Full Document Text

                
 
Feed-in Tariffs Scheme  
Consultation on Comprehensive Review Phase 
2A: Solar PV cost control  
 
 
 
 
Date: 09 February 2012 
 

Feed-in Tariffs Scheme – Consultation on Comprehensive Review Phase 2A: Solar PV cost control 
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CONTENTS 
 
EXECUTIVE SUMMARY…………………………..……………………………………….3
  
HOW TO 
RESPOND………………………………………………………………….………….…….4 
CHAPTER 1.  SOLAR PV TARIFFS FROM JULY……………………..…..……………6 
BACKGROUND………………………………………………………..……...………....….6 
EVIDENCE………..…………………………………………….……………………………7 
PROPOSAL..…….………………………………………………………………………..…8 
CONSULTATION QUESTIONS…….…………………………………………………....10 
CHAPTER 2.  FUTURE TARIFF-SETTING AND COST CONTROL..………….…....11 
BACKGROUND………………………………………………………….…………………11 
PROPOSAL……………………………………………………………….………………..13 
CONSULTATION 
QUESTIONS…………………………………………………….………………………....17 
TARIFF 
LIFETIME……………………………………………………………………………….…..18 
EXPORT 
TARIFFS…………………………………..…………………….……………...…….…….19 
INDEX-
LINKING………………………………………………………………………………….....20 
CONSULTATION 
QUESTIONS…………………………….…………………………………….……………21 
 
ANNEX A. LIST OF QUESTIONS………………………………….…………………....23
  
 
 

Feed-in Tariffs Scheme – Consultation on Comprehensive Review Phase 2A: Solar PV cost control 
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Executive summary 
In February 2011 the Government announced its intention to carry out a 
comprehensive review of the Great Britain Feed-in Tariffs Scheme. In June 2011, 
following consultation, we published our decision on the “fast-track review” of tariffs 
for large-scale solar PV installations and anaerobic digestion, and this was 
implemented through licence modifications which came into effect in August 2011 for 
PV.  
On 19 January 2012, following a consultation which began on 31 October 2011, we 
announced our decision on generation tariffs to be applied from 1 April 2012 to all 
solar PV installations with an eligibility date on or after 3 March 2012. We are issuing 
further decisions on other matters associated with those tariffs; in particular our plans 
for an energy efficiency requirement and tariffs for multi-installation projects. These 
decisions are published in a separate paper.  
In this document we are consulting on generation tariffs to be applied to solar PV 
installations with an eligibility date on or after 1 July 2012, and on the mechanism 
which should be applied to the degression of tariffs thereafter.  
Specifically we are recommending a further reduction to solar PV tariffs from 1 July. 
We have proposed three alternative tariff tables, the choice of which would depend 
on the volume of deployment of solar PV in March and April 2012. We are proposing 
a mechanism for tariff degression after July which would provide a reliable method of 
financial control while at the same time giving a good measure of certainty to the 
sector and to consumers about the future path of tariffs. We are also consulting here 
on a potential review of export tariffs, and on whether we should reduce the period 
for which tariffs for PV installations should be applied, from 25 to 20 years.  
This document should be considered alongside the Consultation on Comprehensive 
Review Phase 2B: Tariffs for non-PV technologies and scheme administration 
issues, covering all the remaining issues in the FITs comprehensive review, such as 
tariffs for non-PV technologies, preliminary accreditation and other administrative 
issues. 

Feed-in Tariffs Scheme – Consultation on Comprehensive Review Phase 2A: Solar PV cost control 
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How to respond 
The closing date for responses is:  
3 April 2012 
 
Online responses are preferred and can be submitted via DECC’s consultation hub: 
at the following link: https://econsultation.decc.gov.uk/office-for-renewable-energy-
deployment-ored/fits-review-phase2a.  
 
If you are unable to submit your response online please send it in an email to: 
fits@decc.gsi.gov.uk. Please use the template provided to record your response, 
which can be found at the consultation webpage alongside the other consultation 
documents: 
http://www.decc.gov.uk/en/content/cms/consultations/fits_rev_ph2a/fits_rev_ph2a.as
px 
Alternatively, hard copy replies should be sent to: 
 
FITs Team, Office of Renewable Energy Deployment,  
Department of Energy and Climate Change, 
4th Floor, Area A,  
3 – 8 Whitehall Place,  
London, SW1A 2AW. 
 
Additional copies 
 
You may make copies of this document without seeking permission. Further printed 
copies of the consultation document can be obtained from: 
 
FITs Team, Office of Renewable Energy Deployment,  
Department of Energy and Climate Change, 
4th Floor, Area A,  
3 – 8 Whitehall Place,  
London, SW1A 2AW. 
Telephone: 0300 068 5733 
 
An electronic version can be found at:  
http://www.decc.gov.uk/en/content/cms/consultations/fits_rev_ph2a/fits_rev_ph2a.as
px 
 
Other versions of the document are available on request. 

Feed-in Tariffs Scheme – Consultation on Comprehensive Review Phase 2A: Solar PV cost control 
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Confidentiality and Data Protection 
 
When this consultation ends, members of the public may ask for a copy of responses 
under freedom of information legislation. If you do not want your response – 
including your name, contact details and any other personal information – to be 
made publicly available, please say so clearly in writing when you send your 
response to the consultation. Please note, if your computer automatically includes a 
confidentiality disclaimer, that will not count as a confidentiality request. 
 
Please explain why you need to keep details confidential. We will take your reasons 
into account if someone asks for this information under freedom of information 
legislation. But, because of the law, we cannot promise that we will always be able to 
keep those details confidential. 
 
We will summarise all responses and place this summary on our website at 
www.decc.gsi.gov.uk. This summary will include a list of names of organisations that 
responded but not people’s personal names, addresses or other contact details. 
 
