Subsidy threat to smaller wind projects

Shrinking incentives are threatening the future of smaller wind turbine projects across the country, according to energy experts at CKD Galbraith, Scotland’s leading independent property consultancy.

The Feed-in Tariff (FIT) is the main subsidy support mechanism for wind turbines under 5MW. The ‘generation tariff’ rates for 2015-16 under the FIT are based on the level of deployment in 2014. Last year this exceeded the maximum level for wind power, resulting in a 20% degression of the generation tariff with effect from 1 April 2015. Although wind turbines generate other sources of income, the generation tariff constitutes the majority of the subsidy support. Some projects missed their pre-accreditation deadline for commissioning in 2014 and will receive a lower subsidy rate, costing millions of pounds in lost revenue. A proportion of these projects may now never be developed.

Due to differing wind speeds, construction costs and connection costs, no two projects are the same. However, the tables below show the effects of degression on two different sizes of turbine qualifying for the 2013-14 tariff compared to the 2015-16 rates.

A project commissioned under the 2015-16 FIT will now receive only 64% of the generation tariff received by an identical turbine commissioned under the 2013-14 rates. Over the 20 years of the FIT the cumulative reduction in income will be in excess of £480,000 for the 100kW turbine in our example and over £2m for the 500kW turbine.

This rate of degression looks likely to continue so, with no cost savings, the majority of smaller wind turbine projects may be unviable within three years, though turbines will probably become more efficient and costs may reduce in response to reduced subsidy levels.

Mike Reid, Head of Utilities, CKD Galbraith, said: “It could be argued that the original subsidy level was too high, but there had to be an incentive for developers to take the risk in an embryonic industry. Degression is having a crippling effect on the viability of some projects over very short timescales compared to the length of time from project conception to commissioning.”

Mr Reid pointed out that many farmers rely on smaller wind projects for additional revenue to stay in business. “Unless savings are made, degression will mean an end to single wind turbine developments in the foreseeable future. There are viable projects at higher wind speeds, but action should be taken now to maximise development opportunities.”