The Department of Energy and Climate Change (DECC) confirmed today that it plans to halve the Feed-in Tariff (FiT) for solar installations from early December.
said, subject to consultation, the new FiT
rate for schemes up to four kilowatt (kW) in size would be cut to 21 pence per kilowatt hour (p/kWh) from the current 43.3p/kWh. The changes would come into force from December 12. Reduced rates are also proposed for schemes between 4 kW (16.8 p/kWh) and 250 kW (12.9 p/kWh). DECC’s proposals also include an energy efficiency
requirement that would mean from next April, a property would have to reach a certain level of insulation to receive the proposed new tariff rates.
The announcement brings to an end days of speculation and confirms the figure for the new tariff inadvertently published on the Energy Saving Trust (EST) website on Friday was indeed correct. DECC described the EST "draft documentation" as "neither final nor accurate".
Urgent action required
Making the announcement, Climate Change Minister Greg Barker acknowledged the FiT cut would be a "big challenge for many firms", but insisted that urgent action was required to avoid boom and bust and protect the wider FiTs scheme.
"The plummeting costs of solar mean we’ve got no option but to act so that we stay within budget and not threaten the whole viability of the FITs scheme," Barker said.
According to DECC, the cost of an average domestic PV installation has fallen by at least 30 per cent since the start of the scheme – from around £13,000 in April 2010 to £9,000 now. This is driving returns of more than 12 per cent, considerably more than the six to eight per cent return anticipated at the launch of the scheme. Over 100,000 photovoltaic systems have been installed since the FiT launched in April 2010, making solar by far the most popular technology to benefit from the scheme and threatening to use up the £860 million FiT budget long before it is due to end in March 2013. The proposed new tariffs will offer a rate of return of around 4.5 per ent to five per cent, DECC said.
"My priority is to put the solar industry on a firm footing so that it can remain a successful and prosperous part of the green economy, and so that it doesn’t fall victim to boom and bust," said Barker.
"Challenge" for solar industry
"Although I fully realise that adjusting to the new lower tariffs will be a big challenge for many firms, it won’t come as a surprise to many in the solar industry who’ve themselves acknowledged the big fall in costs and the big increase in their rate of return over the past year."
However, while the solar industry was preparing itself for cuts to the FiT, the changes are being implemented earlier than expected and are deeper than the 25 per cent the industry had been calling for. Meanwhile, the manner in which the announcement has been made has left the industry angered and opened up the possibility of it taking legal action.
Despite warm words from Barker to the solar industry last Thursday
, in which he said he needed its "help" to make any changes to the FiT , following the communication blunder on Friday, when the FiT rate cuts were published on the EST website, many in the industry now view the Government as having already made up its mind and the industry consultation as pointless exercise. Indeed, the Government’s consultation runs until December 23 2011, after the date the Government is proposing the new tariffs be introduced.
"It seems the Government is simply paying lip service to the idea of consultation. How can this be a genuine consultation when the new tariff rate is being introduced before the consultation period ends?" commented Alex Lockton, managing director of Freesource Energy. "The combination of the 50 per cent cut and the timing of its introduction is a double-edged smack in the teeth.
"There’s a lot the industry could have done to cope with this level of cut if we had been given more time to adjust our business models. Six weeks is too aggressive and the timing is a real nightmare with jobs on the line and Christmas looming."
However, according to DECC figures, not taking action would mean by 2014-15 FITs for solar PV would be costing consumers £980 million a year, adding around £26 to annual domestic electricity bills in 2020. The FiT is paid for through a small charge added to electricity customers’ bills.
Under the new proposals tariffs would apply to all new solar PV installations with an eligibility date on or after December 12 2011. Such installations would receive the current tariff before moving to the lower tariffs on April 1 2012. Consumers who already receive FITs will see their existing payments unchanged, and those with an eligibility date on or before December 12 will receive the current rates for 25 years, DECC said.
The energy efficiency
requirement would apply from April 1 2012 an could include ensuring a property has reached an Energy Performance Certificate level of C or taking up all the measures potentially eligible under the Green Deal.
Like this story? Please subscribe to our free weekly e-newsletter at the top of the page for more content like this.
Green policy & regulation