Help with queries 
 
Please direct any queries about this consultation to our dedicated e-mail address: 
 
fits@decc.gsi.gov.uk,  
 
or in writing to: 
 
FITs Team, Office for Renewable Energy Deployment,  
Department of Energy and Climate Change, 
4th Floor, Area A/B,  
3 – 8 Whitehall Place,  
London, SW1A 2AW 
Telephone: 0300 068 5733 
If you have any comments or complaints about the consultation process, please 
address them to: 
 
DECC Consultation Coordinator 
Area 6A 
3 Whitehall Place 
London, SW1A 2AW 
Email: Consultation.coordinator@decc.gsi.gov.uk  
 

Feed-in Tariffs Scheme – Consultation on Comprehensive Review Phase 2A: Solar PV cost control 
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A copy of the Code of practice on Consultations can be found at: 
http://www.berr.gov.uk/files/file47158.pdf 
 

Feed-in Tariffs Scheme – Consultation on Comprehensive Review Phase 2A: Solar PV cost control 
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Background 
1. We have already confirmed our decision on generation tariffs to be applied from 1 
April in respect of all solar PV installations with an eligibility date from 3 March: 
21p for ≤4kW installations, with lower tariffs applying to different bands of larger 
installations. The necessary changes were included in the licence modifications 
laid before Parliament on 19 January 2012. These tariffs will be applied from 1 
April, provided they pass through the Parliamentary procedures. Further 
conditions will be attached to these tariffs, to deal with energy efficiency and 
multiple installations, as explained in the decision document published today, and 
subject to Parliamentary procedures. The conditions will apply only to 
installations with an eligibility date on or after 1 April 2012. The following chapter 
proposes new PV tariffs to take effect from 1 July. 
 
2. When the FITs scheme was launched, the tariffs for solar PV were intended to 
provide a return on investment of around 5% for well located installations. This 
was at the bottom end of the 5-8% range considered appropriate for other 
Chapter 1.  Solar PV tariffs from July 
Summary  
 
• Explains rationale for moving away from 
exclusive focus on rates of return as a basis for 
setting future tariffs 
• Sets out three alternative options for tariffs to 
apply from 1 July 2012, depending on the 
extent of deployment in March and April 2012 
• For installations  4kW installed capacity, these 
options vary between 15.7p (if deployment in 
this period is between 150 and 200 MW), 16.5p 
(if deployment is lower than this), and 13.6p (if 
deployment is higher) 

Feed-in Tariffs Scheme – Consultation on Comprehensive Review Phase 2A: Solar PV cost control 
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technologies in receipt of FITs payments because PV was considered to be 
easier to deploy and to carry a lower risk to investors. 
 
3. In the consultation on phase 1 of the FITs review, we proposed new tariffs from 1 
April 2012 which were designed to deliver an average rate of return of 5% for 
installations larger than 4kW, and to deliver an average rate of return of 4.5% for 
installations up to 4kW. The justification for this lower target return for ≤4kW 
installations was that the changed investment climate since FITs was launched 
meant that 4.5% was more appropriate for householders. 
 
Evidence 
 
4. Respondents to the consultation have in general not agreed with 4.5-5% as 
appropriate target rates of return. Some have suggested that a reasonable 
minimum average rate of return to retain a sustainable solar PV industry is 6% 
(for domestic installations) and 8% (for commercial). Others have argued for 
rates of return even higher than this. It is important to note that any one ‘target’ 
rate of return is based on a typical well located installation consuming 
approximately 50% of the electricity generated on site. The actual rates of return 
available will vary considerably depending on the location of the installation, 
efficiency of the panels used, on site consumption, actual installation costs, and 
other factors, and there are different views as to what average rate of return any 
particular set of tariffs would yield.  
 
5. Rates of return have clearly grown on average to much higher than the 4.5-5% 
that we signalled as appropriate (though we recognise that there is a wide range 
of actual returns across different kinds of project). This was amply demonstrated 
by the surge in installations during 2011, which began in earnest in September 
and peaked in early December. By the end of this period, installed capacity had 
reached over 900 MW, compared with the 116 MW that had been predicted by 
this stage when the scheme was introduced. By the end of March 2012 we 
estimate that PV deployment may have reached 1.3 GW, and the cumulative cost 
to consumers over 25 years of these installations would be in the region of £7 
billion (in real, discounted terms). We do not want to get back to a situation where 
returns are so high that we see a further demand surge and allow individual 
investors to earn returns well over 10%, at the expense of the generality of 
energy consumers. We do not accept that the FITs scheme should give rates of 
return sufficiently generous to go beyond its statutory purpose, as defined in the 
Energy Act. 
 

Feed-in Tariffs Scheme – Consultation on Comprehensive Review Phase 2A: Solar PV cost control 
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6. A study conducted for DECC by Parsons Brinckerhoff (PB), published on 8 
February, supplemented by anecdotal evidence and discussions with the 
industry, has confirmed that: 
 
(a) Costs associated with manufacturing and installing solar panels have come 
down even faster than anticipated last October; 
 
(b) They are expected to continue to do so; 
 
(c) But there is considerable uncertainty around the future costs, with a huge 
difference in projected costs between the high and low scenarios, and 
consequently a wide range of potential average rates of return for any 
particular set of tariffs. In particular, some of the cost reductions forecast by 
PB for later in 2012 are considered unrealistic by PV industry representatives, 
who note that the current worldwide glut of PV panels is likely to reduce, with 
rationalisation amongst manufacturers and higher demand in China following 
the introduction of a FITs scheme there. There is also considerable 
uncertainty about the extent of economies of scale enjoyed by those 
responsible for multiple installations.  
 
