The latest degression in Feed-in Tariff (FIT) payment rates for non-photovoltaic eligible installations, released by Ofgem today (Friday 31st January 2014), should be seen as generally positive for the renewables industry, claims Nick Green of Savills Energy. The new tariffs for hydro, wind and anaerobic digestion (AD) will come into force as of 1st April 2014.  

Green, an associate director at Savills Energy, specialises in advising landowners and developers involved with wind farms and other renewable energy infrastructure. He comments: "Overall, the degression rates have been broadly in line with expectations and in some cases less severe than anticipated. Renewables projects remain a viable opportunity for landowners and developers looking to invest. With a stable rate of degression, payback time will only increase marginally; we're talking a few years, rather than decades, with room still for good return on investment."

Under the new tariffs for FIT Year 5, hydro schemes (up to 2MW) have seen a 5% reduction, wind schemes have seen a 20% reduction, AD plants under 500kW have seen a 20% reduction.

Green continues: "As intended, the FIT degression rate is likely to see only the best projects proceed. Developers need to look at their project margins and how these can be improved. However, this does not mean cutting corners. There is still substantial opportunity for the right projects to be developed on the most appropriate sites in order to deliver financial returns, especially as the Department of Energy and Climate Change is broadly supportive of further expansion of renewable installations throughout the UK."

Looking in more detail at the specific technologies covered under the non-PV FIT, Green adds: "The hydro industry is now breathing a sigh of relief, in particular those who were unable to get their pre-accreditation applications in before the end of December. Considering the lead-times for such projects, a large reduction in FIT could have severely impacted the development pipeline we have seen spring up across Scotland and Wales in particular and we may have seen it start to dry up. At just 5% degression on projects up to 2MW and no reduction on larger projects, however, there is stability for developers to continue to invest in schemes to unleash the extensive hydro potential in the UK.

"The reduction by 20% to wind tariffs and, in particular the 'medium-scale' wind rates, was widely predicted, as it was seen as overly generous at the advent of the FIT. Such a reduction will result in many low or average wind resource sites not proceeding and where they are let, rents may start to come under pressure.

"Project attrition continues to be a costly element of renewables development and the confirmation of tariffs for FIT Year 5 provides the required knowledge to drop a project earlier in the process if the numbers just don't stack up. In addition, today's announcement also allows project assessors to be more confident about their projections, especially for larger scale projects, ensuring the potential payback is in line with the investment being made. While there remain many challenges in the renewable market, including grid and feedstock, today's announcement will enable investment decisions to be made for projects to move into the next phase."  

The FIT is paid to encourage the installation of small scale (5MW or less) decentralised low-carbon energy systems. It is administered by Ofgem and is subject to a process of annual tariff degression, which reflects the expected cost reduction in the installation of new technologies over time. Once a system has been installed and registered for FIT, the tariff levels are fixed and subject only to index-linking for inflation.    

Savills Energy is a dedicated real estate and capital advisory service created to specifically assist the inception, planning, development and continued operation of assets and infrastructure connected to the energy production and storage sector.

View the FIT degression

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