The rates of return on the feed-in tariff are now much more generous than was planned and a cut is due (although there is still much debate on how much that cut will be). The date for the proposed reduction has always been 1st April 2012, although rumours are rife that this timescale could be moved forward.
Scaremongering tactics of the UK press, trade, or otherwise have resulted in wild talk that the feed-in tariff rates for microgeneration-level solar energy being reduced to just 9p.
A reduction in the feed-in tariff rates is all but guaranteed, and here are some of the reasons why:
- The comprehension spending review last year imposed a budget on spending on the feed-in tariff. This came from the Treasury, which says if there is an overspend, then it must come of The Department of Energy and Climate Change’s (DECC’s) budget (and not from energy bills as the rest does). You may not be surprised to know that there is no slack in DECC’s budget to absorb an overspend.
- DECC’s forecast figures for installation of solar PV in the year to 31st March 2012 was 86MW. By the end of September 316.4MW of solar PV had been installed. That is already beyond the cumulative budget to the end of March 2013, and we just six months into this accounting period. There is a danger that the entire feed-in tariff for the spending review period (to 2014) could be taken up in just one year.
- The feed-in tariff was designed to yield a 6-9% return on investment. There have been significant falls in the price of solar PV this year meaning that people are now getting significantly higher rates.
DECC has set in action a comprehensive review of the feed-in tariff. The official line from the DECC is that all tariffs in the scheme are being considered in the Comprehensive Review and we will be consulting on proposals later this year. They have also made it clear that tariffs will remain unchanged until April 2012 unless the review indicates the need for greater urgency.
The worry must be that this review will indicate a greater need for urgency, which presumably will lead to a reduction in the tariffs and also bringing forward the proposed date from April to at the earliest December. The worst case scenario would be expecting the current rate and then qualifying for the new reduced rate. If we look back to the reduction in large solar projects, there was a reasonable leeway between the announcement and the rate reduction. If December is the timeframe however there is not much time.
So, in what ways can you protect yourself?
- Act now; if you want solar PV now is the time to invest, install it as quickly as you can.
- Protect yourself if the cuts come before your installation takes place – we are now offering an opt-cause in our solar PV contracts in case the feed-in tariff drops between signing the contract and the commissioning date.
- Be ready with your feed-in tariff application form. Talk to your energy supplier before the installation, email or send it via recorded delivery, as soon as the system is commissioned. This allows you to be eligible for the current feed-in tariff rate.
