Exclusive: Solar industry "twitchy" as feed-in tariff rumours fly

14 Oct, 2011

Insiders warn speculation over drastic cuts to incentives could damage investment....

The solar sector may face crippling cuts to feed-in tariff incentives as part of the government's forthcoming reviews of the subsidy scheme, if industry rumours are to be believed.

While the Department of Energy and Climate Change (DECC) is maintaining that nothing has been decided, a number of industry sources are fearful that support for domestic solar installations may fall by 30 to 50 per cent.

Sources are also speculating that changes may include another fast-track review of the scheme, following on from the previous review earlier this year. That review chopped rates for large-scale solar by between 42 and 72 per cent.

Our source added that the rumours could be enough to interrupt investment in the sector even if they are ultimately proved to be false, given the government has already unsettled the industry with the earlier changes.

Fears centre on the fact that solar uptake is already more than double the government's initial predictions.

Trade bodies the Renewable Energy Association (REA) and the Solar Trade Association (STA) have predicted 500MW of solar capacity will be installed by April 2012, five times the original impact assessment.

However, the budget for the scheme remains constant. The strong demand for the scheme means DECC will be forced either to call on the Treasury to raise the funding cap, raid the Renewables Obligation budget to increase funding for the feed-in tariff or attempt to stifle demand by reducing incentives.

In addition, industry figures suggest domestic solar PV prices have dropped significantly, from as much as £5,000 per kW last year to about £2,500 per kW today. This means householders can now achieve rates of return almost double the 7.5 to eight per cent that DECC originally expected.

"The rumours demonstrate just how twitchy the industry is," said Stuart Pocock, technical director at the REA. "If DECC doesn't get another funding stream, action will be taken - the issue is what it's going to be. We're fearful they could do something significant."

The industry accepts rates will be cut, and research by solar firm Engensa has suggested a 25 per cent reduction in tariffs will still safeguard the 25,000 jobs currently supported by the UK solar industry.

But experts maintain that deeper cuts will put jobs at risk, while also undermining recent investments in the sector.

Pocock said that the industry is unlikely to simply accept changes that could undermine the viability of many businesses if deep cuts are confirmed.

"There's so much money spent on social housing schemes, for example, that I'm sure whatever happens there will be a legal challenge from some quarter," he predicted. "Severe cuts will be significant, not just for PV but for all the solar companies who have invested in the sector."

However, Dave Sowden, chief executive of the Micropower Council, sounded a note of caution, arguing that the previous review of solar tariffs was granted a judicial review, even though the case was abandoned. He claimed this means DECC is unlikely to risk a repeat.

"We don't think there's any reason to panic. I don't think DECC have got anything so drastic in mind," he said. "It's important to bear in mind that DECC did land itself in court. In the judge's view, there was a case to answer [and] enough grounds to go through a judicial review. I can't see the government thinking they'd get away with it."

However, Sowden said he is convinced the government will reduce support for solar.

"It's safe to assume they will bring the rate of return down to a level that still gives a good return, but doesn't fuel such a bonanza," he said. "They're going to have to find money for next year as pretty much all next year's budget will be used up by installations going in by March."

A DECC spokeswoman said the rumours of deep cuts are "just speculation". She added that all tariffs in the scheme are being reviewed and the department will be consulting on proposals later this year.

"We've made clear that tariffs will remain unchanged until April 2012 unless the review indicates the need for greater urgency," she added in a statement.

"The FITs scheme is paid for by energy consumers through their bills and has a fixed budget. The scheme's proving popular with households and we're continually monitoring the take-up of the scheme to make sure that we stick to budget."

However, the chief executive of one solar company warned significant cuts may have a chilling effect on the wider low-carbon economy.

"If these rumours were to be true, not only would it be catastrophic for UK solar [but also] the Renewable Heat Incentive and the Green Deal, which are effectively based on the same companies," he said. "Imagine a scenario where they government destroys the PV industry - what would be the chance of the same companies investing in the Green Deal?"

Sourced from Business Green
14th October
By Will Nichols