Feed-in Tariff reaction: Renewables market breathes small sigh of relief

The Government appears to have reacted to the huge wave of national support for the renewable energy industry and backed down from proposals to implement massive cuts to the Feed-in Tariff.

Instead, one commentator described how Energy Ministers have swapped a “blunt axe for a sharp scalpel” to bring in smaller than expected reductions that still maintain solar and wind as a good investment for consumers.

Paul Barwell, CEO of the Solar Trade Association said: “Government has partially listened. It’s not what we needed, but it’s better than the original proposals, and we will continue to push for a better deal for what will inevitably be a more consolidated industry with fewer companies.

“However, in a world that has just committed to strengthened climate action in Paris and which sees solar as the future, the UK Government needs to get behind the British solar industry. Allocating only around 1% of its clean power budget to new solar is too little, particularly when solar is now so cost-effective. Poor ambition for solar risks missing out on not only our renewable energy targets in the UK, but on the world’s greatest economic opportunity too.”

“The industry will certainly try its hardest but we will be pressing Government to do much more to boost solar power.”

According to the STA, the 2016 Feed-in Tariff levels for homeowners and small businesses increased significantly on proposals.

The Government has heeded the evidence and unprecedented support for solar power and cut domestic tariffs by 64% to 4.39p/kWh instead of the original proposal of cuts of up to 87% to 1.63p/kWh. This is compared to a rate of 12p/kWh today.

The new tariffs will come into force from 8 February, and the deadline for projects to receive the current higher tariffs is now 15 January.

The decision comes after a prolonged campaign by the Solar Trade Association and many supporting organisations from the Church of England to the CBI.

For a modest commercial rooftop scheme the size of a school or small commercial building, the Feed-in Tariff rate will be 4.59p/kWh.

As well as the tariff rates, the STA has been very concerned by the ‘cost control’ mechanism that could lead to damaging stop-starts in the market. The Government has put maximum caps on the total amount of solar it wants to see installed in every quarter. This could be very damaging, although they do appear to have taken on board requests for unused capacity to be recycled from one quarter to another and a queuing system for projects that don’t get in on time.

The Solar Trade Association has welcomed the fact that the Government has not increased energy efficiency requirements to be eligible for the solar feed-in tariff, and has not made any changes to how the tariffs are indexed over time or to the export tariff when electricity is sold back to the grid.

Paul Barwell, CEO of the Solar Trade Association commented: “The new tariff levels are challenging, but solar power will still remain a great investment for forward-thinking home owners who want to protect themselves from volatile energy prices and do their bit to reduce global carbon emissions.”

“Our initial analysis shows solar is still worth considering if you consider the wider benefits such as the increased value to your home. Homeowners can also benefit by changing the way they use their generated electricity through higher day-time usage or via storage which is now a rapidly developing market.”

Recent research by Barclays Mortgages found that solar power is considered the most desirable technology with homebuyers willing to pay an extra £2,000 more for homes equipped with solar panels. Although installation companies are not allowed to sell on this basis, if investors in solar are willing to consider the potential to attract a higher sale price for their home in future, then it still makes economic sense to invest in solar all over the country with an improved payback.

Solar power is also a ‘no brainer’ investment for anyone replacing their roof, where attractive integrated solar can replace traditional roofing materials and provide a good return on investment.

In addition there is potential for a number of complementary technologies to become cheaper over the next few years and change the economics of solar. Battery storage will allow people to use the electricity they generate during the day later in the evening. Electric immersion hot water heating, electric vehicles, smart timers for appliances and innovative heat storage can all allow people to use as much of their solar electricity as possible, bringing down their bills.

The STA has welcomed the fact that pre-accreditation has been re-introduced for all solar above 50kW in size – roughly the size of a school – which will give businesses and other bigger rooftops more certainty when investing in solar.

However for rooftop and ground-mount projects above 1MW in size there will no in effect be no support at all, with a tariff of just 0.87p/kWh.

The STA is disappointed to see there is no dedicated support for community solar or solar on social housing. Community energy will however benefit from changes to ISAs next year, with the potential for tax-free investment in local solar projects.

Paul Barwell continued: “Commercial rooftop solar has been a small but growing part of the solar rooftop market. However, even with these lower tariffs, the nature of high electricity self-consumption and a maturing commercial market should ensure solar is still a good choice for many power-hungry businesses across the UK looking to reduce their bills and use the empty space on their roofs.

“The global solar revolution has only just begun. Whilst today’s news will be disappointing to many solar businesses, our solar technology is an unstoppable force, and while the British industry might contract, we will be doing all we can to catch up with the booming international market. If we can bring installation costs down, and encourage homeowners, businesses and investors to accept lower returns, I’m confident the UK solar sector will weather this.”

The STA will be working with Government departments to look at further measures to improve the opportunities for solar power and a level playing field. Particular emphasis will be on removing red tape, and the regular reviews of the cost control mechanism. Measures should be taken to improve project economics, as well as pushing to remove EU import tariffs and price controls on Chinese solar PV and making sure solar retains its low rate of VAT.

Despite the modest concessions, the cuts are a hammer blow for households, jobs and UK plans for tackling climate change, warns Friends of the Earth.

