More cuts to feed-in tariffs
FITs slashed
As part of its ongoing consultation, the government has confirmed plans to cut the incentives it offers businesses and homeowners to install solar technologies by more than 50%. The FITs mechanism available to solar system installations up to 4kW in size will be reduced from 43 pence per kWh to just 21 pence per kWh. The Department of Energy and Climate Change says it wants the reduced tariffs to come into force as early as December 2011.
Who will be affected?
Under the plans, the new tariffs would apply to all new solar PV installations with an eligibility date on or after December 12 2011. Those installations would then receive the current tariff before moving to the lower tariffs on April 1 2012, assuming the government doesn’t make any more changes after the current consultation closes on December 23 2011.
What are the impacts?
Basically, it will be less attractive to install solar PV systems. If the latest plans come to fruition (which seems likely), rates of return for solar installations would be cut from current levels, that have in some cases topped 10%, to just 4.5-5% - well below the 5-8% that was originally envisaged to make the FITs scheme attractive. For larger scale installations, the news is even worse. The consultation proposes cuts of between 14% and 55.5% for systems of between 4kW and 250kW capacity. The largest cuts of 55% are planned for installations with 4-10kW capacity, and installations of 150-250kW capacity could see tariffs fall from 15 pence per kWh to 12.9 pence per kWh.
Why are the cuts being made?
Climate Change Minister, Greg Barker, insists the deep cuts are essential to ensure the FITs scheme remains affordable. The plummeting cost of solar technologies means the scheme could become unviable if the tariffs aren’t reduced.
What else is planned?
The latest proposals also include plans to enforce a new energy efficiency requirement, which means that from next April, if you want to apply for any FITs incentive, you would have to meet minimum energy efficiency standards.
Tip. What this means in practice is still unclear, but, for example, the standards could demand that your building has an Energy Performance Certificate level of C or above.
Trap. You could be made to adhere to the standards retrospectively. The government says that as a transitional arrangement, installations with eligibility dates between April 1 2012 and March 31 2013 would have a year from entering the FITs scheme to comply with the new energy efficiency requirements.
Tip. Although the cost of a small solar PV installation has fallen by at least 30% since the start of the FITs scheme - from around £13,000 in April 2010 to £9,000 today - because of these cuts and due to the fact that the technology is likely to continue to become cheaper and more efficient, now is not the time to invest.
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