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DECC Announces Feed In Tariff changes – the good and bad news

After some deliberation the Department of Energy and Climate Change (DECC) has announced that having had “Green Deal measures” installed in a property will not be a prerequisite for claiming the Feed in Tariff (FIT). The Green Deal is this Government’s flagship environmental policy (the FIT being a Labour initiative) and is due to launch this autumn. It is critical to its claim to be the greenest Government ever that it succeeds.

The Green Deal scheme is based around the idea of saving energy whereas the FIT exists to encourage generation of clean energy (see any parallels with the two administrations’ economic policies?!). The rationale between linking the two was that it is both cheaper and more beneficial to the environment to save energy as opposed to generating it therefore this should come first. It was a fair point but the solar energy industry, which accounts for the majority of domestic renewable energy generation, feared that consumer uncertainty about the Green Deal would topple an industry already seriously destabilised by recent emergency tariff rate cuts.

Thankfully for those whose business is solar panels the Government has its own words “listened carefully” to consultation and has decided to drop the requirement. It will still be necessary for anyone wishing to claim the FIT to show, via an Energy Performance Certificate, that their home has an energy rating of D or above. This apparently applies to about half the homes in the UK.

Future Feed In Tariff (FIT) Cuts

So that was, sort of, the good news. Now for the bad. For those who don’t know, the FIT rate for small scale (i.e. domestic) solar panels started out at 41.3p per kilowatt hour of electricity generated. The plan was always to reduce this as the installation costs came down and the price of electricity purchased from the National Grid rose so as to maintain a fairly steady level of return on investment. From December last year however the rate was slashed to just 21p p/kWh. This resulted in a legal challenge which is currently heading for the Supreme Court, the Court of Appeal having upheld the trial Judge’s ruling that the cut was illegal but whatever the outcome, the DECC has confirmed that the rate will be reduced to 21p from 03 March this year.

The news that the new rate will definitely apply from March was wholly expected but plans relating to future cuts were also revealed. The proposals are that future rates will depend on the net size of all installations claiming the tariff. If this figure reaches 150 MW between March 3 and April the rate could be down to 16.5p and if it reaches 200 MW, it could be as low as 13.6p – less than a third of the original rate. The Government says it is trying to get the industry to a point where it can survive without subsidy but critics say it is more likely to cause it collapse before it can ever reach that point.

The cuts will apply from 01 July and even deeper cuts are expected to the to the already decimated large scale solar industry. Those in the industry believe that it will shrink considerably, leading to redundancies.

Future Feed In Tariff Rates to Be Tied to Installation Costs

Going forward, ministers have said that rates will be linked to the cost of installing solar panels. No details were provided as to the formula that might be used but essentially, the cheaper it is to install solar panels, the less the rate will be. The idea is to remove uncertainty and debate as to when the rate should be cut and by how much.

This cannot be good news for manufacturers at the high end of the market since it seems likely that the Government will use the low end as the basis for assessing the cost of an installation which will presumably lead to a reduction in quality as the more expensive (but more reliable and efficient) installations become less viable.

It is possible of course that a shrinking in the size of the industry could lead to an increase in installation costs and one can only speculate as to whether this would lead to an increased FIT rate!

Reduced FIT Rates for Multiple Account Holders

As well as the general rate cuts, ministers also announced that from 01 April the rate payable for anyone who registers more than 25 installations will but cut to 80% of the prevailing rate. This will affect “rent a roof” firms who install solar panels on others’ properties in order to claim the tariff, with the home owner benefiting from the lower electricity bills.

This seems something of a short sighted approach. The profitability of this sector of the industry now depends on economies of scale thanks to the rate cuts and the firms affected will no doubt feel as though they have had the rug pulled from under them, as will the many home owners for whom such a scheme would have been their only opportunity to have solar panels installed. The only goal seems to be to reduce the number of installations by punishing the less well off in society. It seems the modern day Conservatives haven’t moved quite as far from their roots as they’d like us to believe.

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