Renewable energy incentives support
Benefits of renewable energy incentives
Incentive schemes support the development of renewable energy projects through providing additional financial benefits in recognition of their contribution to environmental and strategic objectives.
Incentive schemes in the UK can be grouped into three broad groups:
- Direct Payment
Generators are directly receive payments for renewable output. Examples of such schemes include the Feed-in-Tariff (FiT) scheme for electricity, the Renewable Heat Incentive (RHI) for heat and the Green Gas Support Scheme (GGSS) for biomethane injection.
- Obligation-based schemes
Generators are awarded tradeable certificates for qualifying output while, at the same time, major suppliers are obligated to obtain certificates to demonstrating that a pre-determined proportion of its supply is from renewable sources. Examples include the Renewables Obligation (RO) for electricity and Renewable Transport Fuel Obligation (RTFO) for transport fuels.
- Contracts for Difference
This is a scheme for renewable generators whereby they are awarded a contract by Government that guarantees to pay the difference between a market reference price and a pre-agreed “strike” price. This has the effect of insulating generators from variations in wholesale market prices.
While individual schemes vary in regards to the scale and type of project supported, all involve an application stage to achieve accreditation under the scheme as well as ongoing requirements that projects need to comply with while receiving benefits.
The first step in accessing renewable energy schemes is to make an application for accreditation. This involves ensuring that your project meets scheme-specific eligibility and entry requirements and has the necessary metering and measurement equipment to record relevant periodic data. In preparing the application, the applicant also needs to make sure all the application questions and documentation requirements are clearly and concisely met.
Failure to address these points in applications can lead to accreditation decisions being delayed or applications being rejected. As such, it is important to understand the application process in detail and the help of an adviser can be invaluable.
Once a project has achieved accreditation, it will need to continue to meet ongoing scheme requirements while it receives benefits. This will generally cover submission of robust production or generation data and reporting feedstock data. Projects will often also need to make declarations confirming that it is complying with scheme requirement on, for example, sustainability and feedstock requirements. This may need to be supported by the projects organising audits of sustainability information by independent third parties.
Projects will often need to incorporate changes over their operating life (e.g. addition of heat users, removal/replacement of equipment) and these need to be carefully considered as to what impact these changes might have on complying with scheme requirements. These changes can affect scheme compliance, so need to be carefully considered.
Risks to benefits from non-compliance
As a condition of accreditation, participants will generally commit themselves to being audited by the scheme administrator to confirm compliance. This will include checks to confirm that the details provided at the application stage were accurate and that process procedures agreed at accreditation (e.g. for compiling production and sustainability data) are being followed.
Failure to comply with eligibility or ongoing requirements can lead to sanctions such as suspension of payments or exclusion from the scheme.
Where historic non-compliance is discovered, this can lead to past benefits being recovered by the scheme administrator.
Given the impact suspension or loss of benefits can have on project revenue, prospective investors in schemes accessing benefits would be well-advised to conduct due diligence on incentives. Participants may also benefit from periodic independent reviews to identify any possible areas of non-compliance.
Since 2016, Ricardo has offered a variety of tailored services to support project developers and investors in relation to incentive schemes. These include:
- Performing reviews to confirm eligibility for scheme requirements.
- Compilation and drafting of applications and supporting documents (e.g. schematics, heat loss assessments etc).
- Advice on collation and submission of periodic data.
- Advice on amending accredited schemes in accordance with scheme requirements (e.g. inclusion of additional heat users for RHI installations).
- Independent sustainability audits for RHI installations using waste and non-product feedstocks.
- Compliance reviews for accredited installations.
- Incentive due diligence reviews for investors in proposed or accredited installations.
Through these services, Ricardo helps developers and investors to understand and manage the process of gaining and maintaining accreditations under the various incentives schemes available and to address risks to revenues from non-compliance with scheme requirements.