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Renewable energy projects ‘still worthwhile’ say Savills

April 4, 2014 by  
Filed under News & Business, Property

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The latest reduction in Feed-in Tariff (FIT) payment rates for non-photovoltaic eligible installations is ‘generally positive’ for the renewables industry, according to Nick Green of Savills Energy.

New tariffs for hydro, wind and anaerobic digestion come into force on 1 April 2014. Under the new tariffs for FIT Year 5, hydro schemes (up to 2MW) have seen a 5% reduction, wind schemes have seen a 20% reduction, and AD plants under 500kW have seen a 20% reduction.

Mr Green, an associate director at Savills Energy, specialises in advising landowners and developers involved with wind farms and other renewable energy infrastructure.

“Overall, the degression rates have been broadly in line with expectations and in some cases less severe than anticipated,” he said.

“Renewables projects remain a viable opportunity for landowners and developers looking to invest. With a stable rate of degression, payback time will only increase marginally; we’re talking a few years, rather than decades, with room still for good return on investment.”

As intended, the FIT degression rate was likely to see only the best projects proceed, said Mr Green. Developers needed to look at their project margins and how these can be improved. But this did not mean cutting corners.

“There is still substantial opportunity for the right projects to be developed on the most appropriate sites in order to deliver financial returns, especially as the Department of Energy and Climate Change is broadly supportive of further expansion of renewable installations throughout the UK.”

The reduction by 20% to wind tariffs and, in particular the ‘medium-scale’ wind rates, was widely predicted, as it was seen as overly generous. “Such a reduction will result in many low or average wind resource sites not proceeding and where they are let, rents may start to come under pressure.”

But the announcement also allowed project assessors to be more confident about their projections, especially for larger scale projects, ensuring the potential payback is in line with the investment being made.

The FIT is paid to encourage the installation of small scale (5MW or less) decentralised low-carbon energy systems. It is administered by Ofgem and is subject to a process of annual tariff degression, which reflects the expected cost reduction in the installation of new technologies over time.

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