Prices are falling, and falling fast. If you are a home-owner with only one roof to
fill with photovoltaic solar panels, what’s the rational thing to do?
Wait, of course. Wait
until prices stop falling, and then purchase.Rapidly falling prices depress demand, which in turn results in industry over-capacity, and greater price competition leading to further decrease in prices. This vicious circle is called a deflationary spiral by economists, and it is considered a disaster for a national economy.
Perhaps by accident, the Feed in Tariff has also prevented a damaging deflationary spiral in the solar PV installation industry.
Of course, the purpose of
government incentive schemes such as the Feed in Tariff is to distort rational
decision-making and correct market
failures where the pricing mechanism does not take externalities into account. (Externalities
are where some of the costs of the product, in this case the costs from global
climate change caused by carbon dioxide emissions from conventional electricity generation,
are paid for by neither the buyer nor the seller.)
Under the Feed in Tariff, the owner of a solar PV
installation is paid over and above the savings they make on their electricity
bills for every unit of electricity they generate. However, the UK government has been scrambling to keep up with the price deflation in photo-voltaic solar panels. Successive drops in payment levels have had
the aim of preventing the financial returns to householders with solar panels from becoming excessive.
A side effect of the series of cuts to the
Feed in Tariff has been to create a reason for the customer to “get in before
the tariff reduction” and therefore not wait for installation prices to fall
further.
Many in the PV industry have been calling for the government to delay or halt cuts to the Feed in Tariff to better stimulate the market. Should they be thinking more carefully about the alternative they are proposing..?
