Government cut to solar tariff not good news, sector says.

Cut in solar tariff could damage sector

Britain's plans to cut financial support for large solar power projects may stunt the nascent sector's growth, push investors abroad and prevent the country from meeting its renewable energy targets.

The British energy ministry says it may soon slash the premium paid for power produced by large-scale solar plants - called feed in tariffs (FITs) - in a bid to prevent a small number of big projects from absorbing money meant to be shared with household and community solar projects.

"It's a bit worrying we've only had a small handful of (solar) megawatts deployed to date in the UK and we're already reviewing our FIT regime," said Ernst & Young's Ben Warren.

Nearly 70 per cent of renewable energy projects receiving money now through the FIT scheme are solar plants, government figures show, compared with 18,000 MW installed in Germany, a country with comparable sunlight conditions.

Britain's Energy Secretary said he was concerned growth in large solar projects could prematurely use up the £360m budget set until 2014 for FIT schemes.

Since a review of the FIT programme was announced in October during the government's comprehensive spending review, the industry had been expecting an announcement along these lines.

But solar developers and investors said they were shocked by this week's news that solar projects over 50 kilowatts (kW) may be subject to funding cuts as early as this summer.

"Fifty kilowatts is 12 houses, so anything above that - social housing, church, school hall - means they can't even have an installation," said Andrew Lee, general manager of Sharp Solar UK, which recently grew its UK factory to meet rising demand. "So that's disastrous news."

Guaranteed premium prices for renewable energy generated are key for making the business cases of solar projects in Britain and even the possibility of a cut will leave developers thinking twice about investing in the sector.

In August 2010 the government allowed local councils to sell green power to the energy grid, making it possible for them to make money from green energy production.

Cornwall Council invested £140m to open a large solar project this year, but early FIT cuts threaten the plan.

"If they cut the FIT from this summer the project becomes economically less viable and our communities are losing out," said Tim German, renewable energy manager at Cornwall Council.

From an investor's point of view, solar projects in the early stages of development are less likely to receive funding than projects that already have necessary permits in place.

Steve Moore from Triodos Bank, which financed the UK's largest roof solar project last summer, said cuts to FITs will curb solar market growth and dampen demand for larger projects.

Lower demand for panels could force Sharp Solar UK to focus more on exporting to European markets, Lee said.

Britain's ambitious target of covering 15 per cent of energy demand by renewable sources by 2020 can only be met with the right support for clean technologies, industry observers say.

Large-scale solar will be able to contribute more green power than small, domestic plants and can deliver projects more cost-efficiently as they are usually backed by experienced companies, said Deloitte's head of UK renewables Roman Webber.

"Why does it matter if it's a commercial project as opposed to a domestic one where people put solar on roofs?" he asked.

"As long as the clean energy is being generated under the FIT it shouldn't make a difference."

The government's plan to put more small-scale solar panels on private houses also poses a personal finance problem because homeowners have to cover the up-front installation cost themselves before the slow payback from production even begins.

Andrew Ingram, a farmer in the Chilterns area, paid up to £80,000 out of his own pocket to install a 28kW solar plant on a barn last May.

He expects to recover his investment over 8-12 years, with a yearly income of around £8,000 through the FIT.

But not every household has the financial means to pay the high installation costs.

"It's the credit crunch and people are paying off their mortgages rather than putting solar panels on their roofs," said Robert Groves, chief operating officer for SmartestEnergy, a green supplier which paid 12 per cent of Britain's FIT rewards in the fourth quarter of 2010, according to government data.

Members of Britain's Renewable Energy Association may take legal action against the government, hoping to reverse plans to cut FITs early, the body's chief executive said.

"If firms have already invested a lot on the basis of previously announced plans, and then these are scrapped prematurely, there could be a viable claim for damages," said Paul Rice, senior head of energy at law firm Pinsent Masons.

The government will announce over the coming weeks whether large-scale solar plants will receive lower FIT support from the summer onwards and a second review will show whether tariffs will also be changed for other sources from April 2012.

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