Thursday 3 November 2011

FIT to Burst - Government Adjusts PV Subsidy

“What’s that spine-chilling noise?  I’ll just check out the cellar.  The bulb has gone?  Let’s go anyway.”  As aficionados of horror movies know, the surprise that makes you jump out of your skin is the one you know is coming.  On Halloween 2011, the UK solar PV industry received just such a widely expected shock from the Department of Energy and Climate Change (DECC).

DECC has published a consultation document with proposals for changes to the Feed in Tariff (FIT) for solar photovoltaic systems (PV).  This scheme was created to encourage green technologies by rewarding individuals and businesses that install green electricity systems with payments for the units that they generate.

As discussed in an earlier Blog Post, the payments were fixed at a level that resulted in over-generous financial rewards.  A bubble inflated in the PV market as financial investors chased returns unavailable elsewhere in these fiscally challenged times.  The result was a growing financial commitment scary enough to make DECC want to hide behind the sofa.

It has been evident for quite some time that FIT payments were going to be adjusted downwards, and in a significant way.

The Changes

The consultation proposes a number of changes to the level and structure of the FIT scheme for PV.  The details are explained here, but in summary:
1.       There will be a 50% reduction to the payments for new systems joining the scheme.
2.       Even lower payments for organisations with installations at more than one location. 
3.       Only reasonably energy efficient buildings will qualify.

DECC reckons that the new tariff level will result in a 4.5% financial return for a system installed in a good location.  However, PV prices are expected to fall further during 2012 as a global over-supply of PV panels corrects itself so returns for consumers investing in PV are likely to recover.
The creation of a new payment structure for organisations with installations in more than one location is aimed squarely at the “solar-for-free” or “rent-a-roof” companies.  These businesses approach householders or social landlords and offer to install PV systems free of charge on their roofs.  The company collects the payments, the resident gets to use the electricity generated (if they’re at home during the day) and there may even be a small fee for the use of the roof.  The consultation recommends a 20% lower tariff for these types of installation to reflect the greater economies of scale and lower installation costs for these companies.

Although the very significant change to the payment levels has provided a focus for the ire of solar PV companies, it is the third change that is likely to produce the most significant effect on the industry.

DECC are proposing that buildings with an energy performance certificate (EPC) level lower than ‘C’ would not qualify for the new payment levels.  The building owner then has the choice of accepting a much lower payment rate, or investing in their building to achieve the required energy efficiency.  DECC estimate that 86% of dwellings would not meet this criteria.  If this measure is implemented, DECC would have put a significant barrier in the way of the scheme uptake. 

Householders might have to pay for loft insulation, new boilers, and cavity wall insulation before installing a solar PV system.  What was a relatively painless and simple process has become more invasive and time consuming.
Social Landlords will have to upgrade the thermal performance of housing stock before moving on to more expensive renewable energy measures.

This  chiller contains a real twist in the tail, which is going to do more than anything to slow the uptake of PV.