Government heeds national backing for solar and improves on Feed-in Tariff proposal

Industry consolidation likely but solar can still be a reasonable investment --- Serious concerns remain about whether cost-control mechanism will work for market --- Following Paris agreement, Government must introduce other measures to boost solar power

The Department of Energy and Climate Change today announced its final decision on the new Feed-in Tariff rates for 2016 and beyond, just days after the historic Paris Agreement was agreed at the UN conference.

Paul Barwell, CEO of the Solar Trade Association said:

"Government has partially listened. It's not what we needed, but it's better than the original proposals, and we will continue to push for a better deal for what will inevitably be a more consolidated industry with fewer companies."

"However, in a world that has just committed to strengthened climate action in Paris and which sees solar as the future, the UK Government needs to get behind the British solar industry. Allocating only around 1% of its clean power budget to new solar is too little, particularly when solar is now so cost-effective. Poor ambition for solar risks missing out on not only our renewable energy targets in the UK, but on the world's greatest economic opportunity too."

"The industry will certainly try its hardest but we will be pressing Government to do much more to boost solar power."

2016 Feed-in Tariff levels for homeowners and small businesses increased significantly on proposals

The Government has heeded the evidence and unprecedented support for solar power and cut domestic tariffs by 64% to 4.39p/kWh instead of the original proposal of cuts of up to 87% to 1.63p/kWh. This is compared to a rate of 12p/kWh today.

The new tariffs will come into force from 8 February, and the deadline for projects to receive the current higher tariffs is now 15 January.

The decision comes after a prolonged campaign by the Solar Trade Association and many supporting organisations from the Church of England to the CBI.

For a modest commercial rooftop scheme the size of a school or small commercial building, the Feed-in Tariff rate will be 4.59p/kWh.

As well as the tariff rates, the STA has been very concerned by the ‘cost control' mechanism that could lead to damaging stop-starts in the market. The Government has put maximum caps on the total amount of solar it wants to see installed in every quarter. This could be very damaging, although they do appear to have taken on board requests for unused capacity to be recycled from one quarter to another and a queuing system for projects that don't get in on time.

The Solar Trade Association has welcomed the fact that the Government has not increased energy efficiency requirements to be eligible for the solar feed-in tariff, and has not made any changes to how the tariffs are indexed over time or to the export tariff when electricity is sold back to the grid.

Paul Barwell, CEO of the Solar Trade Association commented:

"The new tariff levels are challenging, but solar power will still remain a great investment for forward-thinking home owners who want to protect themselves from volatile energy prices and do their bit to reduce global carbon emissions."

"Our initial analysis shows solar is still worth considering if you consider the wider benefits such as the increased value to your home. Homeowners can also benefit by changing the way they use their generated electricity through higher day-time usage or via storage which is now a rapidly developing market."

Recent research by Barclays Mortgages shows that solar power is considered the most desirable technology with homebuyers willing to pay an extra £2,000 more for homes equipped with solar panels. Although installation companies are not allowed to sell on this basis, if investors in solar are willing to consider the potential to attract a higher sale price for their home in future, then it still makes economic sense to invest in solar all over the country with an improved payback.

Solar power is also a ‘no brainer' investment for anyone replacing their roof, where attractive integrated solar can replace traditional roofing materials and provide a good return on investment.

In addition there is potential for a number of complementary technologies to become cheaper over the next few years and change the economics of solar. Battery storage will allow people to use the electricity they generate during the day later in the evening. Electric immersion hot water heating, electric vehicles, smart timers for appliances and innovative heat storage can all allow people to use as much of their solar electricity as possible, bringing down their bills. The STA will soon publish a briefing on how to make solar pay better under the new FiT levels.

Commercial rooftops and community solar

The commercial rooftop market in the UK can potentially deliver large volumes of clean power cost-effectively. The STA believes that the new tariff rates will be challenging for commercial sector investment but hopes that increasing corporate commitment to acting on climate change will help to drive the market forward. Returns may be sufficient for investors with particularly low hurdle rate to investment, such as crowd-funders, local authorities and pension funds.

The STA has welcomed the fact that pre-accreditation has been re-introduced for all solar above 50kW in size - roughly the size of a school - which will give businesses and other bigger rooftops more certainty when investing in solar.

However for rooftop and ground-mount projects above 1MW in size there will no in effect be no support at all, with a tariff of just 0.87p/kWh.

The STA is disappointed to see there is no dedicated support for community solar or solar on social housing. Community energy will however benefit from changes to ISAs next year, with the potential for tax-free investment in local solar projects.

Paul Barwell continued:

"Commercial rooftop solar has been a small but growing part of the solar rooftop market. However, even with these lower tariffs, the nature of high electricity self-consumption and a maturing commercial market should ensure solar is still a good choice for many power-hungry businesses across the UK looking to reduce their bills and use the empty space on their roofs."

"The global solar revolution has only just begun. Whilst today's news will be disappointing to many solar businesses, our solar technology is an unstoppable force, and while the British industry might contract, we will be doing all we can to catch up with the booming international market. If we can bring installation costs down, and encourage homeowners, businesses and investors to accept lower returns, I'm confident the UK solar sector will weather this."

The STA will be working with Government departments to look at further measures to improve the opportunities for solar power and a level playing field. Particular emphasis will be on removing red tape, and the regular reviews of the cost control mechanism. Measures should be taken to improve project economics, as well as pushing to remove EU import tariffs and price controls on Chinese solar PV and making sure solar retains its low rate of VAT.

The STA would also like to see more regulatory incentives for solar on new build homes and businesses. The Scottish Government and the Greater London Authority are already leading the way on low carbon new buildings, showing that it can be done. Expenditure on clean power will rise by £3.3bn by the end of this Parliament, today's announcements mean than only around 1% of this will be spent on new solar power projects under FITs from next year.

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