Report: Solar feed-in tariffs to be cut to "around 20p per kWh"

27 Oct, 2011

Cuts unlikely to be as bad as some feared, but industry warns new rate would have "dire" effect...

The government is reportedly poised to confirm cuts of around 50 per cent to the feed-in tariffs available for solar installations, in a move that will significantly slow the roll out of new solar projects by both households and businesses.

According to the Financial Times, the Department of Energy and Climate Change (DECC) will announce in the coming days that the level of support for small scale solar projects will fall from 43p per kWh to around 20p per kWh.

Industry sources told BusinessGreen that they were similarly expecting tariffs to be set in the "low 20p range", representing a halving of the current level of support.

The announcement had been expected to come as early as today, but Climate Minister Greg Barker used Twitter this morning to reveal that confirmation would not come today, despite the fact he is to speak at a solar industry conference.

There had been rumours that feed-in tariffs would be cut for all technologies to just 9p per kWh, a level that experts feared would result in an immediate halt to all small scale renewable energy projects.

The Financial Times reported that Barker fought with officials within the department to secure more modest cuts, after some had argued that deeper cuts were necessary to stop the scheme over-spending.

DECC is concerned that the popularity of the scheme means it could exceed its £860m budget for the current spending round unless deep cuts to the incentives are imposed.

Original modelling undertaken by the Labour government had suggested 137MW of new solar capacity would be added under the scheme over the first two years, but after 18 months 260MW has already been added, and despite the government's decision to slash the level of support for large solar farms earlier this summer demand for smaller scale domestic and office solar arrays is continuing to rise.

The move will receive a mixed reception from the solar industry.

Solar firms will undoubtedly be relieved that the rumours that support would be cut to just 9p per kWh are likely to prove false and there is optimism some demand will remain for solar panels at the new support level.

Insiders have also expressed hope that the government will announce a clearer degression mechanism that provides them with greater certainty over future feed-in tariff support levels.

However, many businesses remain concerned that the cuts will have a chilling effect on overall demand and could even result in job losses and closures.

Responding to the Financial Times report on Twitter, Dave Sowden, chief executive of the Micropower Council described the proposed 20p rate as "pretty dire", adding that it would restrict access to solar panels to rich households.

His predictions were echoed by Daniel Green, chief executive at solar installation firm HomeSun, who told BusinessGreen that a feed-in tariff of 20p would spell an end to free solar panel schemes, such as that offered by HomeSun.

"A quarter of a million people have applied to us to have solar panels on their roofs and we are dealing with customers who would not otherwise be able to afford solar," he said. "But at the 20p rate we would not be able to deliver free solar as we would not be able to attract the necessary finance. It would mean that solar is confined to rich households in the south west."

A number of solar firms had urged the government to agree to incentive cuts of around 25 per cent, arguing that such a move would slow growth in the market while allowing companies to continue to offer a range of different installations to social housing and businesses, as well as private households.

"You can argue the cost of solar panels has come down 50 per cent - which is actually a bit of an exaggeration - but the panel is only half the cost of installation so total costs have only come down by around 25 per cent," said Green.

"A cut to tariffs of 25 per cent would allow the industry to survive and provide a bridge to the Green Deal next year when many solar firms will branch out to offer a wider range of services. But cuts beyond 25 per cent will make it very hard for many companies to survive."

A number of firms have launched a campaign, dubbed Our Solar Future, to fight for more modest cuts to incentives under the tag line "cut don't kill our solar future". The group is encouraging people to write to their MPs and call for more modest reductions to solar feed-in tariffs.

However, the proposed cuts will offer a small silver lining as they are likely to spark a short gold rush for the industry as households and businesses rush to complete installations before the reductions in incentives come into force.

Sourced from Business Green
By James Murray
27th October 2011