Cuts in solar subsidies to harm SMEs and kill solar industry

The idea of UK homes and businesses running on solar power was, to most, a laughable concept and one best left to countries like Spain and Germany where it doesn’t rain every other day.  

Then in 2010, as part of its bid to become the greenest government ever, the Coalition changed everything by introducing competitive solar energy subsidies. If people installed solar photovoltaic panels onto the roofs of their homes and businesses they would get paid for the energy they produced while enjoying a heavily discounted electricity bill.

These feed-in tariffs (FITs) worked by rewarding either 43.3p or 37.8p for every four kilowatt hours of solar energy generated.  Any surplus energy could be exported to the national grid and the customer would get bonus payments. All of that on top of a radically reduced electricity bill.  

So lucrative was the return on investment, thousands of home and business owners decided to take part, in turn spawning a new workforce as people across the country caught on to the demand and trained to become specialist solar panel fitters.

Now the scheme has become too popular and the government says the original tariffs are unsustainable. As a result of a consultation into the scheme, (which closes next week), the government has decided to cut the feed-in tariff for those generating solar power by more than half.

Reducing the energy “cashback” plan to 21p per four kilowatt hours instead.

In order to benefit from the original rates companies must complete the installation and have it signed off by 12 December – spurring a frantic rush to get jobs finished.

The solar industry is furious, as are environmentalists. Friends of the Earth has threatened a lawsuit.

Ironically it’s the success of the scheme that looks set to be its demise. “Boom and bust for solar must be avoided,” says the Department for Energy & Climate Change. Installing photovoltaic panels has become too cheap; the cost of an average domestic PV installation has fallen by at least 30 per cent since the start of the scheme – from around £13,000 in April 2010 to £9,000 now says Decc.

“A recent surge in households installing solar PV has threatened to break the budget. There were over 16,000 new solar PV installations in September alone – nearly double the number installed in June,” said Decc in an official statement.

Now those in the burgeoning solar industry argue that the reduction will spell the death of the solar sector and the chance for SMEs to take part as, after paying the costs of the installation, the return on investment is over too long a period – 15 to 20 years. Under the original rate firms and homeowners were expected to see a decent return on investment within seven years.

According to the Cut Don’t Kill campaign, Britain’s solar industry consists of 4,000 solar businesses that employs 25,000 people. “Such deep cuts would kill the UK solar industry stone dead,” said Howard Johns of the campaign and also director of Southern Solar.

A survey carried out by Renewable Energy Association found that 33 per cent of solar companies expected to close as a result with 98 per cent being “alarmed by the government’s treatment of the UK solar industry”.

“Our message to the government is cut us, but don’t kill us. We want a sustainable cut that would allow us to survive and deliver the green growth that David Cameron said he was committed to.”

Ricky White started Solar Simple last year as a direct result of the feed-in tariffs. An electrician by trade he saw the potential of solar power and was keen to get in on the act. He blames Rent-a-Roof schemes. For White, this was a major oversight on behalf of the government: “There’s nothing to stop the rent-a-roof schemes from operating, they should have reduced the tariff in the first place,” he says.

Rent-a-roof firms install solar panels for the customer free of charge in return for the revenue from the feed-in tariff. The customer gets the benefit of the reduced energy bills and doesn’t have to front the costs for the panels.

White believes that the reduced tariff will all but kill of all residential and SMEs customers. The only companies that will be able to benefit will be the big corporates he says – “they’ll want to have them on their buildings to make them look good. They want to be seen to be having them on their buildings. It will become completely commercial.”  

Partner at the law firm Dickinson Dees, Libbie Henderson cites the rent-a-roof companies as being factor also, and extend the blame further, to venture capital firms.

 “A number of venture capitalists have invested, putting money into multi-installation installers, which is not quite how this scheme was designed to work. It was intended to benefit homeowners and not indicated for solar investment.  

“The government should have anticipated this,” she says.

With the feed-in tariff cut by half, both Henderson and White believe that few small to medium-sized companies will opt in for solar. The government is also suggesting that buildings be already at a Level C – meaning they have various insulation measures in place already – before they being eligible for the feed-in tariff.

“The government doesn’t want to do is fund generation scheme were the energy is wasted,” says Henderson.

The government says that scheme is still interesting; for domestic installations the rate of return will be around 4.5 to 5 per cent, index linked and tax free.

Still, solar installers Plug into Sun aren’t convinced: “A lot of small businesses are now no longer able to go ahead with installations. It has taken some businesses a while to come on board and for the figures to stack up right for them.

“Now the figures don’t this has resulted in 90 per cent of potential customers pulling the plug on their project. We have seen an estimated loss of a £3m worth of business.”

Readers' comments (2)

  • This is a classic case of the folly of advocating government subsidies to stimulate investment in any area, not just environmentalism. People make decisions based on their belief in government consistency, and then are surprised when the rug is pulled from under their expectations.

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  • The FIT has in many ways become a victim of its own success, with over 90,000 installations since last April and a 900% growth in the country’s solar power potential since subsidies were introduced. In addition, a huge industry has grown up around solar PV which is creating thousands of jobs at a time when most business sectors are in decline. In the past 12 months alone the number of people working in the industry has jumped from 3,000 to 26,000. This decision therefore, goes against many of the government’s own environmental and job creation policies.

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