FiT cut will cost 500kW hydro schemes £250,000
The latest Feed in Tariff (FiT) reduction for the hydro sector, due in October this year, will cut returns for a typical 500kW hydro development by £13,000 a year, adding up to a lifetime earnings loss in excess of £250,000.
That's the calculation made by Perthshire hydro developer Luke Milner who says the triggering of a 10% cut in FiT rates on October 1 will put a number of planned developments at risk.
He also says the degressing of FiT rates for hydro is misguided, arguing that while development costs for other renewable energy sectors continue to fall, no such reduction is possible for hydro projects where up to 80% of the capital investment is based on construction and building work.
"We had to absorb a 5% FiT cut for hydro on April 1 this year but hadn't expected the next trigger to be reached so quickly," he told edie. "OFGEM were processing applications at a rate of 5.23MW per month prior to June when they some-how managed to process 13.25MW, triggering the 10% October FiT cut, which will have an absolutely critical impact on the hydro industry."
With a further 10% FiT cut planned for April 1 2015, Mr Milner believes the hydro tap is being firmly turned off across the UK, despite strong remaining hydro power resources.
"I find it a bit suspicious that the processing rate was suddenly high enough in June to trigger the October cut," he said. "If OFGEM were pressured by the Government to hit that target then the industry would love to know about it."
A spokesperson for OFGEM told edie that they certainly didn't 'recognise' any deliberate change in approach, adding that an increasing number of applications were now being processed across all sectors in response to industry demands for more speed.
Mr Milner replied that hydro developers were also being hit by the fact that the figures used to calculate degression not only included schemes which were up and running, accounting for 3.7% of the applications processed this year, but also all pre-accredited projects.
"These pre-accredited projects will stay in the figures for evermore, of course, whether or not they're actually built," he said.
"The hydro industry has grown significantly since the introduction of FiTs brought meaningful support to small and medium schemes. We appreciate that. However, the development process is lengthy, typically two to four years, and costly, with the majority of schemes costing in the millions. We also have the issue of gaining grid connections within the two-year time window allowed for under the pre-accreditation rules. In reality, however, some current schemes are looking at 2018 as their most likely grid connection schedule.
"We talk to Government about this all the time, but sometimes the platitudes which we get in return wear a bit thin."
In June this year Scottish Renewables called on both the UK and Scottish Governments to join forces and create a body to examine the potential of hydroelectric pumped storage which the organisation believes would unlock £1bn of investment and deliver 'a massive boost to UK energy security'.