7. In view of this, as well as our experience of the huge surge leading up to mid-
December and the impact this had on the Levies Control Framework budget 
(which currently includes FITs, the Renewables Obligation and the Warm Home 
Discount), there is a case for moving away from trying to set tariffs in such a way 
as to provide a precise rate of return of 4.5–5% for investors. We do not have 
robust evidence for how demand responds to average rates of return in practice, 
and do not believe that we can sensibly target a particular rate or be sure that 
any particular tariff will in practice secure that rate. We should nevertheless 
continue to use all available cost information to inform our expectations of the 
rates of return under different cost assumptions. 
Our Proposal 
 
8. The dynamic nature of the PV industry, and the importance of living within a 
tightly constrained budget, suggests that we should move towards a tariff 
structure which is directly responsive to changes in deployment. This will enable 
us to control costs while maintaining an indirect link with returns: if costs go down 
and rates of return go up more than expected, the tariffs will reduce 
automatically, bringing returns back to a reasonable level. 
 
9. We therefore propose that rather than targeting any specific rate of return, from 1 
July we should set tariffs at a level that would deliver returns broadly within the 
range of 4.5-8% under central cost assumptions. In order to ensure that the tariffs 

Feed-in Tariffs Scheme – Consultation on Comprehensive Review Phase 2A: Solar PV cost control 
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track changes in the market, and that expenditure under the scheme is kept 
within budget, we propose that the tariffs for 1 July should be dependent on the 
levels of actual deployment of new eligible installations seen in March and April 
(i.e. the first two months under the new tariff table). Furthermore, we propose that 
following 1 July, we should put in place a degression mechanism where the 
speed of tariff reductions is contingent on deployment.  
 
10. We have modelled three starting scenarios (all of which assume that we retain a 
tariff period of 25 years – see next chapter): 
 
(a) Targeting average rates of return under PB’s central cost scenario of around 
5-8%, with around 5% for domestic installations. This produces a tariff of 
13.6p for ≤4kW installations, which gives a return on investment (ROI) ranging 
from 0.5% under the “high” end of PB’s predicted costs, and 10% if costs fall 
to the “low” end of their predicted range. This option would be our preference 
if deployment (i.e. new capacity installed and with an eligibility date between 3 
March and end- April 2012) exceeds 200 MW. 
 
(b) Reducing tariffs by around 25% from the 1 April levels by 1 July. This yields 
average ROIs of 5-8% for most bands under PB’s central cost scenario (it 
leads to modelled ROIs over 8% for the largest two bands). This produces a 
tariff of 15.7p for ≤4kW installations, with a mid-range ROI of 6% (ranging 
from 1.1% to 11.1%). This option would be our preference if deployment 
during March and April 2012 is between 150 and 200 MW. 
 
(c) Making a cut of around 21% from April. This produces a tariff of 16.5p for 
≤4kW installations, with a mid-range ROI of 6.1%. This option would be our 
preference if deployment during March and April 2012 is less than 150 MW. 
 
11. The full tariff 1 July 2012 table for these options is shown below:  
Band (kW) 1 April tariff Option A Option B Option C 
 ≤4kW 
 
21p 13.6p 15.7p  16.5p 
>4kW-10kW 16.8p 10.9p 12.6p 13.2p 
>10-50kW 15.2p 9.9p 11.4p 11.9p 
>50-150kW 12.9p 7.7p 9.7p 10.1p 
>150-250kW 12.9p 5.8p 8p 10.1p 
>250-
5000kW 
8.9p 4.7p 6.8p 7.1p 

Feed-in Tariffs Scheme – Consultation on Comprehensive Review Phase 2A: Solar PV cost control 
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 Stand alone1 8.9p  4.7p 6.8p 7.1p 
 
12. Tariffs for multiple installations (those where the generator, or person entitled to  
receive FITs payments, receives such payments for more than 25 separate 
installations) will be at a proportionately lower rate, reflecting their economies of 
scale. In the October Consultation Document we proposed that that proportion 
should be 80%, and that is the figure that is being adopted for the 1 April tariff. 
We are continuing to collect evidence to check whether 80% is the most 
appropriate figure, bearing in mind the range of different business models 
engaged: earlier evidence from PB suggested that it might provide quite high 
rates of return, but this was disputed by others from the industry. We would 
particularly welcome any new evidence on this point.  
 
13. We suggest that the “stand alone rate”, which will be 8.9p on 1 April 2012 and is  
proposed to reduce on 1 July and thereafter according to the degression 
mechanism proposed in the next chapter, is the rate which will be applied to 
those installations which do not meet the energy efficiency requirement2
Consultation Questions: Please support your response with arguments 
. In other 
words, it is not being assumed that those installations will continue to attract a 
tariff at 2 ROCs, which from 1 July will be higher than the proposed stand alone 
tariff.  
1. Do you agree that in setting tariffs we should move away from explicitly 
targeting an average rate of return of 4.5-5%? 
2. Do you agree that the tariff table from 1 July should depend on the volume 
of deployment in the first two months of the post-3 March tariff tables? 
3. Do you agree that the ranges of tariffs displayed in Options A, B and C are 
broadly appropriate, and that the proposed deployment triggers for the 
choice between these options are the correct ones?  
4. Do you agree that tariffs for multiple installations (over 25 installations) 
should continue to be 80% of the relevant individual tariff, and do you have 
any cost information to support your response?  
5. Do you agree that installations that do not meet the energy efficiency 
                                                          
1 Installations which do not meet the energy efficiency requirement (see footnote on next page) will also 
attract tariffs at this rate, with the exception of the 1 April tariff which will be 9p. 
2 As defined in the Government Response to Phase 1 of the Feed-in Tariffs review, published today 

Feed-in Tariffs Scheme – Consultation on Comprehensive Review Phase 2A: Solar PV cost control 
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requirement should attract the “stand alone rate”? 
 

