Government angers industry with move to slash solar incentives further
The government has today announced wide ranging plans to reform the popular feed-in tariff incentives scheme, promising to deliver 22GW of solar capacity by 2020.
But ministers have also risked further angering the solar industry, after setting out proposals that could see incentives for installations with less than 4kW of capacity cut by 35 per cent to 13.6p/kWh - a level that industry insiders fear will lead to a significant contraction of the sector.
Writing on Twitter, Howard Johns of the Solar Trade Association said the government had unveiled "ambitious new plans for destroying the UK solar industry", adding that the scale of the proposed cuts were a "disaster" for the previously expanding industry.
Under the new proposals, which will be open for consultation until April 3, the government is proposing a range of possible cuts to incentives for standard installations depending on the rate of installation between now and then.
If deployment between March 3 and the end of April exceeds 200MW the government is proposing cutting support from July 1 to 13.6p/kWh; if it is between 150MW and 200MW the new rate would be 15.7p/kWh; and if adoption stands at less than 150MW the tariff will be cut to 16.5p/kWh.
Installations with more than 4kW of capacity could face deeper cuts with the government proposing tariffs between of 4.7p/kWh and 13.2p/kWh from July 1, potentially significantly lower than the level of support provided to other forms of renewable energy such as wind power.
The consultation also raises the prospect of deeper cuts still in the autumn, stating that "for solar PV we propose a tariff reduction in October (i.e. three months after the 1 July tariff changes) of 5 per cent, followed by a degression rate of 10 per cent every six months".
The solar industry responded furiously to the proposals with insiders claiming it had been based on a new government report estimating solar costs that was rushed and follows a flawed methodology.
The changes will also again raise the prospect of a surge of installations as households and businesses attempt to deploy new systems before further deep cuts are imposed.
Beyond the potential new tariffs, the wide-ranging proposals include a raft of reforms that Climate Minister Greg Barker today said would ultimately result in installed UK solar capacity increasing from 1GW currently to 22GW by 2020.
"Instead of a scheme for the few the new improved scheme will deliver for the many," he said in a statement. "Our new plans will see almost two and a half times more installations than originally projected by 2015 which is good news for the sustainable growth of the industry. We are proposing a more predictable and transparent scheme as the costs of technologies fall, ensuring a long term, predictable rate of return that will closely track changes in prices and deployment."
Central to the new proposals are a new mechanism for reducing the level of feed-in tariff incentives every six months in line with falling technology costs - a system that the government predicts will protect the scheme's budget and prevent gold rushes similar to that which affected the solar industry late last year.
Barker also confirmed that additional funding had been identified to cover the budget over-spend that has occurred in recent months and still allow £460m for new installations over the current Spending Review period.
"I want to see a bright and vibrant future for small scale renewables in the UK and allow each of the technologies to reach their potential where they can get to a point where they can stand on their own two feet without the need for subsidy sooner rather than later," Barker said.
The government also released a response to its controversial consultation on cuts to solar feed-in tariffs that are scheduled to come into effect from April, confirming that as anticipated feed-in tariff rates for standard installations will be halved to 21p/kWh for all installations completed after March 4.
Ministers added that they could not yet confirm the rate of incentives for installations completed between December 12 and March 4 as they are continuing their appeal to the Supreme Court against two court rulings branding plans to cut rates for installations from December 12 as unlawful.
Significantly, the consultation response confirms that the government has relaxed controversial plans to limit feed-in tariff eligibility to those buildings that have the highest energy efficiency ratings.
The government had said that only properties with an energy performance rating of 'C' or above would be allowed to install solar panels, a restriction which according to experts would mean only 14 per cent of homes were eligible for the technology.
However, the department said it had listened to feedback and decided that buildings with a 'D' rating would now be eligible, meaning that around half of properties will now be allowed to qualify for the incentives if they install solar technologies.
"The previous proposals for a 'C' rating or a commitment for all Green Deal measures to be installed was seen as impractical at this stage," DECC said.
There was a similar relaxation of rules governing community or corporate solar projects with the government announcing that individuals or businesses installing 25 or fewer installations do not qualify as "multi-installation" and therefore will enjoy the standard tariff rate, avoiding an additional 20 per cent cut that will be imposed on larger group installations.
Ministers also said they would consult further on whether larger community and social housing scheme should also be exempt from deeper cuts.
Many of the reforms were broadly welcomed by the industry, but the main focus remained on the prospect of further deep cuts to incentives this summer.
Insiders said that the scale of the proposed cuts would make it difficult for installations to deliver the five per cent rate of return the government has targeted for the scheme.
There were also fears the government could cut the payment period for feed-in tariff incentives from 25 to 20 years, and remove the payments link to inflation - moves that would further undermine the attractiveness of the scheme.
Ministers will argue that the sector can continue to grow if it delivers the rapid reductions in the cost of solar power that have been predicted, allowing it to compete with conventional power without subsidy.
But the solar industry maintains that while costs are falling it will be extremely difficult to deliver rapid deployment of the technology in the second half of the decade if current support is cut to such a level where demand contracts and companies start to scale back or go bust.
Following the announcements, Shadow Energy and Climate Change Secretary Caroline Flint clashed with Climate Minister Greg Barker in the House of Commons, accusing the government of proposing cuts to incentives that would amount to a 70 per cent reduction in six months that were "out of all proportion" to reductions in solar costs.
Barker accused Flint of taking a "glass half empty" approach to the proposals, insisting that the government was looking at a range of possible cuts and arguing that the falling cost of solar technology means the industry can continue to prosper once the reforms come into effect.
The government today also released wide ranging reforms to feed-in tariffs for other eligible technologies, such as small scale wind, hydro, and combined heat and power.
Source: Business Green
