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How to protect yourself against feed-in tariff cuts
Posted by Cathy Debenham on 26 October 2011 at 4:55 am
It's generally accepted that the rates of return on the feed-in tariff are much more generous than was planned and that a cut is due (although there's much debate about how big that cut should be). Until recently, the reduction was expected to take place from 1 April 2012.
Suddenly the rumour-mill has gone into overdrive, and now the timing of the cut is also up for grabs. There's so much noise out there that it's difficult to know who to believe, and whether to panic or not. What is certain is that cuts will come, and here's some of the reasons why:
- Last year's comprehensive spending review imposed a budget on spending on the feed-in tariff. This came from the Treasury, which says that if there's an overspend, then it must come out of the Department for Energy and Climate Change's (DECC) budget (and not from energy bills as the rest does). Unsurprisingly, there is no slack in DECC's budget to absorb an overspend.
- DECC's forecast figures for installation of solar PV in the year to 31 March 2012 was 86MW. By the end of September 316.4MW of solar PV had been installed. That's already beyond the cumulative budget to the end of March 2013, and we're only six months into this accounting period. There's a danger the whole feed-in tariff for the spending review period (to 2014) could be nearly gobbled up in just one year.
- As originally set out, the feed-in tariff was intended to give 6-8% return on investment. Due to the significant falls in the price of solar PV, people are getting significantly higher rates of return than that.
DECC has set in action a comprehensive review of the feed-in tariff (hopefully it will clarify what its purpose is as that might help in setting a long term strategy). Asked whether that's going to spark a fast track review into the rate for solar PV, officials have said: "We’ve made clear that tariffs will remain unchanged until April 2012 unless the review indicates the need for greater urgency".
The worry is that the review will indicate a need for greater urgency, which is presumably why so many rumours are circulating that the rate may be slashed before April.
It's difficult to know how much credibility to give to this, but I've heard rumours from what I would usually consider authoritative sources. While it's clear that such uncertainty makes it very difficult for anyone trying to run a business, and plan their strategy, it's less clear what the impact is for domestic and small business consumers.
The main danger seems to be that you would decide to install at the current rate, and end up getting the new, (probably) much lower rate of feed-in tariff. The question is whether there would be a reasonable lead-in time before any change was made. Looking back for precedents, there was a few months leeway before the rate was cut for large scale solar projects. However, the date I've heard bandied around is December, so that doesn't give much time.
Which leads on to how to protect yourself. Initial thoughts include:
1. Get your skates on if you want to install solar PV and do it as quickly as you can.
2. Explore whether it's possible to sign a contract with an opt-out clause if the feed-in tariff reduces in the interim between signature and installation. Installers may be reluctant to go down this route!
3. Talk to your feed-in tariff supplier (energy company) before the installation, and fill in the forms ready to email, or post recorded delivery, as soon as your system is connected, so that you ensure that you are eligible at the right rate (in case they lose your application).
The situation for community energy schemes is worse than for domestic or small business, as they take longer in the fundraising and planning stages. The Communities and Climate Action Alliance is calling for a community tariff to be established for solar PV projects which would be paid at a premium over the (lowered) domestic rate. Increasing numbers of social enterprises and community owned organisations have sprung up to raise finance for solar panels on schools, churches and other community buildings. If the feed-in tariff is slashed too fast, they may crumble as fast as they grew.
Photo by Tiffa Day
If you have a question about anything in the above blog, please ask it in the comments section below.
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