Feed-in Tariffs Scheme – Consultation on Comprehensive Review Phase 2A: Solar PV cost control 
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Background 
 
14. As announced at the launch of the FITs comprehensive review, maintaining a 
tight grip on spending is a major priority for the review. In the period up to the end 
of the 2014/15 financial year, this means ensuring that FITs spending is 
affordable within the Levies Control Framework (LCF), as explained in Chapter 1. 
The need for greater budgetary control was also the main driver of the urgent 
action on PV in the fast-track review and Phase 1 of the comprehensive review. 
This is particularly important given that LCF spending has a direct impact on 
energy bills, even if relatively limited as a proportion of overall bills. 
 
15. In the longer term, it is also important that the scheme delivers value for money 
and that costs can be controlled through transparent and predictable changes to 
tariffs, avoiding the need for emergency reviews. As well as helping the 
Chapter 2.  Future tariff-setting and 
cost control 
Summary  
 
• Proposes mechanism for changing tariffs after 
July 
• This includes: 
• automatic baseline degression (proposed at 
10% every 6 months);  
• with degression steps brought forward if 
deployment exceeds pre-determined levels; 
and  
• an annual review to check that the system is 
working well 
• Proposes review of export tariffs, possible 
reduction in tariff lifetimes for PV, and 
consideration of future of index-linking 

Feed-in Tariffs Scheme – Consultation on Comprehensive Review Phase 2A: Solar PV cost control 
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Government to manage the FITs scheme more effectively, this will also help in 
providing a smoother future path for the renewables industry. 
 
16. We know from experience of the Great Britain FITs scheme that solar PV has so 
far been the easiest FITs technology to deploy and, to date, the technology most 
subject to rapid falls in costs.  
 
17. Under the terms of the LCF there is a central trajectory of spending for FITs, and 
for the other schemes, against which the budgetary performance is measured. 
The objective of the cost control model is to keep as close as possible to the cost 
trajectory within a set of agreed tolerances.  
 
18. The basic options for managing costs have been discussed in some detail with 
interested stakeholders during the comprehensive review process. These are: 
 
(a) Pre-planned degression, where tariffs are adjusted according to pre-set 
numbers; 
 
(b) Contingent degression, where tariffs are adjusted automatically, though with 
time lags, in response to deployment levels or other triggers such as 
expenditure; this is the system that has been adopted in Germany;  
 
(c) More frequent reviews of tariffs than the current expected 3-4 year time frame 
which could provide quicker response to cost and market changes; 
 
(d) Rationing/quotas, where there is a fixed allocation of new capacity or funding 
allocated each year. 
 
19. All these options would entail some trade-off between cost certainty for the 
Government and bill payers, and the long-term certainty that we want to deliver 
for investors. Option (a) would provide maximum reassurance for investors and 
would incentivise cost reduction across all FITS technologies, but would not, on 
its own, allow Government to control the budget in the face of unanticipated 
changes in deployment levels. Option (d) provides maximum cost control for 
Government, but would provide no forward certainty for investors or individual 
generators (consumers) and inevitably lead to a stop-start industry.  
 
20. Industry representatives have given a view that changes should be regular and 
predictable, that developers should have reasonable notice of changes, and that 
the level of changes should reflect genuine and up-to-date market developments. 
They have made clear that a system of rationing (Option d) would be very difficult 
for them to work with, and it would also bring problems of fairness and 

Feed-in Tariffs Scheme – Consultation on Comprehensive Review Phase 2A: Solar PV cost control 
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administrative difficulties. We therefore do not propose to include Option (d) in 
our cost control design. 
 
Our proposal 
 
21. We consider that the most effective cost-control scheme, balancing the objectives 
described above, would need to include elements of Options (a), (b) and (c). 
 
22. First, we propose that there should be a baseline degression timetable which 
would set out in advance the tariff reductions that would be applied. This would 
be designed to incentivise all those involved in the supply chain progressively to 
reduce their costs. For solar PV we propose a tariff reduction in October (i.e. 
three months after the 1 July tariff changes) of 5% , followed by a degression rate 
of 10% every 6 months. This is consistent with much of the market intelligence 
we have obtained about the expected decline in costs. We accept, however, that 
there remains some uncertainty around the speed of this decline, so we would 
also welcome views on whether a lower baseline degression rate – perhaps 5% 
every 6 months – would be more appropriate. 
 
23. Second, we propose that a contingent degression mechanism should be applied 
if actual deployment levels exceed 125% of expected levels before the date of 
the relevant planned baseline degression. Unlike the German model, which has 
degression at fixed times with the size of the steps determined by deployment, in 
this proposal the size of the individual steps would be known in advance and the 
timing would be determined by the level of deployment. 
 
24. Expected levels of deployment will be published in advance by DECC. The 
measure of actual deployment at any given point would be determined by Ofgem, 
based on their analysis of the CFR, the MCS database and other information they 
consider relevant. This measure of deployment would be published monthly. If 
and when the actual measure of deployment published by Ofgem exceeds the 
expected deployment level as previously published by DECC, an immediate 
announcement would be made of a two-month notice period before the next Tariff 
Point is applied.  
 
25. If actual deployment levels exceed expected levels by a significant amount 
consistently over a period of months, it is possible that this contingent degression 
trigger could be pulled several times during the course of a year, and that the 
two-month notice periods could overlap. This could result in changes of tariffs 
more rapid than once every two months, but each individual change will have had 
two months’ notice. Such rapid changes to the size of the subsidy would be in 
direct response to market signals indicating that the market is booming, so the 

Feed-in Tariffs Scheme – Consultation on Comprehensive Review Phase 2A: Solar PV cost control 
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tariff changes should have a stabilising rather than a destabilising effect, as well 
as allowing us to keep expenditure within budget.  
 
