The FITs consultation and the struggle to stay single

The combination of the DNOs statutory duties plus the level of discretion held by OFGEM to determine “Site” status means that developing small projects that are in close proximity is subject to significant regulatory uncertainty.  The February consultation from DECC on the FITs scheme closes for comments on 26 April 2012. This is one key issue facing developers who are seeking to rely on the FITs support and it is critical that as many as possible respond to the consultation as this provides industry with a real opportunity to influence the direction in which the underlying policy is taken.

20 April 2012

The February consultation from DECC on the Feed-in Tariffs (FITs) scheme closes for comment on 26 April 2011.The introductory language in the consultation again talks of strict fiscal discipline but also recognises the contribution small scale, local, low carbon projects can make to the overall delivery of the UK Renewable Energy Roadmap. With the recent budget signalling clear ongoing commitment to renewables hopefully the FITs Scheme will come out of this consultation process with some strong, clear and positive messages.

However, in order to achieve this it is critical that those developers seeking to rely on FITs support respond to the consultation in order to address the key issues that they have identified with the scheme. In doing so, industry have a real opportunity to influence the direction in which the underlying policy is taken. 

One such issue that has recently been discussed in the courts is what tariff should be available to photovoltaic (PV) projects.  The Government’s efforts to reduce the support available to such projects have been unsuccessful after a high profile court challenge and the subsequent decision of the Supreme Court to refuse the Government leave to appeal the Court of Appeal’s ruling. However, although this is good news for the PV industry, it puts the already stretched FiTs budget under greater strain meaning other technologies may suffer negative effects as a result.  

Speaking to Renewable Energy Installer, Miles Thomas, head of operations at Savills Energy, warns that “..despite any positive effects this may have for the PV panel manufacturers and distributors in the short term, it is likely to have a negative impact on other forms of alternative power generation when it comes to the equitable distribution of the FiT budget”.  The Supreme Court’s decision therefore provides further incentive for concerned non-PV industry players to respond to the FiTs consultation before the upcoming deadline.

This Article looks at one of the other issues facing developers, namely the conflicting signals that small scale wind developers are receiving from distribution network operators (DNOs) and from the FITs guidance and how they might be addressed.

The desire for single status

It reads like a rather discouraging lonely hearts column ad:

“Small scale renewable installation specialist seeks projects in local area.  Interested parties must have their own accreditation and must not want to share an electrical connection.”

Many small scale generators who seek to develop projects in close proximity to each other are keen to ensure that these projects are considered “single sites” in order to retain maximum flexibility when it comes to selling or obtaining funding for projects. However, the licence conditions and statutory duties of the DNOs may constrain their ability to make individual connection offers for these projects and shared connection agreements may deter investment and threaten the single FITs accreditation status of these projects.   

Licence obligations of DNOs

Generators seeking to have their projects located in close proximity but considered “single sites” would logically request separate connection agreements for each project.  Under Standard Licence Condition (SLC) 12 of the electricity distribution licence, following receipt of a request, the relevant DNO must offer to enter into a connection agreement with the requester under which it will accept the quantity of electricity, the entry point (the connection point to the network) and the exit point (the point where the electricity leaves the network) that the requester has specified in their request.  

However, there is an exception to the obligation to offer such terms where it would cause the distributor to be in breach of its obligations under (amongst others) section 9 of the Electricity Act 1989 (the “Act”).

Statutory duties of DNOs

Under section 9 of the Act, DNOs are under a duty to “develop and maintain an efficient, co-ordinated and economical system of electricity distribution”.

Where small scale generators intend to develop projects in close proximity to each other, the DNO may feel obliged to offer some form of co-ordinated solution (involving shared connection/meter) as this would presumably reduce both the extension or reinforcement works and associated costs required to connect the projects and as such be considered more efficient and economical than separate connections.  

FITs accreditation

OFGEM is responsible for awarding accreditation status to “eligible installations” under the Feed-in Tariff (Specified Maximum Capacity and Functions) Order 2010 as amended (the “Order”).  An eligible installation is granted on a per Site basis meaning that as long as the separate projects would be viewed as separate Sites then each project should be capable of obtaining separate accreditation.

A Site is defined as follows for the purpose of the Order:
“Site” means the premises to which are attached one or more Accredited FIT Installations or Eligible Installations in close geographical proximity to each other, to be determined as required by the Authority by reference to:
(a) the relevant Meter Point Administration Number for electricity supply;
(b) street address;
(c) OS grid reference;
and any other factors which the Authority at its discretion views as relevant (SLC33 of electricity supply licence).

In simple terms, this is effectively saying that where there are a number of installations in close proximity these may be regarded as a single site by OFGEM.  In making such a determination OFGEM is essentially seeking to prevent gaming i.e. where sites are artificially split in order to benefit from a higher tariff banding.  

For example, under the proposals in the current consultation, wind from 100kW to 500 kW attracts a tariff of 17.5p/kWh and from 500kW to 1500kW a tariff of 9.5p/kWh – a marked difference. It is entirely right that a developer who artificially seeks to split out turbines into separate “projects” that are in reality being developed as a single project should be prevented from doing so. However, developers with sites in close proximity which, even when combined, still fall within say the 100kW to 500kW banding should not be artificially prevented from separating out those sites where they are genuinely distinct projects.

Guidance published by OFGEM in March 2012 expands on this definition of Site and explains that the other factors that will be considered will include whether the installation would be capable of accreditation under the ROCs regime and by reference to the definition of a generating station given under the ROCs Guidance.  

ROCs accreditation

The ROCs Guidance is similar to the FITs guidance in a number of respects although there are some ‘useful’ additions.  For example, where equipment such as turbines are on the same premises and owned or operated by the same or connected persons, there will be a presumption (which is rebuttable) that there is one generating station (which is equivalent to a single site under the FITs regime).  The ROCs guidance also lists the following factors as being relevant:

  • Shared electrical connection between installations;
  • Same planning permission and/or under the Act section 36 consents for different sets of turbines;
  • Single connection to the (distribution) network;
  • Same or linked metering 

The nature of the single site test for both FITs and ROCs is such that it needs to be considered on a case-by-case basis by reference to the particular facts of the relevant projects.  

What can generators do? 

Where a generator believes that their projects located in close proximity are genuinely separate “Sites” for the purpose of the FITs and ROCs regimes, where the relevant DNO makes a shared connection offer in respect of those projects, the generator could refer the dispute to OFGEM for determination under SLC 7 of the distribution licence.  However, given there is no specified time limit within which OFGEM must determine such a dispute; this may not be an attractive option.  

The combination of the DNOs statutory duties plus the level of discretion held by OFGEM to determine Site status mean that developing small projects that are in close proximity is subject to significant regulatory uncertainty.

Where DNOs are issuing offers that do not recognise the generator’s wish to separate out genuinely distinct Sites and there is no question that the developer is seeking to artificially fall into a higher tariff band, it may be that pre-accreditation by OFGEM of the Sites as single Sites under the FITs scheme is the sensible solution. The current DECC consultation seems supportive of this approach and raises several points about the detail.  We would encourage interested parties to respond to these points soon as the 26 April deadline is fast approaching.