met, cost up to £18.6 million and take total LCF spending over the £100m budget. Whilst the new 20MW cap is necessarily less than that (equivalent to approximately 15,360 installations on BEIS' calculations) it is a significant improvement on the 3.6MW cap that was proposed: it seems BEIS has taken industry concerns on board and recognised that such a low cap would have stifled the mCHP industry before it could really get off the ground.

This still means that if the six monthly deployment caps are reached, contingent degression of 10% will apply, as for AD and other FIT technologies, and if the actual amount deployed does not come up to the caps, BEIS may redirect the budget.

Sustainability of AD feedstock from 1 May 2017

Sustainability criteria for AD feedstock will come into effect from 1 May 2017 as set out in the consultation with two changes:

  • The land criteria will be the same as for the Renewables Obligation and the RHI, so use of material from a protected area (including wetlands) will be allowed if its production does not interfere with the nature protection of the area.
  • If a generator does not comply with the criteria for a particular reporting period, it will not be entitled to FIT generation tariff payments but it will still be entitled to the export tariff. This is because the export payment is offered as an alternative to a power purchase agreement for small-scale generators and since independent power purchase agreements would not be affected by the sustainability criteria, neither should the export tariff.

As for the RHI, BEIS have gone with the option of paying FITs on 50% of total biogas yield, for electricity generated from biogas not derived from wastes and residues. So where more than 50% of the energy content of the biogas used to generate electricity in a year is not derived from waste or revenue, the generation payments will be:

A x (1.5 – B)

Where: A = the total generation payments before adjustment

B = the proportion of the energy content of the biogas that is not derived from waste or revenue, expressed as a decimal and rounded to 4 decimal places.

As an example, if in an installation’s FIT reporting year 70% of the biogas yield (by energy content) is derived from feedstocks other than wastes and/or residues, with the remaining 30% of the yield derived from wastes and/or residues, the installation will only be entitled to 80% of that year’s FIT generation payments. Here, the calculation is 100 x (1.5 – 0.7). Note that the full export tariff is still payable.

Where an AD plant uses solely wastes and residues, it is deemed to meet the sustainability criteria so it gets the full FIT rate on all its electricity generated.

Ofgem have published Feed-in Tariffs: Draft guidance on sustainability criteria and feedstock restrictions for feedback, which explains in more detail how the criteria work. They expect to publish the final guidance as soon as possible after the relevant legislation is in force.

Implementation

The government had planned for these measures to be in place by January 2017, but like the RHI reforms (see our latest article) the consultation response has been delayed. The relevant Regulations have been laid before Parliament and should come into force on 20 March. The new tariffs will apply from 1 April 2017 and the sustainability criteria from 1 May 2017, affecting installations that are granted full or pre-accreditation after those dates. Existing installations (including those that are fully or pre-accredited before those dates) are not affected by the new tariffs nor the introduction of the sustainability criteria.

Key contacts

Richard Goodfellow

Richard Goodfellow

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United Kingdom

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Paul Dight

Paul Dight

Partner, Energy and Utilities
United Kingdom

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Simon Courie

Simon Courie

Partner, Infrastructure, Projects and Energy
United Kingdom

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