The full Department of Energy and Climate Change (DECC) review of the ‘Clean Energy Cashback’ Feed In Tariff (FiT) for photovoltaic (PV) solar installations resulted in further cuts to support – following on from the 72% cut in the tariff for PV projects over 50kW that had emerged from the earlier ‘fast track’ review.
The new cuts were prefigured in a speech at the end of October by Energy Minister Greg Barker, who, while welcoming the successful installation so far of over 100,000 PV arrays (around 300MW), said: ‘Much of the growth in PV has been as much about consumers accessing the Government backed tariff as accessing the technology. High net worth individuals chasing returns which are now easily reaching double figures at a time when interest rates for savers have collapsed to an historic low. That can’t be right.’
So DECC is planning to more than halve feed in tariff incentives for solar PV projects of 4kW or less from, in effect, December this year- reducing the tariff from 43p/kWh to 21p/kWh, which it says should yield a 4.5% rate of return. They also proposed reductions to the tariffs for PV installations between 4kW and 250kW, ‘to ensure those schemes receive a consistent rate of return’.
There’s also a proposal to introduce an energy efficiency requirement for FITs for solar PV. If the building does not meet the energy efficiency criteria the installation would receive a lower FIT rate of 9p/kWh. In addition there’s a proposal for new multi-installation tariff rates, set at 80% of the standard tariffs for individual installations, for ‘aggregated’ PV schemes- where an individual or organisation gets FIT payments from more than one PV installation, located on different sites, as in ‘rent a roof’ schemes.
Launching a consultation on the proposals, Barker said that the existing tariffs led to ‘returns for investors in solar PV that are simply not sustainable and, without action, could result in the spending envelope for the scheme rapidly being breached’ He explained that ‘If the Government took no action, by 2014-15 FITs for solar PV would be costing consumers £980m a year, adding around £26 (2010 prices) to annual domestic electricity bills in 2020. Our proposals will restrict FITs PV costs to between £250-280 m in 2014-15, reducing the impacts of FITs expenditure on PV on domestic electricity bills by around £23 (2010 prices) in 2020.’
DECC is to publish a separate consultation ‘around the end of 2011’ on ‘other aspects of the scheme including the tariffs for other FIT technologies. As part of its review of the FITs, DECC will also consider ‘whether more could be done to enable genuine community projects to be able to fully benefit from FITs.’
In a fact sheet it evidently released prematurely, the Energy Saving Trust gave an early warning of the scale of the cuts and said that under the proposed changes payback time would be 18 years for a 2.9kW system, eight years longer than at the current levels. But it said that the new rate of return, which it put 4%, was more “appropriate” than the original 5-8% rate, due to the changes in the investment market that has seen interest rates slashed.
Dave Sowden of the Micropower Council agreed that ‘they needed to recalibrate it….but if you go below five per cent then you completely wipe out free solar and social housing schemes. It just becomes a rich man’s game.’ Friends of the Earth concurred: ‘The proposals will pretty much exclude everyone who does not own their own home and have significant savings to hand from installing solar’. The proposal to backdate the changes to December also caused concern – e.g. it could impact on those half way through installation negotiations. Overall, the timing of the cuts was a big problem for developers.
However, the idea of linking supply schemes to efficiency was widely seen as making sense- it’s foolish not to sort building energy losses out first. Barker had said he wanted a new ‘whole-house approach’, including new measures to ensure that all new domestic solar PV sites meet minimum energy-efficiency standards: ‘It cannot be right to encourage consumers to rush to install what are still expensive electricity-generating systems in their homes before they have thoroughly explored all of the sensible options for reducing their energy consumption first. Frankly, such a standard should have been a pre-requisite for accessing the FiT subsidy from day one’.
He also, maybe sensibly, urged developers to move into the solar thermal market, which has seen slower deployment rates under the pilot Renewable Heat Premium Payment Scheme than those experienced by the PV under the FiT. While that may be an option for some developers, there were predictions of massive job losses in the PV sector, and a lot of resentment about the cuts. Surely if the FiT system was allowed to work, the cost would reduce as the market built, with FiT prices being ‘degressed’ continually, so consumers wouldn’t be hit hard.
The DECC report suggests otherwise- PV had boomed too fast. The consultation report notes that, as at September 2011 ‘ 255MW of solar PV had been registered for FITs. This compares to the 94MW that was originally projected for this point in time’, driven mainly by ‘the reduction in the cost of PV systems’. Barker claimed that ‘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 £9,000 now’. In addition, DECC noted, there were increased returns available from solar PV due to the ‘13% increase in retail electricity prices since April 2010, which has increased the savings from avoided consumption of imported electricity’. It added that multiple installation schemes had also played role in the uptake of FITs.
All of this threatened to push the cost passed on to consumers up rapidly- although that has to be put in perspective- DECCs impact report indicates that, at present, the FiT added just £1.40 p.a. to typical household bills. But what about the benefits, not just the cost savings for those on the scheme, but the climate benefits, which all share, and the indirect cost saving since less fuel has to be used nationally?
More specifically, there were social benefits. As DECC admitted, some multiple installations schemes enabled ‘those who cannot afford the upfront capital costs of purchasing a PV installation, including the fuel poor, to share in some of the benefits’, as in ‘free solar’, rent a roof schemes.
However DECC noted that some felt that for these, ‘the principal beneficiaries are generally the third parties rather than the hosts of the generating equipment.’ DECC say that ‘the returns available to such schemes are higher than in the case of individual installations. We therefore consider there is a strong case for adopting a different approach and tariff for multi-site generators of FITs’.
So it’s cuts across the board. It may be true that the UK FiTs were quite generous to PV. But then the FiT system was a new venture for the UK. DECC says that the new PV Tariffs are now similar to those in Germany. That’s not quite true. Despite recent cuts, most of the German tariffs are still larger, and the German FiTs have been running for many years, so that PV has a well-developed market. Here it is still in its infancy. And now it could stay that way.
DECCs consultation report is at: [www.decc.gov.uk/en/content/cms/consultations/fits_comp_rev1/fits_comp_rev1.aspx