The UK's small-scale hydro renaissance risks being 'strangled into submission' by the withdrawal of vital Government support, according to one of the sector's leading figures. Charles Crewdson, Executive Chairman of hydro company Gilbert Gilkes & Gordon, claims changes to the way the Feed-in Tariff system is calculated mean hydro could cease to be financially viable unless UK ministers take action.
The Feed in Tariff has been a great catalyst for the hydro industry. Unlike solar, wind or AD, it has an almost entire UK industrial base which has been stimulated by the FiT. A hydro scheme is 80% civil engineering and 20% E&M - all of which can be supplied by UK manufacturers.
What the hydro industry craves is stability - it is a long-term industry that may take four years from inception of a site to build, and even longer if there are constraints on the grid. It is not a simple short-term decision like putting solar panels on a roof.
Throughout the recession medium and small scale construction companies, electrical firms, ecological consultants, fabricators and manufacturers, hydro manufacturers have been sustained and grew. In the case of Gilkes, the company grew, opened two service centres and a civil engineering office in Scotland - taking on 100 employees in total. In addition it sponsored students through university and took on over 20 apprenticeships. Four years later those graduates are leaving University into an industry in crisis. The industry took long-term investment decisions, in return for certainty from the Government. It is beholden on the Government to meet its half of the bargain and provide certainty.
Industry is being strangled into submission
The level of activity in the sector each year determines what the FiT subsidy level - the amount paid for electricity above the wholesale price - will be the following year. If more schemes are built or reach a stage where they are ready to be built - or 'pre-accredited' - in one year, the level of support in the following year will be reduced.
The introduction of degression and the counting of pre-accredited schemes towards degression will result in year on year 20% degression for the next few years until the industry is strangled into submission. This is because the industry has caught up its underperformance in the early years. This larger number of MW to pre accredit than forecast by Government is only a result of underperformance early on. It is a blip, or a bow wave, not a feared tidal wave as was the solar challenge faced by Government.
No house or road can be built 20% cheaper year on year and it is the same with hydro - with 80% of the costs coming from construction. Government forecast that 2.5% annual degression was sustainable for the industry, which within the context of public austerity the industry accepts. But it will die with large rural job cuts in the North of England and Scotland, if degression is above 2.5%. It is in Government's gift to prevent this within a cost neutral solution.
Finding a cost neutral solution
What can the government do?
First acknowledge that 'one cap does not fit all' and acknowledge and accommodate the hydro industry is different.
Remove pre accredited schemes from degression calculations - many may not be built in the two year window, because of delayed grid, funding problems or the like. OFGEM/DECC have no mechanism for reversing failed schemes out of degression calculations.
Remove schemes or extensions over 2MW from contributing to degression because these schemes receive a FiT linked to ROCs and are not subjected to degression - so the totals should not influence degression.
Finally the allowances for 2020 & 2019 will not be used because hydro schemes planned to be built in this period will be pre accredited in 2018 (with the two year window going to 2020). This spare capacity should be 'banked' and used in the earlier years to add to existing capacity as appropriate in order to keep degression at 2.5%. By way of example if emergency degression was triggered this year in June, extra capacity should be taken from the 2020/2019 'Bank' and added to existing threshold in order to raise the emergency degression trigger so that it was not activated. This process should carry on at each annual review until the Bank is used up. This provides certainty for the Industry and accelerates sustainable build towards 2020 targets - all without exceeding current DECC forecasts for the period to 2020.
What could be simpler!
Photo: Charles Crewdson, Executive Chairman of Gilbert Gilkes & Gordon
