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Solar subsidy levels will fall in line with costs, says Government


Subsidies for solar energy installations in homes and businesses will fall as the cost of the  technology being used falls, the Government has said.

The Department for Energy and Climate Change (DECC) has proposed the  reduction in subsidies in a consultation on the second phase of its review of the feed-in tariff (FiT) scheme. It said that the change would prevent further emergency reviews of the scheme, such as those carried out in 2010 and 2011 due to the falling costs of solar photovoltaic (PV) installations.

The Government has also confirmed further changes to FiTs from 1 April 2012 including details of the energy efficiency standard that properties will have to reach before owners can claim the subsidies and new 'multi installation' tariffs for organisations with solar PV projects at multiple sites.

However, it indicated that it was unwilling to drop an appeal to the Supreme Court over the legality of its plans to reduce FiTs for schemes completed 11 days before its 2011 consultation into the reductions ended.

"The Government cannot give certainty on tariff levels to people who install solar panels with an eligibility date between 12 December 2011 and 3 March 2012 due to ongoing legal proceedings," DECC confirmed in a statement.

Environmental law expert Linda Fletcher of Pinsent Masons, the law firm behind Out-Law.com, said that it was "surprising" that the Government was continuing with its appeal in spite of its commitment to tackle the recent uncertainty surrounding tariff levels.

However, she added that the latest announcement would be "welcomed" by businesses, particularly in the solar sector.

FiTs provide a financial incentive to businesses that generate electricity from renewable sources. They vary according to the renewable technology that is used. Once accredited under the FiTs scheme the installer becomes eligible for payments for the life time of the generation equipment, subject to a maximum period of 25 years.

The cost of installing a small-scale solar PV project has come down by approximately 45% since 2009, according to Government estimates. The resulting surge in installations put a "huge strain" on the budget for the FITs scheme as a whole, it said.

The current tariff of just over 43p per kilowatt hour (kWh) will be cut to 21p/kWh from 1 April 2012, however all projects in working order and licensed before the eligibility date will remain eligible for the higher rate for the life of that project. Last month the Government announced a contingency cut-off date of 3 March, unless the Supreme Court overturns a decision that its previous eligibility date of 12 December 2011 was unlawful.

The Government confirmed that owners of properties installing solar panels on or after 1 April will have to produce an Energy Performance Certificate (EPC) rating of 'D' or above to qualify for the full payment due under the scheme. It said that "about half" of all properties were already eligible for the rating, adding that previous proposals for a 'C' rating were "impractical" at this stage. The rating measures the energy and carbon emission efficiency of a property using a grade from 'A' (most efficient) to 'G' (least efficient).

Individuals or organisations receiving FiTs for more than 25 installations will receive a new 'multi-installation' rate of 25% of the standard tariffs from 1 April. The Government said that this reflected "the lower costs of such installations, as they benefit from the economies of scale", but that it would consult on a proposal to exempt social housing, community projects and distributed energy schemes from the rate reduction.

Environmental law expert Linda Fletcher said that an EPC rating of 'D' or above would "still be problematical" for a number of buildings. "It seems somewhat out of kilter with other proposals in the Energy Act which will restrict the letting of buildings from, at the latest, 1 April 2018 where the rating falls below a particular level which is widely expected to be 'E'," she said.

Energy law expert Peter Feehan, also with Pinsent Masons, said that the overall impact of the measures on the solar industry remained uncertain but added that parts of DECC's statement were "encouraging".

"Reducing the energy requirement for entitlement to qualify for the FiTs from Energy Performance Rating C to D is clearly welcomed, particularly for public sector projects, but the overall impact of the measures remains uncertain," he said.

"Clearly, DECC is committed to reducing the tariffs further. On the evidence we have seen, the reduction in subsidy is greater than the reduction in supply chain and installation costs. The market is not as healthy as DECC wants us to believe, and this leaves the industry still challenged in the foreseeable future."

He added that although small community projects would appreciate the rise in the threshold before multi-installation tariff reductions would apply to 25 units, the changes would have limited or no impact on registered providers due to the "sheer scale" such businesses needed across their housing portfolios.

"This is disappointing news for that sector and will really deter the return of private funding packages to underpin much-needed investment," he said. "We await the further decision from DECC in relation to how aggregation will impact the third sector generally, as this is subject to further discussion."

Announcing the further consultation on solar PV cost controls to prevent further uncertainty around falling installation costs, the Government proposed an "ambitious" programme of six-monthly tariff reviews with an "added deployment trigger" to ensure that subsidy levels kept in step with the market. A similar system operates in Germany. The consultation will close on 3 April, it said.

A third consultation on FiTs for technologies other than solar PV and  scheme administration issues, including exempting community projects from the multi-installation tariff reductions, will close on 26 April.

Greg Barker, minister for Climate Change, said that the revisions would "deliver [a scheme] for the many", with more than two and a half times more installations by 2015 then originally proposed.

"We are proposing a more predictable and transparent scheme as the costs of technologies fall, ensuring a long term, predictable rate of return that will closely track changes in prices and deployment," he said.

"I want to see a bright and vibrant future for small scale renewables in the UK and allow each of the technologies to reach their potential where they can get to a point where they can stand on their own two feet without the need for subsidy sooner rather than later."

The announcement comes the day after Ed Davey used his first speech as Energy Secretary to unveil plans to set up a new Energy Efficiency Deployment Office within the DECC to help deliver the Green Deal and other energy-saving policies.

"Hopefully this will mean the Government's various schemes become more cohesive and integrated," environmental law expert Linda Fletcher said.

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