The much acclaimed feed in tariff that encouraged many to invest in solar energy for their homes and small businesses has been slashed by the government to 50% of its original level. Many home-owners have been taking advantage of these quite generous subsidies which have often given returns on UK installed solar systems of around 10%, a figure considerably higher than that obtained by putting money in the bank. Those with capital and a green inclination have been flocking to install solar panels on their roofs making returns better than just about any other investment that one can even dream of.
The Feed-In-Tariff or FIT was due to be slashed on the 12th of December, but has met increasing resistance from a number of paries including Friends of the Earth who are deeming the proposal illegal. There is now confusion in the solar industry as to what the FIT will actually be and where this leaves home-owners.
According to the energy savings trust the previous FIT scheme paid 43.3p/kWh returning annualized savings of around £1,240, however the new scheme will pay 21p/kWh generated and on the same typical 3kW system will return savings of around £670. This radically changes the payback dynamic, in going from the old to the new scenario. The old system saw payback time frames of around 8 years (the system fully paid for itself in eight years), but with the new scheme, that payback time is pushed to 15 years…a considerable difference. The typical 3kW system used for illustration would cost around £10,000 with full installation.
Before the end of 2011, there has been a huge race to get solar installations done before the 12th Dec cut-off date. However what will remain of the solar industry after this is anyone’s guess. From our perspective we see a huge number of job losses and we have already started to see “solar retail” outlets close in the preparation for the downturn. We don’t expect that the uptake in 2012 will be anything like that in 2011, unless the cost of installation per kW falls to 50% of their existing levels. This means that solar installers are going to be seriously hit in their margins and where it hurts because the cost of installing a physical solar panel is the same if that panel is 50% cheaper. Fixed costs such as scaffolding are going to make up the large proportion of the cost of installing and these are difficult to reduce without affecting the viability of the install.
So, has the government screwed this up? Yes, we think so! Even if it was offering a fabulous rate of return that seemed generous, it was helping to green the rooftops of the UK providing many with jobs and even an income. It provided an incentive to invest long term in Green energy and do the “right thing”. But the reduction of the FIT is going to potentially decimate the whole of the UK solar industry leaving many job less and out of pocket. What’s more, its sending out the message that the K simply doesn’t care one jot about Green Energy.