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Can the Solar Panel Industry Survive Without the Feed In Tariff?

Since the launch of the feed in tariff in 2010 the solar industry has gone from being a minor cottage industry to a pretty big noise in the British economy. There is of course no doubting that the FIT has been the major factor in this success story but is it the be all and end all? As the feed in tariff appears to be being phased out more quickly than the Labour government that introduced it ever intended we ask – can the solar industry survive without the feed in tariff?

At its launch in 2010 the feed in tariff, the cash incentive paid to those who have solar panels installed on their properties, was 43.1p per kilowatt hour of electricity generated by the panels and was payable for 25 years. By 10th August this year that rate had been reduced to 16p per kilowatt hour for just 20 years. Further falls are likely in the near future.

Rationale Behind the Tariff and its Demise

Before the feed in tariff was launched solar panels were simply not cost effective. The initial cost of the installation could never be repaid by the savings in electricity bills produced by the panels. They were seen as little more than the folly of the middle class former eco-warrior whose days of marching against power stations and occupying trees had been replaced by sensible grown up jobs and comfortable shoes. The technology was under-developed and there was no mass production. Nonetheless it was regarded by many as having the potential to be a major factor in the fight to reduce Britain’s carbon emissions, provided it could be kick started.

The tariff was that kick start. Paying people to produce electricity meant that for consumers solar panels were a valuable, reliable investment. Probably the highest yield safe investment on the market. As demand for solar panels grew so did competition between producers and installers. This inevitably drove down installation costs. Seeing more and more solar panels appearing on rooves in their area also made the idea of installing them less fanciful to the general public.

Falling installation costs meant the same return on investment could be produced with a lower tariff payment. It was always intended to be this way, though the rate of tariff reduction has been accelerated.

What effect will the end of the FIT have on the Solar Industry?

The cost of installing even the best solar panels has fallen quite drastically since the introduction of the FIT and it continues to fall. Simultaneously electricity prices are continuing to rise, thus increasing the potential savings. The hope is that by the end of the FIT scheme the amount that can be saved in electricity costs during the life of a solar panel will be greater than the installation cost, thus rendering it cost effective to install. This may be achieved however it may not be the end of the story. There are a couple of important factors against the the argument that the solar industry can survive post-FIT.

Rent a Roof Schemes

One of the major elements to the growth of the solar industry has been the “rent a roof” scheme. This involves companies installing solar panels on their customers’ rooves free of charge in return for the feed in tariff payments. The customer gets to keep the free electricity so it is useful arrangement where the customer cannot afford the initial installation cost.

This scheme will of course be brought to an end by the demise of the FIT, which will take a large number of properties out of the solar panel market as even if the installation cost comes down to, say, £5,000 – £6,000 this will still be far more than many are willing or able to pay.

The Hassle Factor

Loft insulation is a great way to reduce energy bills. It is cheap (in fact it is often free) and is relatively unobtrusive and quick and easy to install. Despite this, most properties which could benefit from loft insulation do not bother to have it installed. Why? The hassle factor. Not only do you have to contact an installer and arrange an appointment, you have to clear the loft and probably have to find a new home for some of your junk afterwards. You don’t see any immediate benefit and it is difficult to accurately calculate what you will save. So you never get around it.

If people generally can’t get as far as loft insulation, what are the chances of those same people bothering to have solar panels installed? The work required is a good deal more intrusive and very expensive – for what it costs you could get a new car (albeit a small one!). This is the fear of the solar industry.

On the positive side, it is easier to calculate what will be saved when installing solar panels than it is when installing insulation or other energy saving devices. Also, the saving will be greater.

In Conclusion

There is no doubting that the end of the FIT will damage the solar industry severely. It will shrink because irrespective of any other benefit, most people currently installing solar panels are only interested in the tariff payments. The industry should however be robust enough to survive and it will have its day in the sun (pun intended) once more. Electricity prices will continue to rise, solar panel technology will continue to improve and installation cost will continue to fall. Eventually (and sooner rather than later) a tipping point will be reached whereby solar power is the only practical solution.

1 Comment to Can the Solar Panel Industry Survive Without the Feed In Tariff?

  1. Jane's Gravatar Jane
    September 19, 2012 at 2:54 pm | Permalink

    Solar energy is just so sustainable that governments should be doing a lot more to make it accessible to the public. With advancements in technology we should all be taking steps to move toward greener energy, but large energy corporations are still too profit driven to make these energy sources financially viable for a lot of us.

    If going with an energy company is too expensive for you, there’s still plenty of options that you can pursue on your own.

  1. By Future Still Bright for Renewable Energy
    November 14, 2012 at 9:48 am | Permalink

    […] to recent reports those with solar panels are actually making more money from them despite a dip in FITs. This is mostly down to increased yields and people installing larger systems in their […]

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