Solar panel returns cut by more than half as Government slashes generous Feed-in Tariffs

Solar panel returns will be slashed under Government plans to cut Feed in Tariffs payments by more than half.

A proposal released today would see the payments homeowners get for solar panel generated electricity cut from 43.3p per kWh to 21p.The cuts will apply to all solar panel installations made after 12 December, with existing systems and those that are operational before that date locked into the current payment levels.

Companies that have been reaping payments from renting out homeowners’ roofs and putting in free panels will also see their returns cut further – getting just 80 per cent of the individual homeowner rate.

How the Feed-in Tariff scheme works. Source: Energy Saving TrustHow the Feed-in Tariff scheme works. Source: Energy Saving Trust


A 10% per year tax-free return slashed

The move would more than half the potential 10 per cent tax-free inflation-linked returns that homeowners who pay for panels themselves have been reaping. The Government says the new return would be 4.5 to 5 per cent.

The proposals are open to consultation until 23 December, although the cuts will take effect before that period ends.

The Government has defended the move on the basis that the cost of installing solar panels has dropped by around 30 per cent, from an average of £12,000 to £9,000.

However, it is also effectively calling time on the solar panel gold rush that has caused major concerns about the way companies are cashing in on Feed-in Tariffs, which are ultimately paid for by all households paying higher energy bills.

Climate Change and Energy Minister Greg Barker said: ‘My priority is to put the solar industry on a firm footing so that it can remain a successful and prosperous part of the green economy, and so that it doesn’t fall victim to boom and bust.

‘The plummeting costs of solar mean we’ve got no option but to act so that we stay within budget and not threaten the whole viability of the FITs scheme.

‘Although I fully realise that adjusting to the new lower tariffs will be a big challenge for many firms, it won’t come as a surprise to many in the solar industry who’ve themselves acknowledged the big fall in costs and the big increase in their rate of return over the past year.’

A devastating blow to a booming industry

The solar panel industry has suggested cuts of this magnitude will also seriously harm the rapidly developing industry.

It will deal a particularly heavy blow to companies involved in schemes that give free panels to homeowners in return for the income derived from generating electricity.

Firms effectively rent homeowners roofs from them for 25 years and take the money made from Feed-in Tariffs in return for allowing the homeowner to benefit from the £90 to £180 per year reduction in their energy bills that solar panels can bring.

When planned cuts were leaked last week, Daniel Green, CEO of solar panels firm HomeSun said a 21p level would be disastrous for solar panel take up and free solar panels firms would vanish at any level below 28p.

He said: ‘HomeSun believes that a cut to the Feed-in Tariff is right, but that it needs to be in line with reductions achieved in the residential solar installation market.  These have been around 25%.  We need a FIT of minimum 28p for the next financial year at least, or this will be devastating. Since the introduction of FITs, 25,000 jobs have been created and over 3,000 enterprises.

‘With the breakeven point pushed out to 10-12 years, a lower return will not appeal either to the ‘buy solar’ sector of the market.  The median time that people live in their homes is eight years.  This means that once again only the rich with an eco-conscience will have solar.’

The cut from 43.3p to 21p will affect installations below 4kW, larger solar panel installations between 4kW and 250kW will see further reductions.

How the solar panels Feed-in Tariffs work

The drive to encourage home solar panels came thanks to the UK having agreed to green energy targets that are going to be very difficult to hit.

The plan is for Britain to get 15% of its energy consumption from renewable sources by 2020 – compared to 3% when the 2009 Renewable Energy Directive was signed up to.

The tax-free Feed-in Tariffs scheme means that homeowners who generate electricity from solar power get paid for energy they produce and use themselves, a little bit extra for any electricity they produce, don’t use and put into the grid, and will also see their energy bills fall slightly.

That means a typical return of £1,190 a year, according to Energy Saving Trust figures
The total return is split like this for a typical 2.9kWp household installation:

  • £1,060 a year from the Generation Tariff
  • £40 a year from the Export Tariff
  • £90 a year reduction of current electricity bills

The big winner for those who sign up is the Generation Tariff, this currently delivers 43.3p per kilowatt hour of energy produced. This is index-linked for 25 years, it will rise with Retail Prices Index inflation, and those who sign up at any given time are locked into the rate at that point. 

The Export Tariff delivers an extra 3.1p per kWh for energy exported to the national grid. The EST says: ‘At some stage smart meters will be installed to measure what you export, but until then it is estimated as being 50% of the electricity you generate.’


Homes must be energy efficient and free panel firms get lower rates

Other changes proposed by the DECC would mean homeowners had to make their properties greener and companies operating widespread schemes would see returns slashed further.

A new energy efficiency requirement will also be brought in meaning that homes will have to reach a certain level of energy efficiency to receive payments from 1 April. This could include reaching an Energy Performance Certificate level of C or taking up all the measures potentially eligible for Green Deal finance, depending on the outcome of the consultation. As a transitional arrangement, installations with eligibility dates between 1 April 2012 and 31 March 2013 would have 12 months from the eligibility date to comply with the energy efficiency requirement.

The change that would hit free solar panel firms would see new multi-installation tariff rates for aggregated solar PV schemes, where a single individual or organisation owns or receives FITs payments from more than one PV installation, located on different sites. It would affect new PV installations that are part of an aggregated PV scheme and have an eligibility date on or after 1 April 2012. The new tariffs are set at 80% of the standard tariffs for individual installations.

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