Market News

 February 09, 2012
Barker tells solar industry to "get real" over feed-in tariff cuts

Climate Change Minister Greg Barker has defended government plans to cut the feed-in tariff for solar PV three times this year, potentially seeing rates reach 12.9p/kWh by October, insisting the industry will continue to grow.
The government today launched a package of changes to the feed-in tariff scheme for all renewable technologies, including a consultation to introduce automatic cuts designed to ensure the tariff remains in line with the falling cost of technology.

Solar industry players attacked the proposals, which could see the tariff for installations with less than 4kW cut to 21p/kWh in April, then cut again to between 16.5p/kWh and 13.6p/kWh in July, and once again to between 15.7p/kWh and 12.9p/kWh in October, depending on rates of installation.

Solar industry representatives lined up to say the scale of the proposed cuts and the rapid rate at which support could be reduced will make it difficult for installations to deliver the five per cent rate of return the government has targeted for the scheme.

Howard Johns of the Solar Trade Association warned the proposals would "destroy" the UK solar industry, adding that the scale of the proposed cuts were a "disaster" for the previously expanding industry.

"The government's initial cut to the tariff was brutal, and this further cut will be utterly devastating for the UK solar sector," he said. "The hard facts are that a cut on this scale will leave the solar industry dead in a ditch, destroying tens of thousands of jobs and cutting off a green, high tech British industry just as it starts to flourish... This whole proposal has been rushed and chaotic, and while ministers try to force it through arbitrarily, hard-working people are losing their livelihoods. What was a real British success story is on the verge of being consigned to the dustbin."

His concerns were echoed by Jeremy Leggett, founder of Solarcentury, who warned the government's proposed mechanism for cutting feed-in tariffs to track falling costs would sentence the sector to "ongoing turmoil".

"The near permanent review afflicting this industry since the 2010 Comprehensive Spending Review goes on," he said. "Further swingeing cuts to tariff levels from 1 July with the prospect of tariff cuts more often than once every two months beyond that mean that the PV industry now faces ongoing turmoil. It's really time for Ed Davey to do something that Chris Huhne stubbornly refused to do. Sit down with the industry, work with us, and demonstrate your commitment to saving tens of thousands of UK solar jobs."

However, launching the proposals, Barker maintained that the new policy would allow the industry to grow this year and for the remaining decade.

Responding to questions from BusinessGreen, he urged the solar industry to "get real" and step up efforts to promote the rapidly falling cost of solar PV technologies.

"The thing that many in the industry need to get their head around is not that there's going to be long term price for a unit of electricity, but there's going to be a consistent return for the units that they offer," he said.

"We're creating a scheme for the many not the few. [The solar industry] should welcome the fact that prices of solar are falling so quickly. Never again must we have a fixed price tariff that allows a bubble to grow and offers unduly large rewards."

Barker added that the changes would ensure the cost of the subsidy scheme was not unfairly passed on to consumers through energy bills, while also offering a fair return on investment to installers.

An impact assessment of the proposals due to be published later today is expected to show that DECC has forecast a central growth scenario in which the UK solar industry boasts 22GW of solar capacity by 2020.

A DECC spokeswoman said the scheme has so far enabled 250,000 solar installations, at a cost of £1.7bn, but the changes will deliver an additional 620,000 installations at a cost of £500m by 2015.

Barker stressed that he expected the industry to grow this year, despite the deep and repeated cuts to the feed-in tariff, and uncertainty over the current rates as a result of an ongoing legal battle over the proposals.

"I fully expect the industry to continue to expand," he insisted. "Expand this year and continue to expand in the coming decades, but on a sustainable basis and not on the basis of short bursts of temporary work."

He added that the cost control mechanism is similar to the German degression system, but better because it allows the government to respond more quickly to abrupt drops in the cost of technology.

"We've learnt the lessons of Germany and are putting in place an improved scheme that delivers more deployment at better value," he said.

DECC has proposed a three-part cost control mechanism that includes an automatic degression of 10 per cent every six months, in April and October each year.

That would be supplemented by a "contingency trigger" allowing the government to impose additional cuts at two months' notice if they are concerned the scheme is at risk of exceeding its budget.

The government would publish expected deployment figures for each year, as well as a wider analysis of the state of the industry on an annual basis to see if any parts of the scheme require further tweaks. In addition, energy regulator Ofgem will continue to publish monthly deployment figures to help industry also assess uptake and predict any cuts.

The public have eight weeks to respond to the proposals on the cost control mechanism, with the changes expected to take effect from 1 July this year.

However, solar industry experts were quick to condemn the plan.

Writing on Twitter, Leggett said that while the industry would welcome incentives that genuinely fell in line with costs, such rapid cuts would undermine investment. "Degressions every two months? In every other FIT market, high frequency degression = market dampening. No way to build an industry," he wrote.