A shadow over the future of solar power? The Feed in Tariff consultation

This article was included in the Winter 2011 issue of Informer- the real estate newsletter

If Parliament is any kind of barometer, then it seems that the UK really does like to talk about the weather.

Just as the end of British summer time reignites the annual debate over the merits of daylight saving changes, solar power once is again under the spotlight – this time in the shape of an accelerated consultation on the Feed in Tariff (FIT) scheme. 

Introduced in April 2010, the FIT scheme aimed to encourage green energy production and help the UK meet its EU renewable energy targets by 2020.  It pays a premium tariff for power generated by qualifying installations, encouraging financial investment in these technologies with potentially attractive returns.

However, the scheme appears to have been a victim of its own success, with the number of registered installations far exceeding expectations.  The resulting cost of funding the tariff has grown beyond initial targets.  In response, the Government has now accelerated its review of potential cuts to the tariff. 

Part I of the new consultation was published on 30 October 2011 and proposes to reduce the burden on the scheme by:

• Reducing generation tariffs for solar photovoltaic (PV) installations by about 50%.  It is proposed that reduced tariffs will apply from 1 April 2012.  Schemes installed and registered before 12 December 2011 will still benefit from current rates but those registered between 12 December 2012 will benefit from current tariffs only until 1 April 2012, at which point the new tariffs will apply.
  
  
• Introducing new multi-installation tariffs for collective solar PV schemes. If an individual or organisation receives FIT payments from more than one solar PV installation, a new tariff may apply in some circumstances regardless of the date of registration.
  
  
• Introducing a new energy efficiency requirement for an installation to qualify for the scheme.  This is to strengthen the link between FITs and energy efficiency requirements.
  
  

The ‘big six’ energy providers in the UK (who ultimately fund the scheme by buying the solar PV energy at higher than market rates) have welcomed this consultation - though solar PV producers will in turn see their return on investment reduced.  So is this likely to stem the flow of solar PV projects? What does it mean for those planning to install solar PV but who have not yet got their project up and running?  Indications are that solar PV will nevertheless remain a viable option, even if investments become a longer term strategy.

For example, one of the key reasons for the higher than expected uptake of solar PV is the dramatic fall in the cost of those systems - by as much as 30% since 2010, as against Government projections of 9%.  Expectations as to payback periods or overall financial return may need to be adjusted, but it will not require a significant further drop in cost for the fall to match that proposed to the cost of tariffs.

The Government has invited interested parties to respond to the consultation by 23 December 2011.  Further details of the consultation and how to respond can be found on the DECC website.

A further consultation on the review will be published at around the end of 2011 which will consider the new tariffs and the FIT scheme as a whole, with the aim of implementing any such results in the first half of 2012.

Article by Alan Woolston, Partner in the Construction team at Field Fisher Waterhouse.