On 31st October 2011 the government launched a fast-track consultation on proposed changes to the feed-in tariff scheme for solar PV generation (the “Scheme”). The consultation will close on 23rd December 2011 and the main proposal under the consultation is to reduce the subsidy for solar PV generation by half (from the current 43.3p per kWh to 21p per kWh).
It is proposed that the change will take effect from 12th December 2011 and would mean that installations that are registered for the Scheme on or after 12th December 2011 will only be entitled to the current level of feed-in tariff (“FIT”) payment until 1st April 2012. After that the new (much reduced) FIT will become payable.
Prior to the announcement it had been expected that the FIT payment for installations commissioned between 1st April 2012 and 31st March 2013 would be reduced from 43.3p per kWh to 39.6p per kWh. In addition, for each year after 1st April 2012 it was envisaged that the FIT payment for new installations would be reduced by approximately a further 10%, the reason for the annual reduction being to encourage improvements (and cost reductions) in solar PV technology. The FIT entitlement for a particular installation would be dependent upon the year of installation, at which point the FIT entitlement per kWh was frozen for 25 years and index linked.
Ignoring indexation, under the current structure it was not envisaged that the FIT payment would fall as low as 21p per kWh until 2019/2020. By that time it was hoped that the costs of solar PV cells would have fallen sufficiently so that it could still be commercially viable to install new solar PV cells at that rate of return.
The government has said that the reason for the new consultation, and the proposed reduction in FIT payments from December of this year, is to reflect the big reductions in solar PV cell prices that have already been felt. They state that the costs of the average installation have fallen by at least 30% since the start of the Scheme in April 2010 and investors had been receiving far better returns than they had originally hoped for.
Another justification for the early reduction in the FIT seems to be that the uptake for the Scheme has been much greater than originally expected. It is argued that failure to reduce FIT payments now will result in an unreasonable financial burden on members of the public (who essentially fund the Scheme through increases in their energy bills).
Other proposed changes
Also included in the consultation are proposals to introduce, with effect from 1st April 2012:
a new minimum energy efficiency requirement – this would need to be satisfied before a property would be able to receive FIT payments. Depending on the outcome of the consultation this could include reaching an Energy Performance Certificate level of C or taking up all the measures potentially eligible for “Green Deal” finance; and
new multi-installation FIT rates for aggregated solar PV schemes - this would mean that where a single individual or organisation owns or receives FIT payments from more than one solar PV installation, located on different sites, any new solar PV installations that are commissioned on or after 1 April 2012 will only be entitled to 80% of the standard FITs for individual installations.
Comment
We had already anticipated that there would be a frantic period of activity between now and the end of March 2012 as participants (and prospective participants) in the Scheme raced to install and register their “qualifying installations” before the already timetabled 10% cut in FIT payments took effect. However, the recent announcement by the DECC has pulled the rug from under the feet of many of those interested parties.
Those who can will be desperate to move the deadlines forward for as many projects as possible so that the installations can be completed and registered in time for the 12th December “D-Day”. Those who are unable to meet the deadline and register for the Scheme on or after 12th December 2011 will see their return halved.
It remains to be seen how the solar PV market will fare after 12th December 2011. A spokesperson for the Renewable Energy Association (REA) has suggested that the changes to the FIT structure will cost thousands of jobs in solar panel making and solar panel installation businesses. Time will tell whether or not that is accurate and, in the meantime, we wait, with interest, to see whether or not there will be any legal challenges to the proposed changes to the Scheme. However, it does now seem that the future for commercial entities hoping to make use of green incentive schemes lies in wind power and the renewable heat incentive.
For more information on green energy (including incentive schemes), please contact Mark Miller or Paul Guyver.
