Feed in Tariff costs could soar to record highs due to Covid-19 and exceptional weather conditions

What is the FiT scheme?

The FiT scheme was first launched by the government in 2010 and was designed to encourage the uptake of renewable and low-carbon electricity generation technologies such as solar panels.

The scheme requires participating licensed energy suppliers to make payments to consumers who adopted such technologies on both the generation and export from eligible installations.

The scheme was ended in March 2019, but participants still receive payments from suppliers. Concerns were raised that without the scheme there would be less investment in renewables, however, these were alleviated with the introduction of the Smart Export Guarantee.

Attention has been focused elsewhere as the challenges from the lockdown continue to bite so there has been little focus put on the FiT scheme, something that could prove to be a bit of a nasty surprise for energy suppliers that are already struggling with their cash flows.

The latest round of the scheme’s quarterly levelisation is due in July. 

What is FiT levelisation?

Participants that were/are part of the FiT scheme are required to submit quarterly consumption data to Ofgem so that the regulator can then assess suppliers’ contributions to FiT costs via the levelisation process.

These costs are then recovered and spread across all suppliers. All licensed electricity suppliers pay costs on the scheme in proportion to their share of electricity supplied. 

Record costs?

The costs of the FiT scheme are typically highest in the summer months due to lower demands and increased solar output but this year both of those have been exceptional.

The closure of most businesses and industry across the country has seen record low demand for energy and excellent weather in April and May looks set to drive up costs on a £/MWh basis.

Data from National Grid also showed that power demand tumbled in the first two months of this quarter because of the lockdown.

According to the MET Office, May 2020 was the sunniest month on record after breaking a record held since 1957 as it delivered 265.5 hours of sunshine. April too was a record-breaker with sunshine hours recorded at 224.5.

During the same period in 2019 FiT costs were £8.0/MWh and even before COVID-19 analysts had been forecasting FiT costs would be higher in 2020. Energy suppliers would likely have followed this forecast and prepared for a rise to £8.3/MWh.

However, with the double whammy of record sunshine and low energy demand suppliers are likely to receive a nasty surprise when invoiced for FiT levelisation in July and could struggle to make the payments due on 11 August 2020.

Further Reading

The UK economy shrank by a record 24% in April, Energy Supplier calls for changes to the Price cap increase

Britain has gone Coal free for a record two months

Ofgem announces £350 million support scheme to help struggling energy suppliers

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