31 October 2011
Today I am publishing a consultation paper on proposed changes to Feed-in Tariffs (FITs) for solar photovoltaics (PV). The consultation will close on 23 December 2011.
Since the FITs scheme started it has been successful in encouraging people up and down the country to get involved in local, clean green energy generation. Over 100,000 homes now generate their own electricity, and this is just the start of a move towards a far more decentralised local energy economy. An economy in which homes, businesses and communities are empowered to generate their own energy, and in which low carbon innovation helps sustain green jobs at a critical time for our economy. A sustainable FITs scheme has an essential role in delivering that vision.
However, the green economy does not exist in a vacuum and it is important, particularly in the current climate, that our approach to public subsidy is responsible and results in the widest possible deployment. To date, solar PV has been by far the most popular technology with consumers. We know that the costs of an average PV system have fallen by at least 30% since the FITs scheme started (and we are aware of reports that the global costs of PV modules have fallen by as much as 70% since 2008). This is resulting in returns for investors in solar PV that are simply not sustainable and, without action, could result in the spending envelope for the scheme rapidly being breached.
Today’s consultation document therefore focuses on addressing the budgetary problem and proposes reducing the tariffs for solar PV. Full details of the proposals are set out in the consultation document. The headline is that we are proposing that the generation tariff for PV installations with a total installed capacity of 4kW or less will be reduced to 21p/kWh, which our modelling indicates should deliver around a 4.5% rate of return. We are also proposing reductions to the generation tariffs for PV installations above that level and up to 250kW. These changes are vital if we are to ensure a lasting FITs scheme.
We are proposing that the new generation tariffs should apply from 1 April 2012 to all new solar PV installations which become eligible for FITs on or after an earlier ‘reference date’ which we propose should be 12 December 2011. Installations which become eligible for FITs before the reference date will not be affected and will continue to be eligible for the current generation tariffs.
The consultation also seeks views on two other changes to the FITs scheme for solar PV. Firstly, the introduction from 1 April 2012 of new multi-installation tariff rates for aggregated solar PV schemes. These are schemes where a single individual or organisation owns or receives FIT payments from more than one PV installation, located on different sites.
A final but crucial proposal in this package is to strengthen the link between FITs and energy efficiency by introducing a new energy efficiency requirement for FITs for solar PV. The new requirement would apply to all new solar PV installations which become eligible for FITs on or after 1 April 2012 which are attached or wired to provide electricity to a building. If the building does not meet the energy efficiency requirement the installation would receive a lower FITs rate of 9p/kWh.
This consultation is the first of two on the comprehensive review of FITs that was announced at the start of the year. We will be publishing a separate consultation around the end of 2011 which will consider other aspects of the scheme including the tariffs for other FIT technologies. It will also consider proposals to make the FITs scheme more intelligent and responsive to change, improving the system that we inherited from the previous administration to remove the need for stop start reviews and provide greater transparency, longevity and certainty to the industry.