Background
As part of a comprehensive review of the Feed-in Tariffs scheme (FITs), the Department of Energy and Climate Change (DECC) recently announced an emergency consultation on the Government’s proposals for the tariff levels available for renewable electricity generated from solar photovoltaic (PV) installations of 250kW or below under the FITs scheme.
DECC announced the consultation on the grounds that the uptake of solar PV has been far higher than originally anticipated. This increased deployment has also seen installation costs fall by around 30% over the last 18 months. The Government also claim that the combination of these two factors conspire to exhaust the budget available to fund FITs and risk over-compensating solar PV generators at the expense of other low carbon technologies. DECC also point to the analysis carried out when the FITs scheme was launched which anticipated that the tariff for solar PV would provide around a five per cent return to investors but that currently investors are seeing far higher returns which are funded from consumers’ energy bills.
The consultation is not due to close until 23 December 2011 (but seeks to impose a cut-off date of 12 December 2011 for installations seeking to benefit from the current tariffs). Questions have been raised as to the validity and timing of the latest raft of proposed changes which come just three months after the last round of cuts.
The proposals
DECC has proposed the creation of new, lower, generation tariffs for solar PV which will apply from 1 April 2012 (see table below). All installations installed from 12 December 2011 onwards will receive the current tariff and then be subject to the lower tariff from 1 April 2012, although installations will still receive the tariff for 25 years. The consultation also proposes the introduction of a new multi-installation tariff for aggregated solar PV schemes and a new minimum energy efficiency requirement for buildings connected to solar PV.
The multi-installation tariff will affect many innovative companies which offer free solar panels to home owners under “rent-a-roof” schemes. Such installations will receive 80% of the tariff which is otherwise available, reflecting the economies of scale of such operations. The impact on these schemes, under which businesses install panels on homes in return for the FIT payment, has been particularly criticised as these were the only schemes benefitting people on low incomes.
The energy efficiency requirements were originally mooted when the FITs scheme was first devised but this proposal is the first to link energy efficiency to renewable generation. For installations made from April 212 onwards, homes that do not meet the minimum energy requirements will only be paid a minimum tariff of 9p/kWh.
This basket of measures will have a significant impact on the UK solar industry which is already reeling from recent reforms to the FITs scheme. The proposals will also reduce revenues for various local authorities and housing associations, many of which had been planning on installing solar PV technology. Similarly, by introducing minimum energy efficiency requirements a further barrier will be erected for homeowners wishing to take part in the scheme who will need to obtain certification which will add to installation costs (the Government's own impact-assessment estimates it will cost approximately £5,600 for a typical house to reach EPC level C).
The timing of the consultation and the reference date of 12 December have been roundly criticised and two main players in the UK solar market, led by Solar Century and HomeSun, began legal proceedings against DECC seeking an interim injunction to prevent the introduction of the new measures. They also launched an online petition to “save the UK solar industry”. Friends of the Earth have also challenged DECC to reconsider and commenced their own application for judicial review.
The High Court refused to proceed with all three legal actions on the grounds that the arguments did not warrant a full hearing. The parties’ arguments centred on the proposal that the reduced tariffs will apply to all solar installations completed after 12 December, even though the consultation period will not close until 23 December, something they claim is unlawful. The three parties plan to appeal with the next hearing scheduled to take place on 15 December.
The parties are also expected to argue that the Government’s impact-assessment shows that delaying the proposed cuts until April next year would add just £1 a year to average energy bills in 2020. Campaigners are also seeking clarification on how the Government's proposed introduction of an energy efficiency standard for buildings installing solar panels will work.
Ultimately, it may be too late to save the UK’s fledgling solar industry as the damage may already have been done. Some investors have already walked away from the UK following the previous cuts to the solar FIT earlier this year citing a lack of policy certainty. Meanwhile specialist solar PV installers have announced they anticipate making staff redundant following the Government’s announcement. This latest consultation has only served to increase uncertainty in the market.