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Feed-in tariff cuts hits hard for both consumers and industry

Posted by Cathy Debenham on 1 November 2011 at 9:36 am

Feed-in tariffs for solar PV will be cut in half as a result of changes proposed by Government in a consultation announced yesterday. The cuts will bring the solar boom to an end, and are widely expected to create a solar bust.

Currently installations of up to 4kW attract a generation rate of 43.3p per kWh from the feed-in tariff. This will be reduced to 21p per kWh for all installations with an eligibility date on or after 12 December. Return on investment which has reached double figures for well positioned solar PV will be cut to 4.5 per cent for this size of installation.

As a result, people who were about to install solar PV are left anxious about whether they will get in before the deadline, and if not, whether they can cancel contracts and reclaim deposits.

The solar industry, which has been one of the biggest growth sectors in the UK, now faces a six week race to beat the deadline, followed by anticipated redundancies, bankruptcies and contractual disputes. It is planning a day of action at Westminster on 23 November as part of its Cut don't Kill campaign, and may consider legal action.

As well as cutting the generation rates, the Government is consulting on a move to make the feed-in tariff part of a whole-building approach to energy efficiency. This would require building owners installing solar PV from 1 April 2012 to meet specified energy efficiency standards in order to be eligible for the full feed-in tariff rate. Those who did not meet the standard would get just 9p per kWh. The ways they might implement this are part of the consultation.

The proposals are also expected to put an end to free solar installations (often known as rent a roof schemes) through a new multi-installation rate for schemes where an individual or company owns or receives feed-in tariff payments from more than one solar PV installation. They will get just 16.8p per kWh for systems up to 4kW, a rate which the chief executive of HomeSun says makes the business no longer worth pursuing.

This consultation closes on 23 December 2011, some two weeks after the 12 December deadline for solar PV installations to be eligible to avoid the cuts. It focuses on the feed-in tariff for solar PV, and will be followed by a second consultation on the comprehensive review of the rest of the scheme, which is expected to be published towards the end of this year, with the aim of implementing any resulting changes in the first part of 2012. This will include proposals for introducing new cost control mechanisms which will hopefully negate the need for disruptive fast-track reviews in future, and allow both industry and consumers to plan ahead.

Click here to read how the proposals in the consultation are expected to impact on domestic installations.

Photo: muggy sunset by Paul Moody

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Comments

14 comments - read them below or add one

Peter Davis

Peter DavisComment left on: 3 November 2011 at 9:24 pm

David - can you pls point me in the direction of the statutory instrument that changed the Order and closed what was not originally a "loophole".  I've looked at the amending legislation & the DECC website and cannot see such.  Thanks.

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David Hunt

David Hunt from Comment left on: 3 November 2011 at 2:20 pm

Peter Davies, that loophole was closed in October (adding to a system and getting the original FIT rate).

The new FIT rate works just fine, a smaller drop would have helped the industry, but the real killer was bringing forward the start date. We now have to install 150+ installations in 5 weeks whilst maintaining the standards that we are well known on YouGen for.

There will I know be people that pay a deposit on a system to unscrupulous installers who will take them with no intention of delivering. Poorly thought out as you would expect from government.

From December we will still be able to offer a PV installation on the new FIT rate of 21p at 7-10% return on investment, and best of all it will still reduce your CO2 by the same amount! 

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Peter Davis

Peter DavisComment left on: 2 November 2011 at 7:37 pm

For installers trying to juggle multiple installs in time for old rate FIT accreditation I reckon that Article 15 of the relevant FIT Order could be of interest: http://www.legislation.gov.uk/uksi/2010/678/article/15/made

So long as a system is accredited in time then you have an additional year to install further panels, notify and have such deemed to be part of the original installation and therefore enjoy the old FIT rate.  This could be of help (not much, but some) for those struggling with supply chain & manpower issues.

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Jan

JanComment left on: 2 November 2011 at 4:21 pm

Consider the 43.3p/kWh far too high. This lower level is about right giving a reasonable return for installers, while allowing some money left for other investments.

At least there was plenty of warning that the rate would be cut.

I installed my panels 3 months too early. The rate was then 9.2p with a promise that this would increase the following April. Well it did, but not for me. My rate was cut to 9p. Had I known this I could have easily waited those 3 months. The Conservatives promised that if elected they would backdate payment to people like me, but they reneged on this promise.

I have little sympathy for those currently bleating that they will only get 21p. What a fortune! I would dearly love that kind of remuneration.

 How about campaigning for a fair return for all?

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Todd Rossuck

Todd RossuckComment left on: 2 November 2011 at 12:28 pm

We were just about to install a 2.8Kw system on our house. Forget it now.  What a short-sighted government!! Didn't the current FITs just start in April 2010? Give it some time, and some relief to householders that could have just about afforded it in the first place.

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Jill

JillComment left on: 2 November 2011 at 9:38 am

Regarding the comments on compliance with Energy Efficiency requirements or take a lower tariff,  I'm worried about this too for the rural areas.  Another barrier to add to hard to treat stone built properties, off gas, being ripped off by rising heating oil prices .  Hard to get above E on an Energy Performance certificate. I thought one of the ways to 'improve' your EPC was to install renewable technologies - isn't this a bit catch 22?   The second of the options on the consultation looks preferable - do only the energy efficiency improvements that meet the Green Deals golden rule - for stone built houses that will generally be loft insulation only and low energy light bulbs .

   

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Cathy Debenham

Cathy DebenhamComment left on: 2 November 2011 at 6:57 am

Thank you @Rob for your comments on the return from ISAs and annuities, very useful.

@baslowman the consultation on both the green deal and the renewable heat incentive are due soon (whatever soon means in Whitehall).

