Date laid: 18 December 2018
Parliamentary procedure: negative
The purpose of this Order, laid by the Department for Business, Energy and Industrial Strategy, is to close the Feed-In Tariffs (FIT) scheme to new applicants from 1 April 2019. Since its introduction in 2010, the FIT scheme has provided support for small-scale low-carbon generation and a route to market for such electricity. This instrument implements a decision by the Government announced in 2015 to close the scheme for new entrants as part of a move towards market-based solutions, cost-reflective pricing and efforts to reduce energy costs for consumers. A public consultation showed strong opposition to closure of the FIT scheme and concerns about the impact on small-scale generators, jobs in the renewables sector and the Government’s ability to meet climate change and other environmental and health targets.
We draw this Order to the special attention of the House on the ground that it gives rise to issues of public policy likely to be of interest to the House.
5.The Department for Business, Energy and Industrial Strategy (BEIS) has laid this Order with an Explanatory Memorandum and Impact Assessment (IA).
6.BEIS explains that electricity generation accounts for over 20% of UK greenhouse gas emissions, and that the Feed-In Tariffs (FIT) scheme was introduced in 2010 as, without government intervention, market incentives would not have been sufficient to meet the UK’s climate change commitments. The FIT scheme has been the Government’s main policy measure to encourage the deployment of small-scale low-carbon electricity generation in Great Britain.
7.According to BEIS, the FIT scheme provides support for small-scale low-carbon electricity generation (through the so-called generation tariff) and a route to market for such electricity (through the so-called export tariff). The scheme encourages deployment of small-scale renewables up to 5 megawatts and currently supports over 800,000 installations. It is funded through levies placed on the electricity bills of households and businesses.
8.The Department says that, as technology develops, costs of low-carbon electricity generation decline and public attitudes change, and there is less of a need for government support. Following a review of the FIT scheme in 2015,2 the Government decided to cap spending on new electricity generation after the introduction of revised generation tariffs and to close the generation tariff to new entrants in March 2019. The aim was to ensure that generation tariffs would have no further impact on energy bills beyond forecasts at that time.
9.This instrument ends the current export tariff at the same time as the generation tariff, in effect closing the FIT scheme to new entrants from 1 April 2019. The Department says that future growth in the small-scale low-carbon energy generation should be sustainable and driven by competition and innovation rather than direct subsidies, and that the closure of the FIT scheme reflects wider Government objectives of moving towards market-based solutions, cost-reflective pricing and reducing energy costs for consumers.
10.BEIS emphasises that the closure of the FIT scheme for new entrants will not impact on those installations which are already accredited, and that they will continue to receive payments for the generation and export of electricity for the full 20-year duration of support under the current rules. The instrument also provides for several time-limited extensions and a grace period for applications that will have been made, but not completed, by 31 March 2019. The instrument also introduces an administrative change in relation to a so-called ‘levelisation’ mechanism, through which support costs of the scheme are shared across electricity suppliers according to their share of Great Britain’s electricity market. This is to ensure that the distribution of these wider costs between suppliers better reflects the actual costs to suppliers.
11.The Department carried out an eight-week public consultation on the closure of the FIT scheme between 19 July and 13 September 2018. There were 345 responses from a range of stakeholders including trade associations, manufacturers, energy suppliers, community groups, local authorities and individuals.3 The consultation showed high levels of opposition to the proposed closure of the scheme, with 315 of the 345 responses (91%) opposing the plans. According to BEIS, respondents expressed concerns about the unfairness of small-scale generators having to provide surplus electricity to the grid for free, an incompatibility with the Government’s climate change and other environmental and health targets, and a destabilising effect on the renewable electricity sector and jobs. There was also concern about the lack of routes to market for small-scale electricity generators leading to reduced deployment and knock-on impacts on the development of smart energy infrastructure, and about a possible gap in a route to market between the closure of the FIT scheme at the end of March 2019 and the introduction of any potential successor arrangements.
12.In the IA, the Department acknowledges that the closure of the FIT scheme is expected to lead to a reduction in the deployment of new low-carbon electricity generators, and that this is “likely” to result in a reduction in employment in this sector. The IA references a study which puts total employment in the sector at around 126,000 and two solar industry surveys which suggested that over 70% of respondents believed the closure of the FIT would have a negative impact on employment. BEIS also points, however, to the inherent uncertainty in relation to the number of jobs supported in small-scale low-carbon sector, and the extent to which a reduction in deployment would impact on employment in related sectors.
13.We asked the Department for further clarification. BEIS told us that:
“[T]he Impact Assessment does not attempt to estimate the job impacts of closing the generation and export tariffs. This is because deployment following the scheme closure is highly uncertain, particularly across different technologies, capacity sizes and regions. This means it is not possible to robustly quantify impacts on employment at this time.”
14.The Department also states in the IA that following the closure of the FIT scheme to new applicants, small-scale low-carbon electricity generation would be replaced by power from the national grid, which includes generation from thermal plants (such as gas) that can affect air quality. BEIS also says, however that a reduction in some FIT-supported generation of electricity, such as anaerobic digestion, could lead to a small improvement in air quality. We asked the Department for further information. BEIS told us that:
“[T]he argument put forward in the IA is that [as] closing FIT is expected to lead to reduced deployment of low-carbon generation, there will be a lower reduction in demand for grid electricity relative to a higher deployment scenario, and hence a lower reduction in generation from gas stations. The air quality impact of this isn’t so much an absolute worsening of current air quality, as a reduced improvement relative to the baseline in which the FIT scheme remains open. This potential impact on air quality is very difficult to assess, especially at local level (it depends on which gas stations are not reducing their production). It has therefore only been described at a high qualitative level in the IA, and the geographical impacts of this have not been assessed.”
15.While acknowledging the concerns expressed during consultation, the Department has concluded that the current FIT scheme does not align with the wider government objectives to move towards market-based solutions, cost-reflective pricing and the aim to minimise support costs for consumers. The Committee is clear that it is for Government to decide on policy development after having considered the views expressed during consultation. The House may nevertheless wish to explore further the approach the Government have taken with this instrument and the potential impact of the closure of the FIT scheme on the renewables sector, jobs and the Government’s climate change targets. We therefore draw the Order to the special attention of the House on the ground that it gives rise to issues of public policy likely to be of interest to the House.
<2 Department for Business, Energy and Industrial Strategy (BEIS), Government Response to the Review of the Feed-in Tariffs Scheme, Department of Energy and Climate Change (December 2015): https://www.gov.uk/government/consultations/consultation-on-a-review-of-the-feed-in-tariff-scheme [accessed 15 January 2019].
3 BEIS, The Feed-In Tariffs scheme: closure of the scheme to new applications after 31 March 2019, and administrative measures: government response (December 2018): https://www.gov.uk/government/consultations/feed-in-tariffs-scheme [accessed 15 January 2019].