10 February 2012

Feed-in-tariffs see further cuts

The political drama unfolding in the UK is continuing, surrounding the changes to the feed-in-tariff system. The proposals for a reduction in the feed-in-tariff would be enough on its own to cause concern in the industry, but the uncertainty surrounding the changes are crippling the sector and shrouding it in confusion.

The latest proposals mean that by July, tariffs could be cut to as low as 13.6p/kWh. There is already a halving of the tariff over the next month, but this will be a further cut to the rate.

In some ways the tariff has been a victim of its own success. Over the last few years, costs of producing and installing solar technology have reduced dramatically, but that has meant a boom in the industry and a much quicker reduction in the tariff budget than was initially intended. Marked reductions have already been seen in Europe, and it is only a matter of time before the cuts would have been required in the UK anyway.

It is the manner and uncertainty surrounding the decision that irks the solar industry. There are however, some positives to come out of the proposals for the industry. There will be a relaxing of the proposed regulation to impose energy efficiency requirements for installing solar panels, which means 50 per cent of buildings will be eligible, rather than 14 per cent that the proposals would have implied.

The move to reassess incentives on a bimonthly basis has its critics, but it should limit the chaos seen during the last year with consultations and delays. The government did set some very ambitious targets as well, with a pledge to deliver 22GW of capacity by 2020, a 22 fold increase on current levels.

There is however, a considerable difference between these government targets and the warnings of doom from the solar industry. This may have something to do with the report that the tariff reduction was based around, which looked at just 13 companies and produced in three days. Some more cynical critics of the government believe that the major energy companies have a hand in the cuts, trying to prevent the young solar industry from taking off and cutting into its profit margins.

There is much debate however, over some of the vital details that the industry and government are basing their forecasts around. Some say that the low costs have been down to oversupply of product, and that this will decrease rapidly in the near future, whilst others say that with costs continuing to fall, the new tariff rates, even at 13.6p/kWh will be inviting in the medium term future. The Department for Energy and Climate Change predicts that the new rates will mean a return on investment of five to eight percent, but to achieve these rates, costs must continue to fall in a similar vein.

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