26. Third, the Government would carry out annual reviews, in discussion with 
representatives from the industry and other stakeholders, to check if this 
mechanism is controlling costs to an adequate extent and allowing the Scheme to 
achieve its statutory objectives. Any changes to the mechanisms proposed 
following one of these reviews would be the subject of further consultation and 
Parliamentary procedures as set out in the Energy Act. 
 
27.  Some commentators have suggested that tariff cuts should either stop or slow 
down when the tariffs reach 2 ROCs (8.9p from 1 April 2012 - the marginal cost 
of meeting the renewables target at the time of publication). They argue that at 
this rate we should be encouraging faster deployment as this is potentially better 
value for money than offshore wind, which we are subsidising at these rates; and 
that the cost of support at this tariff, even at greater deployment volumes, would 
be relatively low. On the other hand, there are some unquantified costs 
associated with solar PV (e.g. network balancing costs) which reduce its value for 
money, and in any event it could be argued that we should not be subsidising 
generators to an extent that they earn significantly high rents, well above our 
indicative ROI range. The tables below assume that we continue to degress at 
the same rate after reaching the 2 ROC threshold. An alternative approach could 
be to propose either a reduction in the automatic baseline degression 
percentage, or a relaxation in the contingent degression triggers, (or both), once 
this threshold has been reached.  
 
28. It is possible that costs may reduce at faster rates at one end of the solar PV 
spectrum (e.g. for the larger installations) than at the other, or that certain niche 
markets might thrive while others are stalling. It may therefore be appropriate for 
the proposed deployment triggers to be divided up by bands - perhaps a 
domestic band (up to 10kW), a small commercial band (10-50kW) and a large 
commercial band (over 50kW and stand alone). This would mean that if, for 
example, costs fell more than we expect at the large commercial end of the 
market, triggering a cut in tariffs through the contingent degression mechanism, 
this would not penalise the small domestic installations, which may still be 
struggling at the then prevailing tariffs.  
 
29. The tables below indicate how the baseline and contingent degression 
mechanisms could work, with a baseline degression of 10% every six months. 
These have been modelled on central assumptions about cost reductions over 
the next three years, which suggest additional deployment in that period of 
between 2.7 GW and 3.1 GW (under the different starting tariffs). To avoid further 
complexity, these have not been divided up on the basis of “banded” degression 

Feed-in Tariffs Scheme – Consultation on Comprehensive Review Phase 2A: Solar PV cost control 
17 
 
triggers, though this will be done if it is decided to divide the deployment bands 
as described in the paragraph above. 
 
30.  An alternative set of tables could be constructed around a more conservative 
assumption, with baseline degression of just 5% every 6 months. In these 
circumstances we would expect that the contingent triggers are likely to be pulled 
more frequently. Tariffs for multiple installations (those where the generator, or 
person entitled to receive FITs payments, receives such payments for more than 
25 separate installations) will be at a fixed proportion of the tariff otherwise 
applicable to the size of the installation, as explained in Chapter One. 
 
Table 1: Proposed generation tariffs for solar PV from 1.4.2012 to 1.4.2015: 
OPTION A STARTING TARIFF, Baseline Degression at 10% every 6 months 
Band 
(kW) 
Tariff 
Pt 1  
April 
2012 
 
Tariff 
Pt 2  
July 
2012 
Tariff 
Pt 3  
Oct 
2012 
Tariff 
Pt 4  
April 
2013 
Tariff 
Pt 5  
Oct 
2013 
Tariff 
Pt 6  
April 
2014 
Tariff 
Pt 7 
Oct 
2014 
Tariff 
Pt 8  
April 
2015 
< 4kW 21p 13.6p 12.9p 11.6p 10.4p 9.4p 8.5p 7.7p 
>4-10kW 16.8p 10.9 p 10.4p 9.4p 8.5p 7.7p 6.9p 6.2p 
>10-50kW 15.2p 9.9p 9.4p 8.5p 7.7p 6.9p 6.2p 5.6p 
>50-
150kW 
12.9p 7.7p  7.3p 6.6p 5.9p 5.3p 4.8p 4.3p 
>150-
250kW 
12.9p 5.8p  5.2p 4.7p 4.2p 3.8p 3.4p 3p 
>250-
5000kW 
8.9p 4.7p 4.5p 4.1p 3.7p 3.3p 3p 2.7p 
Stand 
alone 
8.9p 4.7p 4.5p 4.1p 3.7p 3.3p 3p 2.7p 
Tariff Pt 1: applies from 1 April 2012 
Tariff Pt 2: applies from 1 July 2012  
Tariff Pt 3: applies from 1 October 2012, or 2 months after total deployment since 1 April 2012 
exceeds 225 MW (whichever of these dates is earlier) 
Tariff Pt 4: applies from 1 April 2013, or 2 months after total deployment since 1 April 2012 exceeds 
563 MW (whichever of these dates is earlier) 
Tariff Pt 5: applies from 1 October 2013, or 2 months after total deployment since 1 April 2012 
exceeds 1075 MW (whichever of these dates is earlier) 
Tariff Pt 6: applies from 1 April 2014, or 2 months after total deployment since 1 April 2012 exceeds 
1675 MW (whichever of these dates is earlier) 

Feed-in Tariffs Scheme – Consultation on Comprehensive Review Phase 2A: Solar PV cost control 
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Tariff Pt 7: applies from 1 October 2014, or 2 months after total deployment since 1 April 2012 
exceeds 2542 MW (whichever of these dates is earlier) 
Tariff Pt 8: applies from 1 April 2015, or 2 months after total deployment since 1 April 2012 exceeds 
3542 MW (whichever of these dates is earlier)

Feed-in Tariffs Scheme – Consultation on Comprehensive Review Phase 2A: Solar PV cost control 
19 
 
 
Table 2: Proposed generation tariffs for solar PV from 1.4.2012 to 1.4.2015: 
OPTION B STARTING TARIFF, Baseline Degression at 10% every 6 months  
Band 
(kW) 
 
