FIT to burst

The government announced on Monday that the Feed-in Tariffs (FITs) for solar photovoltaics (PV) are to be dramatically reduced, potentially constituting a terrible blow to the UK solar industry, numerous community projects and individuals. Although a consultation on a review of the FITs was announced by government – due to close on 23 December 2011 – the announcement supersedes this and all installations coming online after 12 December 2011 will be subject to the new tariffs from April next year. The cuts are severe: for the smallest installations (up to 4kW) the FIT reduction will be 44%; some slightly larger installations will see a reduction of 56% and only the biggest installations (250kW-5MW) remain unchanged. All installations already in place will continue at the original tariff. There may be an additional insistence that homes must adopt various other energy efficiency measures to qualify for the scheme, something which until now has often happened voluntarily.

On the surface of things, it is easy to sympathise with the government’s need to manage the increasing cost of FIT payments. The original FITs, which began in April 2010, were based on the need to subsidise a new industry, gradually reducing the payments as the technology became cheaper, capacity among installers was increased and the business case was proved sufficiently for a solid market to be developed. However, the uptake was three times as much as expected, and the cost of installation has dropped by 30% since April 2010.

Greg Barker, minister for energy and climate change, writing in the Guardian on Monday, commented that:

‘The coalition’s proposals are about making the FIT scheme more intelligent, more nimble and responsive to market development and, crucially, better value for money for our hard-pressed consumers.’

He refers here to the notional premium on electricity bills to pay for the FITs. This is a gateway to a debate of epic proportions, taking in the historical and ongoing subsidies to the fossil fuel and nuclear industries, the configuration of our energy companies and, finally, the extent to which we should all subsidise the transition to sustainable energy sources. I will not attempt to tackle these issues here but if we are discussing the future of a new industry within the wider economic or political context, or the health of numerous community and private projects around the country, they certainly cannot be ignored.

In all events, the short-term consequences are likely to be tragic. While the larger solar companies are expected to survive, arguably having been given the required leg-up, many have predicted the demise of high numbers of new companies and projects whose operational models were predicated on the FITs as originally conceived. Brook Lyndhurst has gained considerable experience working with community projects and expect that communities which have embraced solar technology will be distressed that models which were based around the ability both to service the original loan, and to provide an income to use for projects in the community, may no longer be valid or may require painful reworking. The relief of the burden on the state implied by the Big Society surely requires a longer term view which starts with a nurturing of these countless imaginative and energetic small-scale initiatives. Indeed, it is not necessarily the FIT reductions that are the problem for many, rather the brutal suddenness of the change.

Under the original FITs, solar PV was a practical option for individual households or for communities, in terms of access to space (e.g. rooftops), raising the capital and receiving a sufficient return on investment. Under the scheme, an installation could provide a reliable return on investment of between five and eight per cent (set to fall to 4.5% under the new FITs). A technology which facilitates this combination of environmental and financial motivation is the holy grail of the renewables sector, and the kick-start tariffs for a self-sustaining industry were cause for great optimism.

We must not be under any illusions as to the difference the new tariffs will make – just compare an installation before and after 12 December 2011 using the Energy Saving Trust’s calculator. There is a reek of short-sightedness about the tariff cuts, and we mourn the loss of any enterprise which fails to weather this blow, and the apparent lack of government’s commitment to the sector.

Notes:

  • An ‘urgent question’ was raised in Parliament on the FITs issue, proceedings are available from Hansard.
  • Click Green report that parliament is to launch an enquiry into the decision.
  • While this blog merely notes the announced changes to FITs, a more sophisticated view would investigate, at the very least, whether the government miscalculated the original FITs, or wonder whether this is an attempt to preference the wave, wind or tidal sectors, or at least to bring them into line? Furthermore, it would be instructive to unravel the relative merits of electricity consumers paying for the FITs through their bills as opposed to from allocated government funds, and whether a thriving solar sector does not in any case positively contribute to the UK economy overall. Greg Barker has said that the changes simply brings the UK in line with other European countries, and is a result of lessons learned elsewhere.

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