Government Cuts To Solar Subsidies Have Repercussions Beyond Householders.

Fiona Samson from our Energy team looks at some of the challenges and opportunities.

The outlook for solar energy subsidy in the UK has been obscured since the UK Government confirmed in October that feed-in tariffs (FITs) for solar photovoltaic technology would be cut, nearly doubling the payback period for householders and lengthening it substantially for most users of solar energy.  

On 21 December the High Court ruled in favour of Friends of the Earth and two solar companies, finding that the Westminster Government's consultation on the solar FIT breached rules governing consultation and was unlawful. Then, the Energy and Climate Change and Environmental Audit committees added fuel to the fire, reporting that the scale and pace of the proposed cuts were a "shock" for the PV industry and threatened the stability and predictability needed for investment in renewables.

The Climate Change Minister Greg Barker promptly pledged to appeal immediately against the judges' ruling, adding: "Regardless of [the] outcome, the current high tariffs for solar PV are not sustainable and changes need to be made in order to protect the budget, which is funded by consumers through their energy bills."
 
On Friday (13th January 2012) the Court of Appeal will hear the Government's challenge to the High Court ruling. Considering the Coalition's declared intention of bringing the economy under control, few see Mr Barker or his colleagues backing down, and it seems safe to assume we're heading for major cutbacks in solar subsidy if not this month, then certainly in the very near future. The industry keenly awaits the results. But does that undermine investment on solar? I don't believe so.

The falling cost of capturing the sun's energy, against a background of rising fossil-fuel prices, has made investment in this technology far more attractive than was originally anticipated though some in the industry claim the warning signs of subsidy cuts were always there.

Householders, investors and suppliers have rushed into the technology. Three times as much solar capacity has been installed as the Department of Energy and Climate Change had projected, with over 100,000 installations so far.

Faced with growing costs and a worsening economic climate, and wanting to avoid the industry falling victim to "boom and bust", Mr Barker has halved solar power subsidies. There were also concerns that under the original scheme, much of the UK's older housing stock, its capacity for improvement limited by wide use of older-style materials, would be excluded from higher FIT rates a particular problem for rural properties, with their typically greater capacity for solar panels.

The changes will affect not just the solar industry but also commercial and residential owner-occupiers who are looking to reduce their carbon footprint or as part of their endeavours to advance sustainability.

As the High Court action by Friends of the Earth and two companies confirmed, investors are concerned by the scale of the cuts combined with their sporadic timings.  Yet many will sympathise with measures to rein in spending and ensure fund are available to meet the other renewable installations.

In our view, solar remains a very attractive means of maximising energy resources and coping with the uncertainty that surrounds the price of fossil fuels especially for projects less than 10kW. We should accept that changes are happening then ask how we can ensure people understand the benefits of solar and maximise their returns.

While the payback for solar investment is longer, our calculations show the returns will be good, with bank rates presently so low, almost certainly better than having your money in a bank! This is especially relevant if you have a higher electricity demand.

One school of thought is that the cost of the equipment will naturally decrease as the level of the FIT was keeping it buoyant. Changes to the FIT scheme have made solar panels more expensive. However, life in this new period of austerity means some equipment suppliers are bound to lower their prices to make their products more attractive, even at the cost of higher margins.

There are various measures that consumers can take to help maximise the benefits and returns from their project. Consumers will need to be more electricity-savvy by using simple measures. Householders, hotel owners and holiday-let operators for example should do their laundry during daylight hours.  It will also be important for people to get the right panels cheaper panels are not necessarily the best. Energy Efficiency is also a key measure to help improve paybacks, and while the Government's proposals will require a lot of fine tuning, it will offer householders the chance to further improve the energy efficiency of their property.  

Good-quality panels, professionally installed, are a good way to future-proof your home by cutting electricity bills this will be more important in a world of costlier resources. On the business side, being seen to be green is a positive benefit that attracts thoughtful customers. Commercial landlords might look to invest in solar projects and then rent out their properties with the added benefit of being more environmentally friendly and cheaper electricity bills.

A version of this article appeared in the Press and Journal on 11 January 2012