After much speculation about intended cuts and an intensive period of lobbying, developers and investors were relieved yesterday at the news that the Government was not instigating an early review of the tariff levels provided for by the Feed-in Tariffs ("FITs") scheme. There was also a very positive reaction to the confirmation that the Renewable Heat Incentive ("RHI") would be going ahead. There are, however, still significant uncertainties about both schemes, which we outline below.

1. Feed-in Tariffs

The Spending Review set out that the efficiency of FITs would be improved at the next formal review, rebalancing them in favour of more cost-effective carbon abatement technologies, saving £40 million in 2014/2015. The Department of Energy and Climate Change ("DECC"), however, elaborated on this announcement in its own press release, stating that the changes would be implemented at the first scheduled review of tariffs unless higher than expected deployment requires an early review. Therefore, the risk of an early review remains and there is uncertainty about which technologies are likely to bear the brunt of the cuts (whether taking effect in April 2013 or before).

In the context of these uncertainties it is interesting to note the lack of a detailed statutory framework regarding tariff reviews, which is in marked contrast to the framework that is in place governing reviews of banding under the Renewables Obligation. It is not clear whether the lack of this framework was due to the rush with which the FITs were implemented to meet the 1 April 2010 deadline or a decision by the Government to retain flexibility with respect to scheme reviews.

2. Renewable Heat Incentive

The Spending Review set out that the RHI would be introduced from 2011-12, with efficiency savings of 20%, or £105 million a year, by 2014-15 compared to the previous Government's plans. DECC has indicated that this translates to funding of over £850 million over the Spending Review period. The announcements also confirmed that the RHI would not be funded through the levy provided for by the Energy Act 2008 (which the consultation process earlier this year had identified would be extremely complex to implement) but through departmental funding.

DECC now expects the RHI to be implemented with effect from June 2011 (two months later than previously announced) and expects to be able to be in a position to announce details of the scheme by the end of the year, including tariff levels and the technologies to be supported. It will be interesting to see whether there are substantial changes to the scheme outlined by the previous Government and, in particular, whether 12% returns (6% for solar thermal) are still proposed. DECC has confirmed that it "remains committed to the ambition" of moving from 1% to 12% of all heat being generated from a renewable source by 2020, which is likely to require significant incentives. In this context, it is worth noting that the majority of the costs associated with meeting this ambition would only be incurred after the end of this Spending Review period.

Further information

  • To view DECC's press release, please click here
  • To read our previous Law-Now on the Clean Energy Cash-back scheme, as proposed in February 2010, please click here

This article was written for Law-Now, CMS Cameron McKenna's free online information service. To register for Law-Now, please go to www.law-now.com/law-now/mondaq

Law-Now information is for general purposes and guidance only. The information and opinions expressed in all Law-Now articles are not necessarily comprehensive and do not purport to give professional or legal advice. All Law-Now information relates to circumstances prevailing at the date of its original publication and may not have been updated to reflect subsequent developments.

The original publication date for this article was 21/10/2010.