Feed-in tariffs subject to sharp reductions
In response to the rapidly falling costs of solar PV installations the Government is planning to sharply reduce the Feed-in Tariff, especially for smaller installations. The proposed new tariffs apply to new solar PV installations with a eligibility date on or after 12 December 2011, which would receive the current tariff before moving to the lower tariffs on 1 April 2012. Consumers who already receive FiTs will continue to receive the existing rate, and those with an eligibility date on or before 12 December will receive the old rate for 25 years.
The proposals, which were subject to consultation as we went to press, would reduce the current 43.3 p/kWh for retrofits of up to 4 kW to 21 p. Reduced rates also apply for schemes up to 250 kW. Larger schemes would see the rate unchanged at 8.5 p/kWh.
According to the Department of Energy and Climate Change, the cost of an average domestic PV installation has fallen by at least 30% since the start of the scheme — from around £13 000 in April 2010 to £9000 now. The proposed new tariffs would offer a rate of return of around 4.5 to 5%, index linked and tax free (for domestic installations) for well situated solar PV — broadly comparable to that intended when the scheme was set up. According to DECC, the tariffs are broadly comparable to those offered in Germany, which has also recently reduced its tariffs.
A DECC statement says, ‘A recent surge in households installing solar PV has threatened to break the budget. There were over 16 000 new solar PV installations in September alone — nearly double the number installed in June. Nearly three times as much solar PV as projected has so far been installed, with over 100 000 separate installations worth over 400 MW of capacity.’
In contrast to shock-horror reaction from much of the industry is a statement from ReEnergise Renewables, a renewable-energy consultancy. Director Tarquin Henderson is entirely supportive of the changes. He says, ‘What began life as an initiative to stimulate interest in small-scale micro-generation has, in our opinion, become a large-scale investor feeding frenzy. FiT levels were set to deliver nominal returns of 5 to 8%. Now they do not. They deliver much more — and in a market that has significantly more competition and significantly lower equipment prices.
‘Most importantly, this is only a change in the return on an investment. It is not the end of a good return on capital. The returns on offer remain competitive with many other investment options. An investment in solar PV has only ever been about the financial return, as we advise all our clients. The actual energy saving is often only a fraction of energy costs to the typical consumer.’