The cuts come just a day after the government pushed through plans to allow fracking beneath National Parks and protected areas.

While the tariffs being offered to households for solar have been reduced by less than originally proposed (65% compared to 87%), the overall spending cap for all technologies (wind, solar, hydro and anaerobic digestion) remains at £100 million until 2018 – just £35 million per year.

Over 55,000 responses were received by the consultation.

Commenting on today’s announcement, Friends of the Earth renewable energy campaigner Alasdair Cameron said: “Less than a week after the UK Government agreed in Paris to keep global temperatures well below two degrees, the government has shown its true colours – and they’re certainly not green.

“These huge, misguided cuts to UK solar are a massive blow for jobs and the economy, and further undermine the government’s already tarnished credibility on tackling climate change.

“Massive public opposition to the government’s original proposal may have forced ministers to modify their plans, but this is still terrible news for the UK and its small-scale renewables industry.

“It’s outrageous that the government continues to hand out billions of pounds in subsidies every year to climate-wrecking fossil fuels, while trying to block the clean energy sources we urgently need to power our homes, hospitals and schools.

“The good news is that the global renewable revolution is unstoppable, and the technology is advancing far faster than government thinking. But that will be scant comfort to the thousands of people whose jobs are under threat as a result of this short-sighted decision.”

Published alongside its official response, the Impact Assessment reveals the Government itself has now estimated that between 9,700 and 18,700 solar jobs could be lost as a result of today’s changes to the Feed-in Tariff for solar.

Greenpeace UK energy campaigner Barbara Stoll said: “Bowing to pressure from the public and leading businesses, the government has swapped a blunt axe for a sharp scalpel, but it’s still cutting in the wrong place.

“If built, one nuclear plant at Hinkley will swallow up four years’ worth of subsidies for the whole solar sector in just one month. Why are ministers signing a blank cheque for expensive, outdated nuclear power whilst pinching pennies for an energy source on the cusp of a massive investment boom? This makes no economic sense and will only put up bills in the long run.

“With costs falling, demand rising, and post-Paris momentum growing, the UK solar sector will see off the government’s attacks. The question is how many more jobs, investments, and business opportunities are we wasting because of George Osborne’s incoherent policies.

“If the government is as committed as it claims to be to the Paris climate deal, then solar is one of the cheapest and safest way for the UK to deliver on it.”

Head of Policy and External Affairs at the REA, James Court, said: “The government have taken on board many of the common-sense suggestions from the REA and wider industry, such as bringing back pre-accreditation for long lead schemes, reallocating budgets from under deployed technologies and increasing deployment caps for solar.

“The tariffs are still very challenging and whilst the changes will help save some in the industry it remains that many will be exiting. But this is an improvement, and may still provide the base to get to post-subsidy.

REA CEO Dr Nina Skorupska added: “From where we were after the initial consultation this is a real improvement and praise has to be given to DECC ministers in their willingness to listen and change.

“The past 6 months have been challenging for our members and the renewables industry, but we now have to draw a line and turn our attention to building a stable, robust and enduring industry leading to a business built without subsidy.”

Director of Business Services at the Electrical Contractors’ Association, Paul Reeve, commented: “The fact that many are relieved at a 64% reduction is an indication of what we’ve managed to avoid. Solar simply needs five more years to head towards a no subsidy future, and the government’s announcement may just allow it to get there.

“However, there is more to the government plans than a headline domestic rate of 4.39p /kWh, there is also a cap on the tariff of £100 million up to 2018. This could effectively ration solar PV deployment going forward, so the industry really does need to move towards a no subsidy, grid parity model as soon as possible.”

Reeve concluded: “For solar PV, the cavalry, when it comes, will be in the form of greatly increased electrical storage capability that will allow solar to make a second breakthrough.”

Darren Edwards, a Partner at leading renewable energy consultants Fisher German, said: “Today is an important day for the UK’s renewable energy industry – providing much needed certainty to a market which, post-Election, has been anything but. The FIT review outcome demonstrates the Government is capable of listening, with the re-introduction of pre-accreditation and less severe cuts for higher risk technologies, although target returns of 4.8% for solar, 5.9% for wind, and 9.2% for hydro are hardly palpable for setting the pulse racing. Many solar developers view the Government’s decision for their sector to be a stark betrayal of the Paris Agreement.

“I remain sceptical that today’s announcement will mean investors now look away from renewable energy toward other less challenging diversification opportunities, but I would urge them not to be too hasty as it is still likely to be possible to improve on the target returns, particularly at locations with high onsite electricity usage.

“The amended tariffs place greater emphasis on matching supply with demand, something that has often been overlooked when the tariffs have been generous. Factor in continued improvements in technology efficiency, further manufacturer cost reductions as demand falls, and the emergence of battery storage technology in the UK and the impact this will have on the viability of renewable energy schemes, and the future can remain green.

“Finally, another important consideration for projects affected by today’s announcement is the payment of FIT generation and export rates, which will not occur until Ofgem have fully ROO-FIT accredited the installation. Given this is currently taking anywhere from 6-12 months post-application, this could mean serious knock-on cash flow implications which need to be accounted for through the project development.”