FITs and starts
Stuart Urquhart and Lynne Murray, from law firm TLT, give an overview of feed-in tariffs and look at some of the issues for consideration when tapping into the benefits of the scheme.
Registered providers and other owners of housing stock, including local authorities, stand to benefit financially from the introduction of FITs which came into force on 1 April this year, and to which the coalition government has since stated its commitment.
The scheme offers RPs and other property owners the possibility of being paid for generating electricity from renewable energy installations, such as solar panels, which can be located on their properties.
Tenants may also benefit directly from the cheaper electricity which is generated through such schemes. The larger financial gains, however, are likely to be made by the RP who can then reinvest in new or existing housing stock. Whilst high initial installation costs may previously have been prohibitive, the introduction of FITs may mean that the exploitation of small-scale renewables is now financially viable for RPs and other property owners.
What’s it all about?
FITs are fixed, guaranteed payments to generators of small-scale renewable energy. They are intended to be a straightforward mechanism to encourage the use of renewable electricity. The scheme applies to various technologies including:
- Solar photovoltaic
- Wind
- Hydro
- Anaerobic digestion (using organic material to create energy)
Licensed electricity suppliers are required to make two revenue streams available to eligible generators for electricity generated:
- a generation tariff, payable whether or not electricity is exported to the national grid; and
- an export tariff, for electricity that is exported to the national grid – FIT generators can opt to receive a guaranteed fixed payment or sell their electricity on the open market.
In addition to receipt of the FIT payments, FIT generators may also benefit from reduced energy bills, in utilising the energy generated on-site rather than having to purchase that supply. A solar PV system, for example, could produce a return of over 54p per kWh.
Practical Steps
Any installation of the specified technologies will be eligible if it was installed on or after 15 July 2009. An installation must be accredited by one of two routes, depending on the size of the system.
The terms of any installation contract should be checked carefully to ensure that they contain robust details about how the system will perform and what outputs can be expected from it. The owner of the system will then need to register with a participating electricity supplier and enter into a FIT agreement setting out the basis on which payments will be made.
Those stock owners with very large volumes of installations should ensure that they fall within the relevant electricity supply licensing exemptions.
Alternatives to self financing?
The main barrier to the exploitation of FIT is the initial up-front cost of the renewable installation but innovative market solutions are emerging. Generators are permitted to transfer their rights to FIT payments and as such can enter into arrangements whereby third parties (such as banks or installers) fund some or all of the upfront cost of the installation in return for taking an assignment of future FIT payments.
A number of projects are now coming forward in which companies are looking to take a lease of roof space from owners of suitable buildings to install solar PV systems at the cost of the company. The company will be registered as the recipient of FIT payments, but in return for granting the roof lease, the building owner will be entitled to take electricity from the PV system at a discount to standard grid prices or even for free.
As owners of (in some cases) large amounts of housing stock, these projects may offer an alternative way for RPs and local authorities to participate in the FIT scheme. A good deal of an RPs stock may well have suitable roof spaces for solar PV installations and as such RPs are in a good position to exploit the potential of the scheme.
RPs and other owners of social housing stock can form energy co-operatives to pool the costs and share the benefits of the scheme. Whilst this will not in itself necessarily solve the funding issues, schemes such as the Horizon co-operative in the north west have shown there is an appetite for community and/or philanthropic investment. When combined with conventional debt funding and any incentive payments available this could help overcome the initial hurdles.
In addition of course, any such schemes will help meet carbon reduction targets.
Feed in tariffs for heat?
Owners and developers of housing stock could also get paid for excess heat generated from renewable sources if the government sticks to plans to introduce a further incentive in April 2011.
The renewable heat incentive has been to designed to encourage a radical change in the way heat is generated. Like the feed-in tariffs for electricity, the scheme offers property owners the possibility of being paid for generating heat from renewable energy installations, such as wood-fuelled boilers, ground source heat pumps and solar hot water panels. As with FITs, the scheme would potentially apply both to renewable heat generating systems installed on a retro-fit basis in existing properties, as well as systems installed in new buildings.
The scheme is intended to operate in a broadly similar fashion to FITs involving the provision of guaranteed payments for heat generation. Unlike FITs though, the intention is that the RHI would be available for all scales of installations, including those at a community scale that form part of a district heating network.
Following a recent consultation initiated by the previous government on the RHI, the next step is for the new government to consider responses to the consultation and, subject to this, draft a set of detailed regulations to be laid before Parliament for approval.
Lynne Murray is a partner at TLT who specialises in the constitutional, regulatory, governance, funding and structuring side of the social housing sector. Stuart Urquhart is a commercial lawyer who has advised on a number of renewable energy projects.
For more information please contact Lynne Murray on 020 3465 4166 or visit www.TLTsolicitors.com
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