There is a growing degree of speculation in the industry regarding the feed-in tariff (FiT) review that is approaching towards the end of 2011. Due to the incredible importance of the tariff to your average solar energy installation, such debate is healthy and ensures awareness of it’s approach. Issues can arise however when speculation enters the fray, and especially when people considering installing solar are misled about the timing or significance of this review. This article will evaluate the current situation and explain what is to be expected when the review is announced and brought about.
The Comprehensive Spending Review
The government carried out what they called a Comprehensive Spending Review in 2010 in order to take better control of government spending. In this process, the HM Treasury allocated strict budget allocations until 2014-2015 for the public expenditure of each specific government department. Completed almost a year ago, the review cut spending across the board, and introduced methods of monitoring spending on a timeline. The Comprehensive Consultation into the Feed-in Tariff was a part of this review, and is the official name for the solar FiT review. It is carried out to ensure that the funding being spent to promote the uptake of solar energy installations via the FiT is under control and at a manageable level. With unprecedented growth in the industry being continually highlighted, it has become an area of discussion among everyone in the industry.
International experience has taught us a lot when it comes to government incentives for renewable energy installations, especially solar power on a micro-generation (>50kW) level. The most successful solar industries in the world of Germany, Spain and Japan are perfect examples of this and we can review their developments to aid our predictions. In all of these countries, FiT’s were introduced and subsidised by the government to bring in solar uptake. In all of these countries, reviews on the FiT’s were carried out on loose timelines to control the government’s spending. Finally, in all of these countries, the FiT’s were reduced over time and via these reviews in order to stabilise growth. So by this example we can make one point clear, 1) a reduction in the FiT is by far more likely to occur than an increase or a continuation.
The second aspect we must consider is the degree of reduction we could expect to see. Germany set an excellent example by making reductions that were highly structured. The industry was informed well in advance when the tariff would be reduced and by how much, which allowed companies to operate on a stable basis and customers to install systems highly confident in their returns and investment risks. At this point however, it looks more likely that the UK’s FiT reviews will be more flexibly carried out to ensure the government reduces their risk in over-spending via the Comprehensive Consultation they have established. Whilst we have a rough date in mind, we need to analyse the uptake figures for a better idea on what to expect.
Installation Figures of Solar Energy in the UK
The timing of the review
Current projections on the uptake of solar have us at approximately 285mW for this FiT year. The government has stated that a review will take place upon a certain budget for the FiT being reached or if we reach March 31, 2012. Looking at the current uptake figures being offered by the regulator for energy in the UK, Ofgem, we can expect to reach 550MW before March 2012. We can then loosely establish our second important point, 2) that the FiT review is likely to be introduced between November 2011 to March 2012. Whether changes are brought about immediately or postponed until April 1st, 2012 is uncertain and depends on the governments perception of the uptake and budget. Unfortunately any other information on the timing of the review is largely speculative, and all we suggest is for people to educate themselves on their options, ensure they understand the returns and benefits for the solar installation and then proceed as soon as they feel comfortable.
The scale of the review
The other important aspect of the review when it does come around is the scale of the reduction in the FiT to expect. International examples set by Spain and Australia do not instill much confidence that the cuts are always fair or reasonable, with some cuts coming across instantaneously and heavy handed. The growth of the market here in the UK is not expected to be sustainable for another year, so reductions between certain percentages can be expected. 3) The FiT cuts could be in the vicinity of 25% to 40% of the current tariff levels. Only a cut of this magnitude could stabilise the spending that is at the forefront of the governments concern. Whilst such reductions would be damaging to the growth of the industry, they do serve as incentive for people to consider their options now and sign up for the 25 year indexed to inflation rates on offer.
The most important consideration with these three conclusions is that time is of the essence. We here at Solar Selections do not condone the pressured selling tactics that can be used in the industry to make customers feel forced into a decision without doing research. However, we want to ensure that as part of a potential solar energy customer education, they remember that if the review is changed and the installation incomplete, the new tariffs will apply, and that they are likely to be significantly less attractive than what is available now. In Conclusion, once a project’s feasibility and interest is established, any further delays in the decision making process serve only to expose the project to the risk of lower tariffs.
Written by Jarrah Harburn
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