Paul Reeve, ECA head of environment, discusses the major reductions to Feed-in-Tariffs (FiTs) for solar photovoltaic systems, and the factors that still provide the industry with a positive outlook.
The last few months have been extremely turbulent for the PV market, following the government ’s announcement in autumn 2011 of cuts to Feed-in-Tariffs, and the ensuing legal issues. In fact, at the time of writing, the changes to FiTs were still subject to a possible ruling by the Supreme Court following a High Court decision against the government in January.
Turbulent times indeed. However, the surge of government activity at the end of last year was indicative of DECC’s realisation that the popularity of solar PV was soaring way beyond expectations. The government originally anticipated that 137MW of solar PV would be installed by April 2012, but by February 2012 more than 800MW was in place – and still rising.
In announcing at the end of October 20111 that they were to halve FiTs in December, DECC was attempting to control the spiralling cost of the tariff, which is borne by energy consumers. Yet, huge numbers of PV customers still beat DECC’s 12th December cut-off date, and will be able to claim FiTs at a high tariff for the next 25 years. To help deal with what has become a massive cost overrun, DECC has “found money to cover the overspend”, while budgeting £460m for new PV installations up to 2014/15.
To try and avert a further FiT fiasco, the government has also proposed, subject to consultation, a ‘rolling’ series of FiT reductions. Under the proposals, a household or business that installs panels from April 2013 may only expect around 11 pence per kWh of electricity generated. To achieve the lower tariffs, FiTs will then be further reduced as soon as July, and then again in October. FiTs may then fall by a further ten percent every six months, depending on the number of PV panels installed. If the number is above government forecasts the cuts could be brought in even earlier.
Two factors are guaranteed to affect client demand for any renewable energy source – cost and doubt. Unfortunately the government has heaped plenty of doubt onto domestic PV customers and businesses. Set against a backdrop of the government ’s ongoing legal appeals over last December’s reductions, many potential clients could become so confused over FiTs, payback times and extra requirements on owners (such as minimum building energy efficiency ratings) that they turn away from PV.
Despite this, there are at least three possible reasons for guarded optimism. The first is that the price of installing PV is dropping steadily – some say rapidly. The truth is that in a few years, PV must be able to compete in a marketplace that offers much lower FiTs, so lower installation costs will be vital. The second reason is rising electricity prices (and energy prices generally). These may bounce around in the short term, but PV is not a short term investment. Most commentators expect energy prices to rise significantly in the years to come. The third, and we hope not too distant, prospect, is that the forthcoming ‘Green Deal’ might greatly reduce the up-front cost of renewable technologies in eligible buildings.
As FiTs ebb away, the rising cost of grid energy, reduced PV installation costs and, possibly, upfront financial support for otherwise expensive solar kit, might support an active PV market. If FiTs do remain attractive to consumers, this could then have a ‘halo’ effect on other installation work. DECC has introduced a requirement for a minimum ‘D’ EPC rating for households and businesses installing PV after 1st April 2012. This means customers will not be able to install PV and claim FiTs without having a suitable energy efficiency assessment to hand, and spur demand for energy improvements, such as heating and lighting control.
The market is now much more challenging than in 2011, but PV is still a route to cutting energy bills and carbon emissions, and it still has some key commercial drivers in its favour. This should provide an ongoing stimulus for those who provide energy solutions, including solar renewables, and for their customers.