A new consultation on the future level of support via the Feed-in Tariffs (FITs) scheme for anaerobic digestion (AD) or micro-combined heat and power (mCHP), technologies includes a proposal to removethe Feed-in Tariff (FiT) for anaerobic digestion installations of between 500kW and 5 MW.

The Department of Energy and Climate Change (DECC ) consultation is seeking comment on the generation tariffs for anaerobic digestion (AD) and micro-combined heat and power (mCHP) and sustainability criteria and feedstock restrictions for AD.

For the 0-250 kW and 250-500 kW tariff bands, the Government proposes to maintain the current tariff trajectory, which in January 2017 will bring tariffs down to 5.98 p/kWh and 5.52 p/kWh respectively.

The Feed-in Tariffs (FITs) scheme is the Government’s subsidy scheme for generation of renewable electricity from small-scale installations - AD has deployed successfully under the scheme in its present form. When it was launched in 2010, Government projected 100 installations equating to 160 MW of installed capacity by 2020/21. By the end of March 2016, the number of installations accredited under the FITs scheme was 250, with an installed capacity of 177 MW.

In contrast, mCHP, which was originally included in the FITs scheme as a pilot, has not seen a sustained level of deployment, with only 501 installations deployed since the scheme started in 2010. Under the pilot, support has been available for up to 30,000 installations (with an electrical capacity of 2 kW or less), with a policy to review the limit when deployment reaches 12,000 installations.

Despite an increase in generation tariffs following the 2011/12 FITs Review, deployment of mCHP has remained low with only 501 installations supported under the scheme by the end of 2015, with a further 158 commissioned, and awaiting accreditation. Annual deployment rates have continued to fall since 2011 with only 18 installations deployed in 2015.

AD- existing installations will be unaffected by proposed tariff changes

The Government has reiterated its commitment to the principle of grandfathering generation tariffs under the scheme - existing installations will therefore not be affected by the proposed changes to tariffs. Any new AD installations from 1 January 2017 will be subject to new tariffs.

Commenting on its proposals, the Government said:

“We do not expect that implementation of the proposed changes will adversely affect our ability to meet our renewable electricity and carbon reduction targets. The UK is making good progress towards the EU target of 15% final energy demand from renewables by 2020 and the pipeline of projects towards 2020 remains healthy.”

The UK is obliged by EU State Aid notification to consult on the performance of the scheme every three years. The core FITs Review consultation in 2015 did not seek views on whether generation tariffs for anaerobic digestion (AD) or micro-combined heat and power (mCHP) continue to give investors an appropriate rate of return and prevent overcompensation.

DECC – more new AD plants choosing to accredit and benefit from 2 separate schemes

FITS support for AD technology is currently available for up to 5 MW of capacity in each quarter under FITs. As at the end of March 2016, 250 installations had been accredited onto FITs via ROOFIT (including pre-accredited sites), representing 177 MW of installed capacity. Including FITsscale sites awaiting full accreditation, the number of sites commissioned by end March 2016 was 270, with an installed capacity of 184 MW.

AD can be configured to generate heat as well as electricity (known as combined heat and power (CHP)). Utilising the heat as well as the electricity generated by an AD CHP plant is beneficial as it maximises its overall energy output. CHP plants can be eligible for both FITs and the Renewable Heat Incentive (RHI).

DECC believes that an increasing proportion of new AD plants are now choosing to accredit under both schemes.

“Tariffs under current framework continue to provide adequate incentive to deploy AD”

Monitoring of application and deployment levels since the introduction of caps in February 2016 suggests that tariffs under the current framework continue to provide adequate incentive to deploy AD. In February alone, applications for AD installations with a total capacity of more than 17 MW had been submitted to Ofgem.

This compares to 4.5 MW of applications received in the first quarter of 2015. The caps for the first two quarters in 2016 (February-March and April-June) have been met. Applications are queued for entry into the next two quarterly caps to December 2016 and are progressing towards meeting the first 2017 quarterly cap.

