APSE Energy Response to FIT Consultation by DECC

This is the APSE Energy response to the DECC Consultation reference: URN 15D/435 – Consultation on a review of the Feed-in Tariffs scheme

APSE Energy

1. Introduction APSE

The Association for Public Service Excellence (APSE) represents council officers and members involved in the management and provision of quality public services. APSE’s mission statement positions the organisation as “networking organisation which consults, develops, promotes and advises on best practice in the delivery of public services”. APSE is currently working with almost 300 authorities within the United Kingdom. APSE members are local authorities and a small number of other public service providers. More information on APSE can be found at our website http://www.apse.org.uk/apse/

APSE Energy is APSE’s innovative collaboration of local authorities who are working together to deliver energy efficiency and renewable energy projects. APSE Energy is now 16 months old and has grown in membership to 54 councils from Aberdeen to Southampton (see the current list of members at Appendix 1). All of the councils in APSE Energy share the same ambition, to work together to re-municipalise energy services with local government leading the way. Our mission statement is:

“To form an effective collaboration of a large number of local authorities to enable and facilitate the municipalisation of energy services. By this we mean the public and community, as well as private, ownership and managerial control of local energy generation, distribution networks and delivery of energy efficiency works. Local authorities working together in this way would have great influence and would be able to deliver economies of scale in green energy to promote economic growth and combat fuel poverty.”

2. General

APSE Energy understands the general position set out in the consultation paper in relation to the Levy Control Framework (LCF) that the Government projects an overspend of the budget in the region of £1.5 billion by 2020/21. However, we are unclear of the reasons for this overspend and therefore it is difficult to come to definitive conclusions about the impact of the Feed in Tariff (FiT) regime and therefore the need to scale back so heavily on the financial support for renewable technologies such as solar PV, wind and hydro.

The Feed in Tariff has been an extremely important financial mechanism for ensuring the take up of very many renewable technologies in the domestic, community and local authority sphere and we are concerned that the proposals in the consultation paper will create more uncertainty and lead to fewer viable civic and community renewable projects being developed.

APSE Energy has had some discussions with the Renewable Energy Association (REA) with regard to the consultation paper and we support the constructive proposals set out by the REA in their response to DECC. We would commend the approach adopted by the REA and ask DECC to seriously consider the options set out by the REA in respect of the consultation paper which we feel provide some alternative approaches that the Government could adopt.

3. Solar PV

APSE Energy is disappointed at the proposals to revise the generation tariff rates set out in the consultation paper which we believe will have a damaging impact upon the deployment of renewable technologies in the U.K. and in particular Solar PV which is the most popular renewable technology and provides enormous economic and community benefits. We agree with the Renewable Energy Association (REA) who believe that “recent changes and announcements have caused a huge amount of uncertainty and made it impossible for a sustainable industry to develop.”

Generation tariffs and costs of deployment

A reduction in tariff rates of up to 87% will reduce the take up of solar PV particularly in the domestic sector and completely undermine business and consumer confidence in renewable energy. We have already started to see the impact of the proposed changes on the installation industry with announcements of job losses and businesses going into administration. This has a knock on effect down the supply chain and has a damaging effect on the whole industry.

Whilst the Parsons Brinckerhoff assumptions may indeed take into account the costs of deployment for UK projects as a whole, they certainly do not acknowledge that there are clear differences between commercial projects and those undertaken in the civic and community energy sectors. These projects are not for purely commercial gain and have wider economic and social benefits. Because in particular local authorities have to have regard to full public and democratic scrutiny of their projects and ensure maximum value for money in the use of public funds and the management of scarce resources, together with community engagement and compliance with the EU procurement regime, it takes much longer to bring these projects to market and they are impacted adversely by sudden changes in Government policy which undermines the business case for their projects. 2
As the REA point out:

“There has been a lot of interest in solar from local authorities, however, the recent announcements and changes to the scheme have caused many projects to be put on hold. There must be some additional support available for these projects. This could be done in a number of ways. Local authorities should not rent out land for solar farms but should be encouraged to build it themselves. They are able to access lower cost finance and can benefit from the generated electricity. Local authorities could also be prioritised for grid-connection and license. The same applies to community schemes, which face being wiped out by the proposals. As noted in the consultation, pre- accreditation must also be reintroduced, which is especially important for the local authority and community sectors.”

APSE Energy supports the REA’s proposals on tariffs set out in their response to the FiT consultation and would commend this approach to Government as a more workable solution than proposed in the consultation paper.

APSE Energy supports the industry view that more money should be available beyond the £75-100million proposed, this would enable the solar industry to reach grid-parity quickly and prepare for a transition away from subsidies. If more money is made available to the LCF then APSE Energy supports the tariffs and caps proposed by the REA and the Solar Trade Association (STA) in their responses.

It is our view that if the proposed budget remains unchanged the money available in the LCF could be better allocated within solar deployment to support domestic systems and civic and community projects.

Caps and Degression

We do not support the introduction of caps and it is our view that they will not work. It will be impossible to achieve a sustainable industry if it is forced into a stop-start pattern every quarter and the industry will not be able to plan long-term. If caps are introduced it does not make sense to base them on capacity, and instead they should be based on budget. This as the REA argue would remove the need for contingent degression as the budget would not be spent above the cap in a quarter. The contingent degression on top of the default degression could see the FiT rates reduced much faster than the three years suggested and prevent long-term decisions being made.

