Last Friday (24th September) news broke on the Coalition government’s decision to back down on their promise of retroactively granting the feed-in tariff to 6000 ‘pioneers’ who installed PV before the feed-in tariff was announced. This is undoubtedly unfair since those pioneers were responsible for keeping some semblance of a UK PV industry alive in recent years whilst the industry was booming elsewhere in Europe. In light of the government’s austerity measures however, I do not consider it an outrage that these few people are denied the FiT. Early adopters of renewable energy are unlikely to be in the lowest paid income bracket and at a time when many public sector workers face redundancy the government can argue that they have more pressing issues to deal with.
What is concerning however, are unconfirmed reports that the government is thinking of changing of lowering the feed-in tariff before April 2012. This would be extremely unwise. Feed-in tariffs are a success because they offer investors (whether banks or families) some foresight as to how much they stand to make. Solar panels are very much a long-term investment, and feed-in tariffs work because you can predict how much you will earn in year 25 of the investment as well as in year 1. Therefore, by changing the planned feed-in tariff degression schedule at short notice, investors lose confidence very quickly. How can a homeowner plan to have a PV installation when the feed-in tariff could be lowered in a month? How can a PV installation company forecast its installation schedule and hire someone if the feed-in tariff is to be changed next month?
Feed-in tariffs are designed to be significantly reduced every year – that’s to reflect decreases in the installed cost of PV systems and ensure that investment returns remain broadly consistent. Everyone knows that the feed-in tariff in the UK is due for its first degression in April 2012, but suddenly changing that schedule will disrupt innumerable business plans and threaten jobs. The feed-in tariff is designed to be decreased, I have absolutely no problem with that, in fact it probably didn’t need to be as high as it is to start with. The problem is only with unscheduled decreases as these cause havoc with the industry. The UK already has an extraordinarily tiny PV industry in comparison with other major European countries. By threatening to deviate from the planned degression schedule only 4 months into the scheme threatens to de-rail the beginnings of an industry that could employ tens of thousands of people in the UK. Already this year the number of installations has dramatically increased as a result of the feed-in tariffs. However, the UK is forecast only to install around 15MW this year. This pales in comparison to Germany’s expected 8GW – its a factor of 500 difference!!
It is possible to build in flexibility into a feed-in tariff policy that controls market growth without causing surprises. In Germany, the annual feed-in tariff degression is now tied to the market size in the previous year. That means if the market is over a certain size then the degression will be more than normal, and if the market is smaller than targeted the decrease for next year will be less. The UK government have not said anything about their intentions for April 2012. They would be well advised to start thinking about it now, rather than waiting until the last minute as they did before the feed-in tariff was introduced. Using the German model, feed-in tariff policy could be set until the next general election, this would stand the UK in good stead.
No-one wants a boom-and-bust industry. The UK government should take measures now to reassure the industry that it is following an organised and planned strategy. Rumours of sudden changes, whether real or imagined, could do more damage than many realise.