Tariff 
Pt 1  
 
Tariff 
Pt 2  
 
Tariff 
Pt 3  
 
Tariff 
Pt 4  
Tariff 
Pt 5  
Tariff 
Pt 6  
Tariff 
Pt 7 
 
Tariff 
Pt 8  
< 4kW 21p 15.7p 14.9p 13.4p 12.1p 10.9p 9.8p 8.8p 
>4-10kW 16.8p 12.6p 12p 10.8p 9.7p 8.7p 7.8p 7p 
>10-50kW 15.2p 11.4p 10.8p 9.7p 8.7p 7.8p 7p 6.3p 
>50-
150kW 
12.9p 9.7p  9.2p 8.3p 7.5p 6.8p 6.1p 5.5p 
>150-
250kW 
12.9p 8p  7.6p 6.9p 6.2p 5.6p 5p 4.5p 
>250-
5000kW 
8.9p 6.8 p 6.5p 6p 5.4p 4.9p 4.4p 4p 
Stand 
alone 
8.9p 6.8p 6.5p 6p 5.4p 4.9p 4.4p 4p 
 
Tariff Pt 1: applies from 1 April 2012 
Tariff Pt 2: applies from 1 July 2012  
Tariff Pt 3: applies from 1 October 2012, or 2 months after total deployment since 1 April 2012 
exceeds 217 MW (whichever of these dates is earlier) 
Tariff Pt 4: applies from 1 April 2013, or 2 months after total deployment since 1 April 2012 exceeds 
542 MW (whichever of these dates is earlier) 
Tariff Pt 5: applies from 1 October 2013, or 2 months after total deployment since 1 April 2012 
exceeds 1033 MW (whichever of these dates is earlier) 
Tariff Pt 6: applies from 1 April 2014, or 2 months after total deployment since 1 April 2012 exceeds 
1608 MW (whichever of these dates is earlier) 
Tariff Pt 7: applies from 1 October 2014, or 2 months after total deployment since 1 April 2012 
exceeds 2463 MW (whichever of these dates is earlier) 
Tariff Pt 8: applies from 1 April 2015, or 2 months after total deployment since 1 April 2012 exceeds 
3456 MW (whichever of these dates is earlier) 

Feed-in Tariffs Scheme – Consultation on Comprehensive Review Phase 2A: Solar PV cost control 
20 
 
 
Table 3: Proposed generation tariffs for solar PV from 1.4.2012 to 1.4.2015: 
OPTION C STARTING TARIFF, Baseline Degression 10% every 6 months  
Band (kW) 
 
Tariff 
Pt 1  
April 
2012 
Tariff 
Pt 2  
July 
2012 
Tariff 
Pt 3  
Oct 
2012 
Tariff 
Pt 4 
April 
2013  
Tariff 
Pt 5  
Oct 
2013 
Tariff 
Pt 6  
April 
2014 
Tariff 
Pt 7 
Oct 
2014 
 
Tariff 
Pt 8 
April 
2015  
< 4kW 21p 16.5p 15.7p 14.1p 12.7p 11.4p 10.3p 9.3p 
>4-10kW 16.8p 13.2 
p 
12.5p 11.3p 10.2p 9.2p 8.3p 7.5p 
>10-50kW 15.2p 11.9p 11.3p 10.2p 9.2p 8.3p 7.5p 6.8p 
>50-150kW 12.9p 10.1p 9.6p 8.6p 7.7p 6.9p 6.2p 5.6p 
>150-
250kW 
12.9p 10.1p  9.6p 8.6p 7.7p 6.9p 6.2p 5.6p 
>250-
5000kW 
8.9p 7.1p 6.7p 6p 5.4p 4.9p 4.4p 4p 
Stand alone 8.9p 7.1p 6.7p 6p 5.4p 4.9p 4.4p 4p 
 
Tariff Pt 1: applies from 1 April 2012 
Tariff Pt 2: applies from 1 July 2012  
Tariff Pt 3: applies from 1 October 2012, or 2 months after total deployment since 1 April 2012 
exceeds 208 MW (whichever of these dates is earlier) 
Tariff Pt 4: applies from 1 April 2013, or 2 months after total deployment since 1 April 2012 exceeds 
521 MW (whichever of these dates is earlier) 
Tariff Pt 5: applies from 1 October 2013, or 2 months after total deployment since 1 April 2012 
exceeds 958 MW (whichever of these dates is earlier) 
Tariff Pt 6: applies from 1 April 2014, or 2 months after total deployment since 1 April 2012 exceeds 
1458 MW (whichever of these dates is earlier) 
Tariff Pt 7: applies from 1 October 2014, or 2 months after total deployment since 1 April 2012 
exceeds 2208 MW (whichever of these dates is earlier) 
Tariff Pt 8: applies from 1 April 2015, or 2 months after total deployment since 1 April 2012 exceeds 
3083 MW (whichever of these dates is earlier) 

Feed-in Tariffs Scheme – Consultation on Comprehensive Review Phase 2A: Solar PV cost control 
21 
 
 
 
 
Consultation Questions: Please support your response with arguments 
6. Do you agree with the principles
7. 
 of tariff degression described above, using 
baseline degression and a deployment-related contingent mechanism, 
supplemented with annual reviews to check that the system is working as 
planned? 
Do you agree that the baseline degression steps should be at the rate of 
10% every 6 months? 
8. Do you agree that the contingent degression triggers should be based on 
125% of expected deployment, and that actual deployment should be 
measured and published by Ofgem in the manner described? 
9. Do you consider that the baseline degression and/or the contingent 
deployment triggers should change once the 2 ROCs rate has been 
reached? 
10. Do you have views on whether deployment triggers should be divided into 
bands, and if so whether the bands described above are the appropriate 
ones? 
 
