Alison Mathias explains the Homes and Communities Agency’s ‘double subsidy’ rules on claiming feed-in tariffs
Feed-in tariffs were introduced in April 2010 by the Department for Energy and Climate Change as one of the ways the UK will comply with Europe’s Renewable Energy Directive which includes a UK target of producing 15 per cent of energy from renewables by 2020.
FITs are essentially a subsidy for all electricity generated, whether used onsite or not, and are designed to incentivise small-scale, low carbon electricity generation - that is anything less than 5 megawatts. They are administered by watchdog Ofgem, funded from the climate change levy - a tax on energy use introduced in the Finance Act 2001- and collected through energy companies via energy bills. FITs can be claimed for technologies that generate renewable electricity, such as anaerobic digestion, hydro power, micro combined heat and power, solar photovoltaic and wind.
Social landlords have been alert to the opportunity that FITs present to improve the energy efficiency of their homes. However, since FITs are awarded after developments have been constructed, they appear to be a revenue rather than a capital subsidy. Therefore, it is easy to overlook the fact that FITs amount to public subsidy and are designed to recompense the beneficiary for the capital cost involved in installation of renewable technologies.
The general rule of thumb is that social landlords cannot benefit from both the public subsidy for installation costs and by claiming the FIT.
The Homes and Communities Agency, working with the Communities and Local Government department and DECC, and in its capacity as enabler, realised this needed clarification so we have developed a statement. First, this sets out key principles of the FIT in relation to HCA grant funding and public subsidy from other sources. As stated by DECC: ‘The FIT scheme is intended to replace, not supplement, public grant schemes as the principal means of incentivising small-scale, low carbon electricity generation.
‘Because of this, and to ensure value for money for consumers and compliance with European Union law on state aid, it is generally not possible for a generator to benefit from both FITs and a grant from a public body [for the installation costs] except in specific circumstances.’
Second, the statement sets out permitted grants which do not constitute state aid: the FIT regulations define these as grants made before 1 April 2010 for an eligible installation commissioned before 15 July 2009, or between 15 July 2009 and 31 March 2010.
Third, it outlines exceptional cases where the cost of an installation is significantly greater than the standardised costs on which FITs are calculated. If this is the case, both investment aid and FIT payments additional grant to cover installation may be permissible provided there is no double counting of the number of renewable units installed.
Fourth, it outlines what social landlords and developers can do. HCA-funded schemes are required to meet at least level 3 of the code for sustainable homes. The statement explains that it is not necessary to install renewable technologies to meet level 3. This means HCA funding conditions in themselves don’t inhibit social landlords and developers from demonstrating that they did not use social housing grant to fund PV, or other eligible technologies.
Finally, the statement recognises that it may be advantageous for social landlords to claim the FIT instead of grant in respect of renewable installations. In this case, the FIT regulations indicate that the way is open to investment partners to repay grant received in respect of ‘the costs of purchasing or installing’ an eligible installation.
New and old
It is worth emphasising that where eligible installations weren’t installed at the time of construction, but were retrofitted at the social landlord’s own cost, and where the landlord has not received grant subsidy for installation of an eligible installation, there shouldn’t be a problem obtaining FITs for existing homes. To benefit from FITs in new build properties, social landlords must demonstrate to energy companies and Ofgem that grant was not used to pay for installations, or to repay that proportion of it used for installations.
For the full HCA statement visit www.homesandcommunities.co.uk.