There is a growing degree of speculation in the industry regarding the feed-in tariff (FiT) review that is approaching towards the end of 2011. Due to the incredible importance of the tariff to your average solar energy installation, such debate is healthy and ensures awareness of its approach. Speculation however, is not quite as beneficial, so this article will evaluate the current situation and explain what is to be expected when the review is announced and brought about.
The Comprehensive Spending Review
The government carried out what they called a Comprehensive Spending Review in 2010 in order to take better control of government spending. The Comprehensive Consultation into the Feed-in Tariff was a part of this review, and is the official name for the solar FiT review. It is carried out to ensure that the funding being spent to promote the uptake of solar energy installations via the FiT is under control and at a manageable level.
International experience has taught us a lot when it comes to government incentives for renewable energy installations, especially solar power on a micro-generation (>50kW) level. The most successful solar industries in the world of Germany, Spain and Japan are perfect examples of this and we can review their developments to aid our predictions. In all of these countries:
So by this example we can make one point clear;
1) A reduction in the FiT is by far more likely to occur than an increase or a continuation.
The second aspect we must consider is the degree of reduction we could expect to see. At this point, it looks likely that the UK’s FiT reviews will be flexibly carried out to ensure the government reduces their risk in over-spending via the Comprehensive Consultation they have established. Whilst we have a rough date in mind, we need to analyse the uptake figures for a better idea on when to expect the changes.
Installation Figures of Solar Energy in the UK
The timing of the review
The government has stated that a review will take place upon a certain budget for the FiT being reached or if we reach March 31, 2012. Looking at the current uptake figures being offered by the regulator for energy in the UK, Ofgem, we can expect to reach 550MW before March 2012. This would very likely be a number surpassing the government’s budget, and we can then loosely establish our second important point,
2) The FiT review is likely to be introduced after November 2011, but before the end of March 2012.
Whether changes are brought about immediately or postponed until April 1st, 2012 is uncertain and depends on the government’s perception of the uptake and budget. Here at Solar Selections all we suggest is for people to educate themselves on their options, ensure they understand the returns and benefits for the solar installation and then proceed as soon as they feel comfortable.
The scale of the review
The other important aspect of the review when it does come around is the scale of the reduction in the FiT to expect. The growth of the market here in the UK is not expected to be sustainable for another year, so reductions between certain percentages can be expected.
3) The FiT cuts could be in the vicinity of 25% to 40% of the current tariff levels.
Only a cut of this magnitude could stabilise the spending that is at the forefront of the governments concern. Whilst such reductions would be damaging to the growth of the industry, they do serve as incentive for people to consider their options now and sign up for the 25 year indexed to inflation rates on offer.
The most important consideration with these three conclusions is that time is of the essence. We here at Solar Selections do not condone the pressured selling tactics that can be used in the industry to make customers feel forced into a decision without doing research. We do want to ensure that as part of a potential solar energy customer’s education they learn that if the review is changed and the installation incomplete, the new tariffs will apply and that they are likely to be significantly less attractive than what is available now.
In Conclusion, once a project’s feasibility and interest is established, any further delays in the decision making process serve only to expose the project to the risk of lower tariffs.
To establish your project’s feasibility and your own knowledge and interest, get in touch with us today for free, intelligent advice.
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Written by Jarrah Harburn
T: : 0844 567 9835
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On a rooftop in Suffolk there now sits a vast 500KW solar panel project which, much to the pleasure of the solar installation firm involved Going Solar and client, Debach Enterprises has been completed in advance of the August cut-off date for the current feed-in tariff rates. For projects completed after that date, tariff rates will be reduced as part of controversial reductions in the money paid out as part of the scheme. The £1.2m project would have fallen foul of the cutbacks in the tariff as it is over the 50KW threshold putting it in the large scale project bracket.
The 2,200 solar panel project completed by Going Solar will generate up to 440,000kw hours of electricity every year, enough to power the warehouse and provide a surplus to the national grid which as well as being enough energy to power 100 homes, will generate a healthy revenue stream via the tariff pay outs. The government’s cuts in the feed-in tariff come as they try to move the emphasis away from large scale solar farms and into smaller scale roof mounted solar projects. Going Solar Director Charles Houston believes that not all rooftop schemes should face the cuts and that size should not necessarily be a factor in precluding them from the tariff scheme.
“The consultation has only just been completed and we are arguing there is a case for treating rooftop installations differently. The government has a valid point trying to address large solar farms, but with rooftop installations the energy is often used on site and you are only using dead space that is up on a roof. If a business wants to cut its carbon by using that space then it should be encouraged to do so.”
Going Solar has announced that they will be focusing on solar thermal projects in the future with Houston going onto explain that,
“The Renewable Heat Incentive is about to make solar thermal collectors very attractive to schools, hotels and other sites with high water demand, while there is a real window of opportunity for 50kW solar installations. The feed-in tariff went up in April as it is linked to inflation and at the same time solar panel prices have come down. There is now an opportunity for businesses installing mid-sized projects to complete installations before the long track review of feed-in tariff likely recommends further cuts to come into effect from 31 March next year”.
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.”