Tariff Lifetime 
31. At the start of the FITs scheme, tariffs were generally set to reflect the expected 
economic life of the installations that were supported, and to allow for tariffs to 
deliver a reasonable return over that economic life. As a result, PV tariffs had a 
25-year lifetime while most other technologies were set at 20 years. As part of the 
current consultation we propose to consider whether this discrepancy remains 
appropriate. This is for a number of reasons: 
 
(a) technology lifetimes have been re-assessed as part of the revised analysis of 
costs, which has resulted in longer expected installation lifetimes for PV as 
well as hydro; 
 
(b) the time horizon of investors, however, does not necessarily match these 
technology lifetimes. Investors are likely to require tariffs that deliver their 
threshold return in much shorter time e.g. 10-15 years and are likely to be 
indifferent to longer term returns at the time of the investment. This potentially 
results in a deadweight subsidy for the later years; 

Feed-in Tariffs Scheme – Consultation on Comprehensive Review Phase 2A: Solar PV cost control 
22 
 
 
(c) equalising the tariff lifetimes between technologies would allow for more 
transparent comparison of relative subsidy levels and, more importantly, 
transparent comparison between subsidy levels available between FITs and 
the Renewable Obligations (which is paid for 20 years). 
 
32. We therefore propose that we should consider reducing the tariff lifetime for new 
PV entrants to the FITs scheme, from the date of implementation of Phase 2A, 
from 25 to 20 years. At any given tariff rate, a shorter tariff lifetime would reduce 
implicit rates of return, though not to a great extent. For example, we calculate 
that, other things being equal, the rate of return on a  4kW installation attracting 
a tariff of 15.7p would reduce from around 5.8% to around 5.2%. 
Export tariffs 
33.  The payment of export tariffs is based on either metered or estimated 
quantities. At the start of the FITs scheme it was made clear that payment of 
export tariffs based on deemed or estimated values was an interim measure and 
that all FITs payments should where possible be made on the basis of accurately 
metered electricity flows. However, the cost of metering and registering small 
quantities of electricity in the electricity market systems makes this uneconomic 
at present at the smallest scale (up to 30 kW). This is expected to change with 
the rollout of smart meters, but not therefore in the immediate future. The amount 
of electricity that is deemed to be exported by different categories of accredited 
FITs installations with a total installed capacity of up to 30 kW that is not 
measured by export meters is determined annually by the Secretary of State. 
This is currently estimated to be 50% for small scale PV generators.  
34.  Measurement of net exports from a FITs generator’s premises to the grid via 
the mandated smart electricity meter will be part of the functionality of the smart 
metering system, which will be rolled out across GB3
35. The annual determinations by the Secretary of State also set the way that 
the costs of paying export tariffs are shared among supply licensees. Electricity 
suppliers are only compensated via the levelisation process to the extent that it 
has a net impact on their costs. For metered exports, we expect that the value 
that suppliers can extract from the electricity is equivalent to the price that they 
pay. The level of the tariff was set at the start of the scheme at 3p/kWh, which 
. Once smart meters are 
installed and available at any particular site, it will no longer be necessary to 
deem exports from that site. As the roll-out of smart meters proceeds, we will 
ensure that this is reflected in the relevant regulatory arrangements. 
                                                          
3 For more information on the government’s smart meters programme see 
http://www.decc.gov.uk/en/content/cms/tackling/smart_meters/smart_meters.aspx  

Feed-in Tariffs Scheme – Consultation on Comprehensive Review Phase 2A: Solar PV cost control 
23 
 
was our estimate of the value to electricity suppliers of the electricity at the time. 
This is based on the wholesale value plus the value of avoided costs (such as 
transmission and distribution costs) less the transaction costs (such as metering).  
36. As a result, suppliers have not been compensated for the value of paying the 
export tariffs. This position was confirmed for the 2011/12 FITs year by the 
Secretary of State’s determination. The export tariff was increased by RPI to 
3.1p, while the value of this electricity to suppliers was estimated in early 2011 to 
be in the range of 2.7–5.9p/kWh for metered electricity.  
37. Unlike metered exports, electricity suppliers paying FITs do not benefit 
directly from the purchase of that deemed electricity by selling it on or offsetting 
other purchases. Suppliers are therefore compensated for the payment for 
deemed exports through the levelisation process. However, because these 
exports are spilled onto the electricity system, there is a benefit to all electricity 
suppliers through lower grid correction factors. This benefit is estimated as part of 
the levelisation process and reduces the total value of the payments included in 
the levelisation process. The value used to estimate this is the average price paid 
by the electricity system operator for generation that is not notified in advance 
(“the system sell price”).  
38. As part of this review we are seeking to establish whether the level of export 
tariffs continues to reflect the real value of FITs exports; and to consider the way 
in which export tariffs are treated in the levelisation process, in order to ensure 
that electricity suppliers are neither under-or over-compensated. 
39. Preliminary analysis of the key data on which these estimates are based 
suggests that the underlying value of electricity either to suppliers or as spill is 
greater that the 3.1p/kWh implied by the current export tariff. If this increase is 
confirmed it may be passed through to an increase in the export tariff. This in turn 
will lead to a higher rate of return or
40. At the start of the scheme it was foreshadowed that changes to export tariffs 
would apply to all generators. However, existing tariffs are based on the 
assumption of the current level of the export tariff. An increase to the export tariff 
could therefore potentially provide a windfall gain to existing generators, who 
would continue to receive the benefit of a high generation tariff. We therefore 
propose that any change to the level of export tariffs would apply only to new 
entrants to the FITs scheme.  
 to a proportionate reduction in generation 
tariffs in a way which would broadly maintain the rate of return. 

