Solar installation

News Analysis: FIT for purpose? Feed-in tariffs under scrutiny

Incentives intended for small-scale renewable energy projects are under review. We examine the ramifications.

The UK government's announcement that it is to conduct a fast-track review of Feed in Tariffs (FITs) has caused consternation and uncertainty in the solar photovoltaic (PV) industry. PV projects above 50kW are to come under particular scrutiny.

Financial incentives are always inherently controversial. By their very nature they favour one technology or a group of technologies over others. Even within the sectors that benefit there is often an undignified scramble for a greater share of the pie – in this case solar and wind. Or, more correctly, large-scale solar and wind.

Germany has had FITs for a decade and they are integral to the increase of solar and wind market share, but the downside is that Germany has energy prices that are as high as any in the EU. And, as with all subsidies, it is the consumer who ultimately foots the bill.

Poorly constructed FITs can place an onerous burden on the taxpayer. In Germany the cost of solar subsidies is expected to hit €46bn by 2030. In Spain there was such a huge take-up of generous solar subsidies that the government had to renege on its promises.

In the UK's drive to encourage take up of renewable energy, the previous government introduced FITs in April 2010, aimed at increasing the adoption of small renewable schemes including solar panels, wind turbines and micro hydro plants by paying householders above the market rate for electricity generated by these means. These tariffs survived the cuts during October's spending review, although 10 per cent was skimmed off the total pot, leaving just £360m to share around.

The scheme costs £1 a year on the average household bill, rising to £8.50 a year by 2030. Its supporters point out that it has prompted the installation of around 21,000 small-scale renewable projects, but that is below target.

Without the government subsidies for large-scale farms, many developers insist it will be impossible to move the industry from early-stage technology and into commercial profitability. Meanwhile, critics continue to argue that the need for incentives raises doubts over the economics of solar power in the UK.

But amid fears that a proliferation of larger solar sites would swamp the scheme the government has ordered a fast-track review of tariffs, administration and eligibility, angering those whose projects are in the planning process.

Prices paid could change from April 2012 'unless the review reveals a need for greater urgency', with a speedier analysis of solar projects larger than 50kW, where any recommended changes will be implemented as soon as possible, subject to consultation and Parliamentary scrutiny.

Ofgem figures at the end of 2010 show that only 51 schemes were installed in the 10-100kW band. None at all were built in the 100kW to 5MW band, while 28 standalone schemes have been registered. 14,765 installations of less than 10kW were developed.

The UK FIT scheme is expected to deliver just 2.7GW of PV by 2020. This is out of step with European and international markets, where Germany plans to deliver 39.5GW, Italy 26GW and France 5.5GW by 2020. Even Belgium expects to outstrip the UK. Germany installed 2.5 million PV systems last year – the whole UK FIT scheme anticipates just 750,000 systems by 2020 across all technologies.

In a statement, Chris Huhne, Secretary of State for Energy and Climate Change, said: 'Large scale solar installations weren't anticipated under the FIT scheme we inherited. I'm concerned this could mean that money meant for people who want to produce their own electricity has the potential to be directed towards large scale solar projects.'

Not surprisingly, the developers themselves have come out strongly in support of the scheme and issued warnings about any changes. 'We expect to have our feet there on the ground this year,' said Gregory Spanoudakis, European spokesman for Canadian Solar. 'The UK has taken the right approach as long as they don't start fiddling.'

The Renewable Energy Association (REA) has waded in with claims that projects aimed at hospitals, schools and housing associations would be badly hit. Individual developers concerned about stranded investment are talking about taking legal action.

'Non-domestic and community schemes have a vital role to play in the cost-effective and sensible development of the UK photovoltaic industry,' said Gaynor Hartnell, chief executive of the REA. 'Many investors stand to lose out. I fear that this announcement reflects the generally poor levels of ambition for PV in the UK and will adversely affect our ability to attract much needed future investment in other low-carbon technologies.'

'This is going to put the jitters into some market segments,' commented David Sowden, chief executive of trade group Micropower Council. 'It's the fast track threshold of 50kW that is of concern, because that's going to catch a lot of rooftop installations. That comes as a surprise. Nothing of reading the tea leaves of parliamentary language flagged concern in that area.'

Whatever the concern of developers it is apparent that the initial scheme is flawed, but, to avoid the risk of market uncertainty and to allow the development of the larger solar schemes that are vital if the UK is to hit its renewable targets, the scheme needs to be formalised and allow the long-term investment required. *

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