The Department for Energy and Climate Change (DECC) proposes cutting feed-in tariffs (FiTs) by more than 50% from April 2012 in a new consultation. The tariff for schemes which generate up to 4 kilowatt hours (kWh) of electricity will be reduced from 43.3p/kWh to 21p/kWh. Reduced rates are also proposed for schemes between 4kWh and 250kWh, and for scheme owners who receive payments for multiple installations at different sites.
In addition, from April 2012 the subsidy will only be available to properties which meet minimum energy efficiency standards.
Climate Change Minister Greg Barker said that the reduction was necessary to keep the scheme budget under control and reflect the plummeting costs of the technology.
The FiTs scheme was introduced on 1 April 2010 to encourage businesses, communities and individuals to generate their own electricity through renewable methods. It allows people to earn money for any surplus electricity generated, which is transferred back to the national grid.
Homeowners and businesses can install solar photovoltaic (PV) equipment, such as solar cells, to generate electricity for their own use.
Rates for larger installations over 50kW capacity were already cut to new entrants from 1 August 2011 after the Government's fast-track review of the FiTs scheme.
The proposed reduction would apply to all new solar PV installations in working order and licensed on or after 12 December 2011. Schemes will be eligible for the current rates before the lower tariffs come into force on 1 April 2012. However consumers who already receive FiTs or whose installations are ready before 12 December 2011 will continue to receive the current rates for 25 years.
DECC said that without the cuts FiTs for solar PV would cost consumers an extra £980 million through their energy bills by 2014-15. The reduction will restrict the cost to between £250-280m a year, it said.
Nearly three times as much solar generation capability as projected has been installed since the scheme was introduced, according to Government figures. In addition, the cost of an average domestic PV installation has fallen by at least 30% since the start of the scheme.
"The plummeting costs of solar mean we've got no option but to act so that we stay within budget and not threaten the whole viability of the FiTs scheme," Barker said. "Although I fully realise that adjusting to the new lower tariffs will be a big challenge for many firms, it won't come as a surprise to many in the solar industry who've themselves acknowledged the big fall in costs and the big increase on their rate of return over the past year."
"Our proposal for an energy efficiency requirement, as well as the launch of the Green Deal next autumn, creates a massive opportunity for these firms to use their expertise to get a foothold in this exciting new market," Barker said.
Energy company E.ON said that the reduced tariffs would particularly affect companies who offer free panel installations to households in exchange for the subsidy.
"[We have] committed to installing schemes where a provider installs solar panels on up to 10,000 homes under council or social landlord ownership with no cost to either the tenants or property owners, however these projects are put under threat by the drastic, short-notice changes proposed by the Government," said Don Leiper, the company's director of new business. "We appreciate that the FiT has a finite budget but we simply need time to be able to fulfil our obligations to our partners and customers under the current tariff levels."
The consultation will close on 23 December 2011.