It has been a frantic few months in the short-lived life of the feed-in tariff, with rates cut in half and the government and industry locked in disputes over just how deep the cuts should go. The debate has seen the government defeated three times in the courts so far, and now the dust is beginning to settle, there is a clearer picture of how the tariff stands now and what the future holds for it.
When it was introduced two years ago, the tariff was designed to encourage the growth of micro-generation from renewable sources like wind and solar. In some ways it has been a victim of its own success: solar power quickly emerged as the most popular technology for micro-generation, so much so that it led to frantic efforts by the government to slow down the growth.
When the tariff began in April 2010, the rate was set at 41.3 pence per kilowatt hour for solar installations up to four kilowatts. That was considered the maximum size of an installation on an average home. The rate was guaranteed for twenty-five years, and would rise each year with inflation and was tax-free for homeowners.
But it quickly became clear that the rate was proving to be a too-generous proposition. A properly-sited four kilowatt installation would generate returns of up to £1200 per year. In less than two years, the amount of solar-generating capacity in the UK jumped from 26 megawatts to 1,000 megawatts. Hundreds of solar power installers sprang up and the industry created tens of thousands of jobs – but many saw the boom as unsustainable.
The government became alarmed that the rate of growth would quickly use up the budget allotted for the feed in tariff. It also argued that as the industry had grown, prices for installations had fallen by up to 50 percent. And so, in November 2011, climate minister Greg Barker, announced that the feed-in tariff would be reduced from 43.3 pence to 21 pence per kilowatt hour.
The industry had been expecting a cut – many companies believed that a reduction of up to 50 percent would make sense to avoid an unsustainable boom and build a long-term industry – but the government’s timescale came as a shock. Barker said it would come into effect on December 12th, just six weeks from his announcement.
The industry reacted furiously. There was a legal challenge to the plan and the government proposals were defeated first in the High Court, then in the Appeal Court and finally in the Supreme Court. At that point, the government accepted the decision and said it would not introduce the cut until April 2012.
So what does all that mean?
From April 2012, the feed-in tariff rate for systems under four kilowatts will be 21p per kilowatt hour. Anyone who installed between December 12th and March 3rd 2012 will get the higher rate of 43.3p. Anyone who installed between March 3rd and April 1st will get the higher rate for a few weeks and then drop to the 21p rate in April.
The future is clearer too. The tariff is due to be reduced again in July, when it is widely expected to be set at between 16p and 13p. It will then be reduced every six months in line with the continuing fall in installation prices and to regulate how much is being paid out through the tariff.
Despite that, many in the industry believe that solar companies have a bright future. There are more reasons than the feed-in tariff for installing solar PV systems. Many businesses and homeowners are looking to cut their carbon emissions. As fuel prices rise, generating your own electricity becomes an important way of protecting against higher prices and of course, the costs of installations is expected to continue to fall.
The government has said it expects to have 26 megawatts of solar capacity in the UK by the end of the decade, the equivalent of four million homes. The goal is grid parity, when the cost of producing solar-powered electricity will be the same, or lower than the cost of producing it from traditional sources like coal or gas.
Once that was thought of as being up to ten years away, but as prices converge it could be as close as five years or less. At that point solar will go from being a “nice to have” technology to a “must have” one.
This is a guest post from EvoEnergy. The UK based solar energy business is a customer-focused company, who guides its customers though every stage of the installation process, whatever the size of the project. As an accredited installer and supplier of Solar PV systems they guarantee a high level of service in the UK.
image: Presidency Maldives via Flickr cc (some rights reserved)