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FIT Rate Cuts, Is Now Still a Good Time to Buy Solar PV

Following a review of the feed in tariff rates paid for electricity generated from small scale solar panel installations, the Government recently announced that from 12 December this year the feed in tariff rate would be cut from 41.3p per kilowatt hour to 21p. This has caused alarm among the solar sector and sparked fears of a collapse of this fledgling industry as people turn away from solar panels to look for a more profitable way to invest their money, but is it really all doom and gloom?

The answer seems to be, not really. It was always the intention after all that the tariff rate would be reviewed in two ways. First, it was intended that it would be reviewed and increased in line with inflation. This happened earlier this year and as a result the rate was increased. Second, it was intended to review the rate separately to maintain an 8% return on investment for buyers of solar panels. It was expected that this would mean a decrease.

Why Is the Feed in Tariff Rate Being Reduced?

The perception seems to be that the rate is being cut as part of the general package of austerity measures being put forward by Government to reduce the national debt. In fact this isn’t really the case. The purpose of introducing the feed in tariff was to help Britain meet its carbon emission reduction targets by kick starting the renewable energy industry, which prior to the feed in tariff was really only a cottage industry.

Prior to the feed in tariff, installing solar panels would of course have reduced electricity bills, but not by enough to offset the hefty installation cost, so for most people they were not an option. By introducing the feed in tariff they were made to be profitable however. As was the Government’s goal, the industry grew in response to demand and this led to increased competition and better efficiency, therefore falling installation costs as well as improving the technology.

The effect of this initial boost to the market was that the target return on investment figure could still be achieved with a much lower tariff payment.

Feed In Tariff Rate Cut – the Logic

At the time the Feed In Tariff was introduced, a 4 kilowatt peak system would have cost you around £14,000. Today you can get the same system for less than £10,000 (some even claim to offer it for less than £9,000). Of course the FIT rate has been halved and even at £9,000, solar panels are not half their earlier price, so was halving the rate justified?

There are three things to consider here. First, one of the aims at the outset of the Feed in Tariff scheme was to make solar panels irresistible to as many people as possible. This necessitated paying a certain amount over the odds. The more people that took up the offer, the easier it would be to convince other to follow. So the original rate was very generous. The second point to consider is that as well as installation costs coming down, the performance levels of solar panels have gone up, in the way that all technology improves, so panels bought today will produce more electricity for longer than panels bought two years ago.

Thirdly, the feed in tariff is only one of two financial benefits of solar panels, the other being lower electricity bills. The cost of electricity has risen appreciably since the start of the feed in tariff and so the savings for those with solar panels or other renewable electricity generating equipment have increased, meaning there is that little less reliance on the FIT to ensure the 8% ROI is achieved.

So Is Now a Good Time to Buy Solar Panels?

Of course it would be better to get solar panels installed and registered before the 12 December rate cut however even if this deadline is missed solar panels are still worth buying and will still turn a profit. Any investment has an element of gambling about it but it might be worth hanging fire on solar panels for a while.

The longer you wait, the better the technology will be, meaning the panels you could buy in, say, a year’s time will produce more electricity than the panels you could buy today. Furthermore, installation costs will fall, both as a result of improved technology and increased competition. Some are predicting that a 4 kwp system (currently £9,000 – £10,000) will cost as little as £7,500 by Easter. A useful barometer of when it might to time to buy solar panels again is when companies start once again to offer free solar panels through “rent a roof” schemes. Companies will do this once there is a serious profit to be had.

Don’t delay too long however, as the feed in tariff scheme will not be around forever and there will be more rate cuts in future.

4 Comments to FIT Rate Cuts, Is Now Still a Good Time to Buy Solar PV

  1. Peter Steele's Gravatar Peter Steele
    November 16, 2011 at 8:58 am | Permalink

    A most insightful article.

  2. November 22, 2011 at 11:40 am | Permalink

    I would agree with the reasoning behind the cuts but not at the speed and severity at which it was implemented. Solar costs are falling but from a consumers point of view someone looking to invest in solar post December is going to think they are losing out. This alone may deter many people.

    The government should have planned the cuts better rather than instigated the boom and bust system they have created. I want the UK to have a sustainable and significant renewable energy sector as it will benefit the environment, economy and most of all the UK people.

    As for the cuts I have spoken directly to many smaller free installers who have all said the same thing, they are unlikely to be trading in the New Year. They want to try and make their business work after the cuts but are not as optimistic.

    In fact the only company that has openly stated that they will continue to offer free solar panels is A Shade Greener.

    With fewer companies offering free systems it means that a larger area of the UK is going to be excluded from getting free systems, this can’t be a good thing, everyone should have the same opportunities otherwise it is an unfair redistribution of wealth.

  3. jmc's Gravatar jmc
    December 6, 2011 at 1:44 pm | Permalink

    A most insightful article…er no, do not wait to get panels on if you wait a year, then what you may as well wait another year for them to get better again, you will never have PV if you keep waiting, plus think how much you will have paid on your bills and missed out on from FIT payments while you twiddle your thumbs for a year. And the big one linking of EPV c rated etc, that the government will bring in April, you nee to act now and get solar on your roof or you can have a think and carry on paying the bix 6 electric companies for the rest of your life, i have solar i dont pay a penny, the fit money pays the rest of my bills, i wont pay for lecric again until i am 64 years old and by then i wont care!!! ps solar for free is dead-nove on!

  4. SP's Gravatar SP
    December 7, 2011 at 3:05 pm | Permalink

    Basically modern solar panels are a combination of magnifying glasses and fluid filled pipes.

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