@Anne - good point about the energy efficiency requirement - I think it's much more damaging than the 21p rate, and will be blogging about it in a day or two.

And @Simonm I'm a keen supporter of your idea that the first bit of electricity used should be cheaper, with it getting incrementally higher as you use more (with safeguards for people in fuel poverty).

@Tom - hmmm!

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RobertPalgrave

RobertPalgraveComment left on: 1 November 2011 at 10:36 pm

@baslowman

the subsidy for solar thermal falls under the Renewable Heat Incentive and is distinct from the Feed in Tariff (electricity only). RHI for domestic buildings is due to start in 2012. I don't reckon there will be any sort of rush...

@Gareth

agree with every word. Barker was on Radio 4 saying he is doing this to avoid the boom and bust seen in other countries with their solar PV schemes. You couldn't make it up.

On the consultation:

DECC are repeating an oft-made error regarding the return on investment on solar PV. They say the 5% return they are now providing is better than people would get from 'savings or bonds'. On the face of it yes, but if I put £10k into a cash ISA at 3.5%, I can take out all or some of the original capital when I choose, and the capital sum has not diminished. Spend the same on a solar PV installation and I will definitely not get back all of my capital in an increased value of my house when I sell it. The solar installation is a depeciating and illiquid asset. An investment in a savings product is not.

A closer financial comparison is between a solar PV installation and a pension annuity. in both, the investor commits a capital sum which is not returnable and gets a return for the life of the investor (annuity) or the tenure of the house (PV).

Pension annuity rates are around 5% for people in good health aged 65.

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baslowman

baslowmanComment left on: 1 November 2011 at 7:32 pm

I read nothing here about solar thermal. The Government was intending to introduce a solar thermal FIT payment in the new year. Has this also disappeared in the panic over having a policy that was exceeding expectations?

has anyone any news on this?

james

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anne miller

anne millerComment left on: 1 November 2011 at 3:15 pm

I'm shocked by the duplicity in this.  Everyone agrees that it was reasonable to reduce the FIT rate, but moving the deadline forward from April to 12 Dec with no warning is outrageous.

I also find the attempt to "integrate" the "Green deal" with FIT pretty slimy... People may not have noticed that EPC level C is only about 5% of the housing stock (basically its new build) Its hard to get a victorian terrace above level D. 

Hence the big building firms, the credit finance companies and the utilities that are lining up for the green deal (ie the Govts friends) will be happy enough, but the retrofit market will be dead.

Secondly, although its good to encourage energy efficiency, for renewables surely all you want to do is to encourage them to go on good sites. Given a good site, it makes no difference whether it goes on a level C newbuild, an unheated barn or in a field.

Politicians make me ill.


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Simonm

SimonmComment left on: 1 November 2011 at 2:28 pm

Not sure I agree about the effect on the industry.  I've got solar PV under the FIT scheme. I could have bought my 2.6kW for over £13K at the very start of the scheme, in fact I paid £11K a year ago, now the same installation could be got for in the region of £8K. Or over £15K if I cared to line the pockets of some greasy salesman. 

Clearly it was a good deal when the cost was £13K and the FIT was 41p. Not quite as agood a deal when you compare £8K and a FIT of 21p, but I have no doubt that over the next 6 months, the falling cost of panels will bring the balance back to what it was at the start of the scheme.

My very first set of solar PV, 1.1kW cost £18K with a 50% grant, I would by far have the scheme that is being proposed.

What would perhaps be more interesting and inovative for UK Govt would be a review of electricity tariffs and invert the pricving system so the more that was consumed, the higher the price, rather than our cuirrent system which rewards high consumption with a lower average price.  

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Aurai

AuraiComment left on: 1 November 2011 at 12:16 pm

Surely, you cannot lose what you never had and the decision to install Solar etc. is surely based on more than just feed in tariffs?  The decision has to be made on several differing assessments only one of which is the rate of return supported by feed in tariffs.  May mean more work to sell products but being the right thing to do is still there to be sold and justified!

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Interested

InterestedComment left on: 1 November 2011 at 12:02 pm

As another small company with a vision to use renewables to do what we can to help mitigate globally accepted climate change problems, whilst addressing the issues on energy supply and security and at the same time creating over 30 jobs in a rural community and increasing by another 4 this week alone - 

I like thousands of others am stunned today by the short sighted and damaging actions of our ''green govt'' - how can ''they'' say what ''they'' say then do what ''they'' do ? it is simply impossible to fathom or accept. 

The rest of the world seem to get it and recently in a survey, was it not over 60% of our population appeared to get it.  So does our future really boil down to an argument over what in the grand scheme is a tiny amount of money.  I am probably missing something here but £18m of tax payers money was spent moving some travelers off their own land, yet we can not find extra cash in the region of £100m to support the short term development an industry that brings, clean energy, 10,000s jobs, fuel security and about the only show in town worth putting some investment into. 
All this and then - as if icing on the cake i read....

Jeremy Leggett, Founder of Solarcentury, took to Twitter to say, “@GregBarkerMP: RU ashamed that DECC announces 1,000 jobs for Big6, cost of £1 billion, on day you cut thousands in solar 4 2 parts nothing?”

I am proufoundly concerned for ''our'' future and i do not mean short term business interests i mean ''our'' future - all of us.

Gareth Williams MD Caplor Energy

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Tom Bragg

Tom BraggComment left on: 1 November 2011 at 11:32 am

On the day this "consultation" was announced in the Commons, Greg Barker was opening SmartLIFE Low Carbon in Cambridge, where he was invited to add to a "pledge tree". He pledged to "make this the greenest government ever"!

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