Despite the uncertainty surrounding the UK solar photovoltaic industry, the fact remains that with the feed-in tariff in place in any form, there will continue to be a market for investors. The coalition government has announced that they will be changing the feed-in tariff to focus on smaller scale, roof-mounted solar installations to the detriment of large scale solar farms.

However, for those installing solar pv panels, there are still very healthy returns to be had from the payments which come from the feed-in tariff scheme something which Eco Environments believe is the main catalyst behind the growth of the industry in the UK.

There is a very evident media focus on climate change and the resulting political rhetoric which follows and also, a growing culture of awareness in green energy, recycling and the need to dramatically reduce carbon emissions on a domestic level. David Hunt of Eco Environments believes however that the growing interest in installing household, roof-mounted solar panels comes not from a desire to be environmentally friendly but from the commercial advantages which come as part of the feed-in tariff.

Hunt believes that,

“Most people are looking at it now domestically because they are going to get two or three per cent on an ISA or out of the bank account, but with the solar they can get 15 per cent”.

At a time where it is very hard to find savings accounts offering attractive interest rates and there is a worldwide lack of confidence in traditional investment opportunities in the stock market, it is perhaps unsurprising that the great majority of people look to install solar panels for purely financial reasons. After all, while it is the government’s business to meet carbon reduction targets and appear to be environmentally friendly, it is the homeowners business to dramatically reduce their utility bill while hopefully creating a very steady revenue stream on the side

Recent changes announced to the feed-in tariff were designed to encourage investment in smaller scale, household solar panel projects away from larger scale solar farms which were hoping to tap into the tariff mechanism on an industrial level. While commendable in theory, the reality is that householders and small scale investors simply can’t afford the steep upfront costs in installing solar equipment. While it is of course possible to generate long term revenue from solar projects by tapping into the solar feed-in tariff, photovoltaic solar installation can cost as much as £15,000, capital which most would find hard to raise. This is where critics believe that banks in refusing to lend to small businesses are crippling the solar industry in its infancy.

Already in the UK there have been over 31,000 solar installations amounting to 86MW with 81MW of these being domestic, roof mounted projects. For this reason, you would imagine that the solar industry in the UK has already shown potential lenders that there are returns to be made through investing in photovoltaic equipment especially when twinned with a government protected tariff mechanism like the one introduced last April. Lee Summers of Alumet Renewable Technology stated that,

“It would not be difficult for Government to instruct the state-subsidized banks to recognise its own feed-in-tariff scheme as suitable collateral.”

However, despite the clear evidence from abroad that there are indeed healthy yields to be taken from solar pv, the reluctance of the banks to lend is prohibiting a huge number of people to install solar panels. Summers went onto add that,

“For most homeowners they are unable to benefit from the 8 to 10% that the FiT guarantees to domestic generators because they don’t have the £12,000 or £15,000 they need to install the photovoltaic panels in the first place. Banks do not regard the Government’s 25 year index-linked, commitment as collateral for a loan. It is totally unfair that only the most ‘well-off’ individuals in a community can benefit from solar technology. The feed-in-tariffs are paid for by levies on every energy bill and so every home owner should have the opportunity to access the FiT.”

Through studying the UK solar industry in the wake of announcements of cutbacks in the solar feed-in tariff, IMS Research has concluded that the future looks very uncertain, if not bleak. Recent news that the government is set to reduce the aforementioned tariffs has been bemoaned by members of the UK solar industry and has been reflected in the findings from IMS. The feed-in tariff offers fixed, premium rates for units of energy both generated and fed back into the grid by renewable energy generators and is essential in off-setting the obvious costs in installing solar pv panels.

The government and in particular the Department of Energy and Climate Change (DECC) has made it clear that they would like to stifle investment in large scale ‘solar farms’ and instead concentrate on household roof-mounted solar projects. This, IMS believe will destroy the potential for industrial scale solar projects in the UK, something which they suggest will be the downfall of the industry in this country. Certainly, where feed-in tariffs have proved successful elsewhere, larger scale projects have proved extremely effective in helping to create competition and bring costs down over a longer term.

IMS Research has stated that,

“Effectively making solar energy uneconomic for commercial organisations demonstrates the Government’s lack of commitment to renewable sources. It also has an implication for the management of public buildings, such as hospitals and schools, for whom solar power will no longer be financially viable. Limiting solar power to small-scale installations means the sector will simply never take off, other than creating a niche industry. And while countries such as Japan, Italy, Germany, China and the U.S. have said that they will be giving greater financial support to solar power and already have substantial solar PV capacity in place, the UK government has taken the opposite approach, making it clear that nuclear energy is definitely part of the plan for power generation in the UK.”

At a time where job cuts appear daily in national newspapers and politicians expound the notion of a return of a British manufacturing sector, the reduction of solar feed-in tariffs for industrial scale projects is unsurprisingly being met by criticism. It will be hoped that the government does not retract tariffs any more than it has done, otherwise UK solar may just not survive infancy.

The proposed cuts to the UK solar feed-in tariff for large scale energy producers has been met by angry reaction from the industry who believe it could prove disastrous for fledgling solar projects. The plans are for the tariffs to be cut for more large scale solar projects such as those being set up on large solar farms or on the roof space of commercial buildings. The government has made efforts to distance itself from these more industrial scale solar projects and has instead publicly favoured micro-generation solar schemes for households and local communities.

The solar feed-in tariff works by offering guaranteed, premium rates for renewable energy both used and fed back into the grid by small scale renewable energy producers. The aim of this mechanism is to encourage investment in this once expensive industry by offering the opportunity of both long term revenue generation and savings on utility bills for households. Ernst & Young who have perennially made the connection between attractiveness for investors and the strength of feed-in tariffs believe that proposed changes to the mechanism at this point could be disastrous. Ben Warren, a partner of Ernst & Young commented that,

“The whole investor market was totally disengaged as a result of the feed in tariff being ripped up,”

Certainly the correlation between the strength of the UK tariff and the potential for investors to put their cash into solar projects in this country is significant and the warning from other countries is that where tariffs are rolled back, the solar industries in those countries fail as a result shortly after. Proposed government plans currently subject to lengthy consultation are for reductions of tariff payments for solar installations falling within the 250kw to 500kw bracket. This will affect larger scale schemes such as proposed solar farms based in the West Country where large areas of agricultural land are being set aside for the installation of solar pv systems.

The basic idea behind this plan is that more subsidies which essentially come from UK energy consumers are fed into projects which benefit the whole as opposed to wealthy investors looking to make a quick buck from solar farm investments. The move will certainly fall into Cameron’s cosy idea of a ‘Big Society’ whereby community projects, social housing and local services will all benefit from the revenue which will potentially be generated by tapping into renewable energy. Government spokesman Greg Baker said that he was keen to,

“Make sure that we capture the benefits of fast-falling costs in solar technology to allow even more homes to benefit, rather than see that money go in bumper profits to a small number of big investors”.