Solar FiT Cuts – What, Why and When

In October 2011 the Government made known their intention to cut solar subsidies for PV systems. And the solar industry has been dealing with the fallout of those cuts ever since.

Although the news put an end to all the rumours and speculation engulfing the industry, the knock-on effect has been quite colossal.

When the Government first announced that it was to cut solar subsidies last year it caused chaos and confusion. From panic buying and planned projects being shelved indefinitely, to the prospect of hundreds of job losses and companies taking legal action, to say the industry was unsettled would be an understatement.

However despite the Government cuts solar PV remains an attractive option, not least because the cost of the technology has fallen equally as  dramatically as solar FiTs.

What are FiTs?

The feed-in tariffs (FiTs) were introduced by the Government in April 2010, as a means of encouraging the uptake of renewable energy technologies, such as solar PV. Depending on the technology and the size of the system, you earn money for every kilowatt hour of electricity or heat you generate for your home.

A department of the British Government known as the Department of Energy and Climate Change – or DECC – is responsible for the scheme.

What cuts are to be introduced?

When FiTs were first introduced the scheme paid out 43.3p/kWh for a solar PV system of up to 4kW. From the 12 December 2011 that rate was cut to 21p/kWh for new installations. The current rate of 15.44p/kWh was introduced for new installations up to 4kW from 1 November 2012.

Why have the FiT cuts been imposed?

‘Why’ can be a futile question at the best of times. Essentially, the popularity of the feed-in tariff (Fit) scheme has led to solar becoming a victim of its own success.

The Government needs to impose the changes in order to keep the feed-in tariff budget under control. The cost of the technology has declined quite considerably since the FiTs were introduced, so in line with dwindling costs, the need to reduce the levels is understandable. DECC has estimated that the cost of installing an average domestic solar PV system was around £13,000 when the FiTs scheme was introduced. Now costs have fallen to around £4,000-£6,000 for a 2-4kW system.

The Government also believes that tariff cuts are necessary to put the solar industry on a “steadier and sustainable growth path.” If the tariff levels were left at their original rate the industry was at risk of going bust.

What sort of impact is it going to have on the industry?

That depends on who you ask. Most solar installers are extremely angry with the Government, believing the changes will essentially kill off the UK’s booming solar industry. While they do have a point – not least with the level of the cuts imposed and the swiftness – the solar industry has known for some time of the need to reduce the current levels of solar subsidies.

So there’s no denying that slashing solar subsidies will have a considerable impact on the UK solar market. While many business models are certain to suffer, free solar schemes faced the biggest impact and the biggest losses.

When is the new tariff going to be introduced?

All new solar PV systems up to 4kW installed on or after 1 November 2012 will be eligible for the new rate of 15.44p/kWh.

Why else could the Government have done?

Obviously to encourage the uptake of a scheme like FiTs, you need to make it attractive. However, the problem arise when you set the level high and leave it too high for too long. DECC did consider various scenarios, which ranged from doing nothing to lowering tariffs in 2012. Ultimately, they chose to impose lower tariff levels early and introduce significant cuts alongside a December deadline and new energy efficiency eligibility criteria.

What’s this I hear about 9p tariff level?

The Government is very big on making UK properties more energy efficient. Under the new proposals, properties that are found to be energy inefficient – and don’t have at least an energy efficiency rating of D – face a lower tariff of 9p from April 2012.

What, if anything positive, can be harnessed from the cuts?

Well, for starters, if you can look above and beyond the surface doom and gloom, some industry executives think the cuts will act to deter cowboy installers. It should also help to remove a number of companies operating in the market who have been charging way-above market rates for their solar panels.

Industry insiders also point to the solar PV cuts as having a positive effect on the sales of solar thermal panels for homeowners who are looking for other cost-effective options when it comes to achieving cuts in their energy bills.”

Why should I still invest in solar?

Solar PV is still a viable option and offers a far better annual income than most banks.  Solar Guide’s solar PV calculator is a great resource for helping you estimate the annual income and investment payback achievable.

More information can be found by visiting Ofgem or the Department of Energy and Climate Change websites.