The total tariff payments due can be estimated from the monthly registrations and installations
Spend estimates discontinued
We used to calculate the annual cost of the FITs based on the published statistics of deployment in each tariff band, as shown below.
The mechanism has, however, now become so complex in terms of the plethora of different tariff bands, and the frequency of degression, that the calculation has become too complicated to justify the effort involved. Therefore:
The figures below are historical, and will not now be updated for the reason given here.
Ironically, it is calculations like these which alerted the government to the potential cost of the scheme, and led to their response to add all the additional complexities (nothwithstanding the facts that government doesn’t pay for it, and that the overall cost to consumers was very modest).
Spend against government limits
The annual tariffs which would typically be paid out, based on the estimated installed capacity at the end of March 2012, total about £370m per annum, subject to the assumptions below.
We highlighted back in November 2011 that the success of the scheme meant that the government needed to increase its so-called ‘spending envelope’ for the four years to 2015 totaling £867m. The government did subsequently increase the budget slightly to £1,064m. However the regulatory impact assessment for the Phase 2A review suggests that, on the government’s central case, the spend could be as high as £2,160m.
These figures are shown here, followed by our estimates of the amount committed by existing FITs installations to March 2012, and projection of possible future requirements from then:
| 2011-12 | 2012-13 | 2013-14 | 2014-15 | 4-year total | |
|---|---|---|---|---|---|
| Original ‘spending envelope’ [1] | 80 | 161 | 269 | 357 | 867 |
| Revised government budget [2] | 94 | 196 | 328 | 446 | 1,064 |
| Latest government projected expenditure [3] | 170 | 540 | 660 | 790 | 2,160 |
| Required spend on FITs systems now installed | 148 | 370 | 372 | 385 | [4] 1,275 |
| Projected total including new installations | 148 | 440 | 610 | 807 | 2,005 |
[2] Increased budget assigned in December 2011
[3] In Phase 2B of the Comprehensive Review (Table 22 in the impact assessment)
[4] The impact assessment estimated this could be as high as £1,700m
Basis of estimates and assumptions made
The spending estimates are based on the estimated timing when systems are installed (not when they are registered), because tariffs are payable from the commissioning date.
The following approach has been used:
- Average annual load factor of wind, hydro and AD plants will be the same as those reported by the government’s Digest of UK Energy Statistics
- Average annual utilisation of PV plants will be 850 hours at peak output
- Average usage of micro-CHP installations will be 4 hours per day
- Tariffs payable to each technology use the existing split between tariff bands (as shown in the donut chart here, for example) *
- Tariffs will be paid at existing levels, apart from solar PV, where tariffs for installations after December 2011 will be reduced by an average of 50% (following the consultation)
- Degression will be applied from April 2012, at the rates previously published
- No adjustment is made for inflation and future RPI adjustments. Presumably the ‘spending envelope’ is also adjusted for RPI?
- The timing of installations in the first year in which they are registered affects the payments due in that year. We have calculated based on the estimated installation timing (though this is uncertain). We have not adjusted this for the seasonality of renewables such as wind, solar and hydro *
* Points marked with an asterisk could be assessed more accurately by a more detailed analysis of the source data. This would take much longer, and we believe would lead to results which are not substantially different.