For the 0-250 kW and 250-500 kW tariff bands, the resulting modelled tariffs are higher than those currently available for the quarter April-June 2016. The consultation paper states:

“Government recognises the limitations of modelling to set generation tariffs and the uncertainty around a number of key assumptions underpinning the modelling. Government views the number of applications coming forward under the cap as a signal of industry’s sustained interest in deploying at the associated tariff level. The applications coming forward are considered sufficient in order to deploy within the cap system to ensure best value for money to consumers.”

“Larger AD plants can ..achieve a 9.1% rate of return without support from the generation tariff”

However, for the larger band of 500 kW-5 MW, the Government is proposing to reduce the generation tariff to zero – the consultation paper says:

“Our tariff-setting methodology considers AD installations claiming RHI payments, relying on 100% food waste as their feedstock and receiving a gate fee of £20 per tonne. Analysis shows that such installations are able to make sufficient revenues to make the deployment of the plant viable and achieve a 9.1% rate of return without support from the generation tariff.”

Initially in 2010 the generation tariff levels were broadly set to provide a return for AD of 5-8% for most well-sited projects.

Support provided by RHI must be accounted for when assessing FITs tariffs to avoid overcompensation

AD in the form of combined heat and power (CHP) installations is more efficient than power-only AD as it makes use of the heat resulting from the combustion process to generate electricity rather than just letting it go to waste.

Market intelligence and anecdotal evidence suggests that AD installations are increasingly being set up as CHP and are applying for support under the RHI as well as FITs. The consultation paper says:

“ To ensure value for money for the FITs scheme and to avoid overcompensation, we consider that the support provided for by the RHI needs to be accounted for when assessing FITs tariffs.”

Plans to reduce or remove support for new installations relying on crops as their primary feedstock

The consultation also separately points out that it is Government policy that the primary purpose of agricultural land should be for growing food. Data published at the end of 2015 suggests maize is increasingly being grown for AD installations. The core FITs Review consultation in 2015 highlighted concerns that the increased use of crops posed risks to Government aims for AD regarding objectives on waste management and low carbon energy. The paper says:

“In order to maximise the benefits of payments to contribute to carbon budgets, we are proposing measures to reduce or eliminate support for new installations relying on crops as their primary feedstock.”

“We recognise that there may be circumstances where generators find it preferable to use crops, so it may not be appropriate to ban them from AD installations entirely. However, it is not our intention to support an AD industry which has a high dependency on crops, so we need to consider ways of ensuring that AD installations operating on farms are based on the processing of waste and residues.”

The Government is proposing to introduce feedstock restrictions under the FITs scheme to minimise the use of crops.

ADBA slams new FIT consultation

Responding to DECC's consultation on the Feed-in Tariff for anaerobic digestion, Charlotte Morton, Chief Executive, Anaerobic Digestion and Bioresources Association (ADBA) commented:

“This consultation does nothing to address DECC's fundamental lack of ambition for AD and community scale renewables.”

“Instead, it proposes restrictions to plant sizes and feedstocks that will make it even harder to deploy viable AD plants using waste, crops or agricultural residues. Removing support for new plants above 500kW is completely unjustified and will kill off projects which could otherwise have delivered DECC's objectives while representing good value for money.”

“The government needs baseload electricity to ensure energy security, and technologies that reduce emissions from agriculture and waste to meet our carbon budgets. AD can deliver all of that, at scale, now - but only with the right support.”

“We will be working with our members to put together a strong response to this consultation, and making the wider case for supporting anaerobic digestion to cut carbon, deliver energy security and recycle critical nutrients.”

Government expects measures to be in place for January 2017

Subject to stakeholders’ views, DECC said the Government will aim to implement any changes as soon as legislatively possible, and Government expects measures to be in place for January 2017.

Applications for pre-accreditation or full accreditation that miss out on a cap, and are therefore being held in a queue until the next cap, have no guarantee of FITs support or of eligibility for support at a particular tariff. This will apply equally for applications made before 1 January 2017 that are still being held in the queue by that date.

Deadline for submission of responses to the consultation is 7^th July 2016 – click here to access the consultation document.