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Government proposes severe cuts to Anaerobic Digestion Feed-in Tariffs

The DECC has published a consultation document proposing major reductions in support for Anaerobic Digestion (AD) under the Feed-in Tariffs (FITs) scheme.

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The DECC has published a consultation document proposing major reductions in support for Anaerobic Digestion (AD) under the Feed-in Tariffs (FITs) scheme. Cuts would take effect from January 2017 and are anticipated to have a serious impact on the biogas industry, with the proposed changes likely to end many AD projects planned in the UK, particularly farm based schemes.

If the cuts go ahead, support for small and medium scale AD plants up to 500 kilowatts of electrical power (kWe) would be reduced by 27% compared to current tariff levels. Such reductions would be well below the minimum viable levels recently recommended to the government by the Renewable Energy Association (REA) and Anaerobic Digestion and Bioresources Association (ADBA). The cuts “represent a severe blow to the rural economy, circular economy, and a setback for the UK’s decarbonisation efforts”, the REA said. DECC are also proposing default quarterly degression to the AD tariffs, in line with other eligible technologies under the FITs, and are consulting on sustainability criteria which could restrict some feedstocks.

Adding to these challenges, deployment caps were introduced in February 2016 to limit spending on the FIT scheme. The first quarterly cap was exceeded after just one day, with total deployed capacity of 15MW, almost tripling the deployment cap of 5.8MW. This triggered a 10% degression on 1 April 2016 and means that further degressions of 10% will occur on 1 July and 1 October 2016. Accreditation applications can still be submitted to Ofgem, but the queue currently stretches into the first quarter of 2017, meaning that pre-accreditation is effectively unavailable and any projects currently planned would be subject to next year’s reduced tariffs, adding considerable uncertainty to prospective investors.

Under DECC’s consultation proposals, support for large scale plants over 500kWe could be cut altogether, leaving such projects solely reliant on subsidy support through the Renewable Heat Incentive (RHI) scheme, which is also under consultation. Dan Thory of Fisher German comments “even with economies of scale, larger projects would most likely become unviable as they cannot always utilise enough of the generated heat to create sufficient RHI income, and rely heavily on FIT support to make the economics stack up”.

Dan Thory continues “to compound these problems, the RHI scheme has recently undergone changes with tighter budget limits brought in from April 2016, and the possibly of early closure if overall caps are reached. This adds to the uncertainty and risk of developing an AD project, and from April 2017 the government is also proposing to restrict RHI support to new AD plants using crop-based feedstocks such as maize, and remove support for heat used to dry digestate”.

DECC argues that the cuts and restrictions are necessary to prevent an overspend of the Levy Control Framework (LCF), the mechanism put in place to limit low carbon energy subsidy expenditure which is funded through levies on consumer energy bills. DECC maintains that there is still a strong pipeline of projects, however the recent deployment caps and cuts and restrictions proposed for 2017 are widely expected to have a massive impact on the industry.

Charlotte Morton, chief executive of the Anaerobic Digestion and Bioresources Association (ADBA) recently commented that the consultation “does nothing to address DECC’s fundamental lack of ambition for AD” and that the proposed cuts will likely “kill off projects which could otherwise have delivered DECC’s objectives while representing good value for money”. The consultation closes on 7 July.

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