Community renewable energy projects in Calderdale, as well as scores of others across the country, have fallen foul of a little-known Ofgem rule. Introduced in 2011, it bars publicly grant-funded community renewables from receiving Feed In Tariff (FIT) payments for the electricity that they generate.
Affected community renewable schemes only found out about the rule earlier this year. when their FIT payments stopped and they heard that Ofgem would only reinstate them on repayment of an unspecified amount of their grants.
Otherwise they would be ineligible for FIT payments and have to repay the FITs they’ve already received. According to the director of one community renewable group, the financial consequences of such a loss of income could cause the project to wind up.
Other community renewable schemes are in the same boat.
A rule that no-one knew about
When they applied for public grants to cover some of the costs of installing renewable energy micro-generators, scores of community renewable energy projects knew nothing of Ofgem’s new rule.
The community renewable project director already mentioned said,
“Even so-called experts in renewable energy and FIT are unaware of the Ofgem rules.”
They thought that normal State Aid rules applied to community renewable schemes. These rules limit the amount of public grant funding that an organisation engaged in economic activity can receive. EU rules place the limit at 200,000 Euros over a three year period.
But in early 2011, Ofgem announced that this State Aid rule now only applied to community renewable schemes that had received grant funding before 1 July 2011, or where the installation was first commissioned before 1 October 2011. After these dates, public grant-funded community renewable schemes would not be eligible to receive FITs payments.
Grant-giving organisations seem to have been unaware of Ofgem’s 2011 rule. In 2012, various grant giving organisations awarded grants towards the costs of buying and installing a wind turbine. The community renewable project director said,
“When we applied for the grant we detailed the way in which we proposed to fund the project and receive income from the Feed-in Tariff. We received the grant with no conditions regarding our receipt of FIT payments.”
Energy suppliers that registered community renewable groups to receive Feed In tariffs, didn’t know about Ofgem’s 2011 rule either. After community renewable generators were connected to the grid, they registered with one of the Ofgem- Registered Feed in Tariff licensed suppliers to receive Feed In Tariff payments for the electricity they fed into the grid. On the form they declared the amount of public grants that they had received, and the grant awarding organisation.
The energy suppliers initially paid FITs to the community renewable schemes.
But in 2013, scores of community renewable groups found the energy companies had suspended their FIT payments. Ofgem, the energy regulator, had audited the energy companies and required clarification about the community renewable energy groups’ public grants.
Later, community renewable energy groups heard that it was likely that they would have to repay some of the grant, if they wanted Ofgem to restore their accreditation for FITs.
For some groups, this repayment represents about one year’s FITs revenues. The longer term impact on the group would be a significant reduction in the funds available to pay interest on shares or to contribute community benefits.
This has presented groups with a quandary. Some have held General Meetings where members have agreed to pay back some of the grant in order to be able to receive FIT payments – unless they are asked to pay an unaffordable amount.
Some groups are still waiting to find out exactly how much of the grant they need to send back.
Appeal to Ofgem to “grandfather” normal State AId rules
Carbon Leapfrog, a charity that supports carbon reduction projects, has collected evidence from 50 community projects that have been affected by the poorly publicised Ofgem rules. Carbon Leapfrog recommends that Ofgem should make a “grandfathering” decision, which would mean that the pre-2011 State Aid rules would apply to the 50 community renewable projects. This would allow them to have their FIT reinstated without repaying any of the grants.
Under the grandfathering decision, subsequent community renewable schemes would have to follow the 2011 Ogfem rules and would not be eligible for FITs if they receive public funds for the equipment.
Who thought up this crazy rule, and why?
Why would any one think this rule was sensible or fair? It seems punitive. If community renewable projects can’t earn FITs payments if they have used public grants to set up the renewable energy generator in the first place, it makes it much harder to get a community renewable scheme off the ground – it rules out the use of public grants to buy and install the micro-generator.
Why change State Aid rules that already exist to protect competitiveness, just to make it more difficult for community renewable projects to set up?
Is Ofgem afraid that community micro-renewables would put commercial wind farms and solar pv farms out of business? Or undermine the market for individual household eco-bling? The chance would be a fine thing.
And why didn’t Ofgem make sure that the information reached community renewables advisors, public grant giving organisations and the companies that register community renewable projects for FIT payments?
In 2011, Ofgem posted information on its website about its new rules for community renewable projects.
In August 2011, the YouGen website picked up and reported on this information.
A bit late in the day, in May 2012, DECC posted online guidance on Feed in Tariffs and grants. This states,
“The FITs scheme is intended to replace, not supplement, public grant schemes as the principal means of incentivising small scale, low-carbon electricity generation. Because of this, and to ensure value for money for consumers and compliance with EU law on state aids, it is generally not possible for a generator to benefit from both FITs and a grant from a public body except in specific circumstances.”
A downloadable document on that webpage reproduces the information on the 2011 Ofgem website.
It also advises groups that are planning to install microgeneration schemes (less than 50kW)
“to contact a FITs supplier via the Ofgem: Registered Feed-in Tariff licensed suppliers web page for information including further guidance on eligibility for FITs.”
Experience shows that at least some of the Ofgem Registered Feed in Tariff licensed suppliers didn’t know about Ofgem’s rules on eligibility for FITs.
Update on 24 October 2013, in response to comment/question from TRAP Community Association
For an update on how Pennine Community Power dealt with this problem, by negotiating with Ofgem about the amount of publicly-funded grant money they had to repay in order to have their Feed In Tariff payments reinstated, see this post on their website.