Feed-in Tariffs Scheme – Consultation on Comprehensive Review Phase 2A: Solar PV cost control 
24 
 
Indexation of tariffs 
41. Until now, FITs levels have been calculated on the basis of meeting a target 
real rate of return i.e. derived from economic modelling that estimates all future 
costs and benefits based on current prices, rather than estimating and allowing 
for future inflation in costs. They have also been based on the assumption that 
long-term investors target real returns and would not accept future returns that 
were progressively eroded by inflation. 
42. This model may not however reflect the nature of investment in FITs 
technologies and actual investor behaviour. For example, FITs technologies are 
very capital intensive and the cost is heavily loaded towards the start of the 
project lifetime; PV in particular is largely a fit-and-forget technology with very 
high up-front costs and relatively low ongoing operational and maintenance 
costs. 
43. The costs of these installations are either incurred upfront, or spread over 
the lifetime of the project via financing. If the installation is loan financed, the 
repayments of the loan will not increase over time, but will actually reduce in real 
terms with inflation.  
44. There is also a risk that tariffs and rates of return that are quoted in real 
terms are under-valued by some consumers. For example a consumer may 
compare a 4% real return from FITs with a 4% nominal return available from a 
savings account or a bond. 
45. Conversely, however, it is likely that some investors value highly the 
“insurance” offered by index-linking and real returns, and will accept lower rates 
of return for that guarantee. Examples include individual pension funds, which 
are likely to seek out low risk but inflation-hedged investments to cover long-term 
obligations. For this reason several financial arrangements are structured in this 
way. 
46. We therefore seek views as part of the consultation process on whether it 
would be appropriate to move from real, (i.e. index linked) tariffs to nominal, (i.e. 
flat tariffs) for individual installations. 
47. Recognising that the conclusion may be that maintaining some form of 
index-linking remains appropriate, we are also interested in views (as an 
alternative) about whether some kind of modification might be made to the way in 
which that index-linking is done. For instance, in view of recent moves in other 
schemes (e.g. pensions) from using the Retail Price Index (RPI) to using the 
Consumer Price Index (CPI) as a basis for calculations, one option might be to 

Feed-in Tariffs Scheme – Consultation on Comprehensive Review Phase 2A: Solar PV cost control 
25 
 
make the same change in FITs. We may also wish to consider whether tariffs 
should be index-linked only for a certain number of years after accreditation. 
48. Any such change would apply only to new entrants to the scheme and would 
not affect the entitlements to index-linking for existing generators already in 
receipt of FITs. It is also important to note that decisions on this issue are 
separate from any decision on regular changes to tariffs (i.e. annual inflation 
and/or degression) that apply at the time a generator joins the scheme. 
Consultation Questions: Please support your response with arguments 
11. 
Do you consider that we should reduce the tariff lifetime for new entrants to 
the FITs scheme, from 25 to 20 years? 
12. 
Do you consider that the current level of the export tariffs fairly represents 
the value to suppliers of exports from FITs generation? Please provide 
evidence to support your answer. 
13. 
Should any changes to export tariffs apply to all generators or only to new 
entrants to the scheme, and should there be compensating changes to 
generation tariffs? 
14. 
 Do you think tariffs should be index-linked? 
15. 
If index-linking is maintained what would be the best model? (i) CPI for 
whole life, (ii) RPI for whole life, or (iii) index-linking (either RPI or CPI) for 
the first x number of years? 
 
 
 

Feed-in Tariffs Scheme – Consultation on Comprehensive Review Phase 2A: Solar PV cost control 
26 
 
 
Annex A – List of Questions 
 
Consultation Questions: Please support your response with arguments 
1. Do you agree that in setting tariffs we should move away from explicitly 
targeting an average rate of return of 4.5-5%? 
2. Do you agree that the tariff table from 1 July should depend on the volume of 
deployment in the first two months of the post-3 March tariff tables? 
3. Do you agree that the ranges of tariffs displayed in Options A, B and C are 
broadly appropriate, and that the proposed deployment triggers for the choice 
between these options are the correct ones?  
4. Do you agree that tariffs for multiple installations (over 25 installations) should 
continue to be 80% of the relevant individual tariff, and do you have any cost 
information to support your response?  
5. Do you agree that installations that do not meet the energy efficiency 
requirement should attract the “stand alone rate”? 
6. Do you agree with the principles
7. 
 of tariff degression described above, using 
baseline degression and a deployment-related contingent mechanism, 
supplemented with annual reviews to check that the system is working as 
planned? 
Do you agree that the baseline degression steps should be at the rate of 10% 
every 6 months? 
8. Do you agree that the contingent degression triggers should be based on 
125% of expected deployment, and that actual deployment should be 
measured and published by Ofgem in the manner described? 
9. Do you consider that the baseline degression and/or the contingent 
deployment triggers should change once the 2 ROCs rate has been reached? 
10. Do you have views on whether deployment triggers should be divided into 
bands, and if so whether the bands described above are the appropriate 
ones? 
11. Do you consider that we should reduce the tariff lifetime for new entrants to 
the FITs scheme, from 25 to 20 years? 

Feed-in Tariffs Scheme – Consultation on Comprehensive Review Phase 2A: Solar PV cost control 
27 
 
12. 
Do you consider that the current level of the export tariffs fairly represents 
the value to suppliers of exports from FITs generation? Please provide 
evidence to support your answer. 
13. 
Should any changes to export tariffs apply to all generators or only to new 
entrants to the scheme, and should there be compensating changes to 
generation tariffs? 
14.  Do you think tariffs should be index-linked? 
15. 
If index-linking is maintained what would be the best model? (i) CPI for 
whole life, (ii) RPI for whole life, or (iii) index-linking (either RPI or CPI) for 
the first x number of years? 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 

Feed-in Tariffs Scheme – Consultation on Comprehensive Review Phase 2A: Solar PV cost control 
28 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
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