Export tariffs and SMART meters

Whist we welcome the fact that the Government does not propose to change the export tariff at this point in time, we do not believe that the proposals set out in the consultation paper reflect the reality facing renewable projects in the future. If generation tariffs are to be drastically cut back because of the need to manage deployment and to ensure that the Levy Control Framework (LCF) is not over budget, then power sales and/or use of the generated power will be a major factor in the future viability of local authority projects. 3
The major difficulty at the present time is that where small scale generators are not able to either use the power on site or via a private wire, they are subject to network costs either to sleeve the power via a third party or arrange for Power Purchase Agreements (PPAs) again normally with existing licensed suppliers. This is usually prohibitive and would make electricity sales via this mechanism more expensive than traditional energy procurement contracts. It requires a fundamental change in both the distribution network and existing supply arrangements to make local authority renewable energy projects viable under existing market conditions. Unless these changes are effected by Government to make power sales more practicable, then no amount of tinkering to reflect future market conditions and ensure competitiveness with the wholesale price will make a difference apart from further undermining the viability of small scale generators.

It is our view that the Government should either be seeking a transformation of the existing energy market to provide a level playing field for small scale generators or should be considering an increase in the export tariff to help those generators sell their power at a more competitive price which would help with the viability of projects. If the Government were to help local authorities in terms of the use or sale of power from renewable energy projects, then that would obviate the need for subsidies in the first place.

APSE Energy supports the Government’s programme for the roll out of SMART meters and we believe that this potentially would provide a better basis for the FiT than deemed export in the future. However, there is a need to evaluate the impact of SMART meter roll out in relation to the value of exported electricity and as we have stated above, it is our view that the full value of exported electricity is undervalued in relation to wholesale electricity prices and much more work need to be done to evaluate the impact of these changes before a definitive conclusion can be reached.

4. Grid management and costs

The consultation paper sets out some of the current issues associated with grid management and the impact of distributed generation on the current network. However, this issue is much wider than distributed generation having an impact on the current network. Network constraints are proving prohibitive in terms of the transition from a more centralised to a more distributed energy system and the Government needs to take a more strategic view of the long-term needs of the distribution network.

It is our view that local authorities working closely with the DNOs can play a significant role in developing the capacity of the local grid, managing loads and ensuring that renewable energy projects can be scaled appropriately. The current system is acting as a constraint on future development. SMART technology, energy storage and local grids mean that much of the pressure on the network could be alleviated over time by a more coherent approach to investment in the energy infrastructure and developing renewable energy in order to reduce the demands on the system and create a new approach to the whole electricity distribution network. This needs clear leadership from Government.

We believe that energy policy needs to be more closely aligned to other aspects of central government policy in relation to for instance the devolution agenda in England, 4
Scotland and Wales. The Cities and Devolution Bill currently passing through its various parliamentary stages, provides an opportunity to align energy policy and future infrastructure with greater regional devolution. Giving for instance, combined authorities greater responsibilities in relation to their energy infrastructure and the development of more distributed energy can help to deliver greater efficiencies, drive competition in the sector and provide for energy security in the longer-term. We therefore feel that DECC needs to have a more coherent plan in relation to ‘grid management’ than currently set out in the consultation paper.

5. Energy Efficiency Criteria

We broadly support the view expressed in the consultation paper that energy efficiency criteria should be closely linked to renewable generation and that this is a way of both reducing carbon emissions more effectively and helping to reduce consumer bills. We do however, believe if this is to be more effective then Government policy needs to be more closely aligned with the stated objectives and much more needs to be done to improve the energy efficiency and performance of our overall building stock. Just aligning EPC rating to the rates at which FiT can be claimed could mean that there is no overall improvement in the energy performance of buildings and it could act as a further deterrent to the deployment of solar PV. Much more needs to be done by Government to support local authorities in improving the energy efficiency of its own building stock and in improving the energy efficiency of other public, private and domestic dwellings.

We do however, welcome the Government’s proposal to provide exceptions for community groups, schools and fuel poor households to the revision to the energy efficiency criteria being considered.

6. Conclusion

It is our view that there is a general confusion in stated policy aims at the heart of the consultation paper. Whilst we accept and support the periodic review of the FiT regime to ensure that it more closely aligns with available resources and in order to reflect the deployment of renewables across different technologies. It is clear that what is driving the consultation paper is essentially a desire to reduce the burden on the LCF rather than a manged transition towards a post-subsidy renewables industry. We have faced successive ‘cliff edges’ in terms of government policy towards financial incentives for renewables and it creates a ‘feast and famine’ approach to deployment as the commercial sector rushes to complete projects before the financial incentive regime changes. The result is that the civic and community sectors get left behind in the crush to deploy before the FiT changes and makes the economic case for projects more difficult and therefore more uneven distribution of projects across the private, public and community sectors. 

This means that there is a less managed approach to deployment and very many public and community sector projects which have wide economic and social benefits, cannot proceed as the recent report for Community Energy England “Community Energy: Generating More than Renewable Energy” by Quantum (October 2015) illustrates.

Mark Bramah

Director of APSE Energy

October 2015