• New tariffs proposed
• Energy efficiency requirement from April

Urgent action is needed to put the solar industry on a steadier, clearer and sustainable growth path, avoid boom and bust and protect the wider Feed-in Tariff scheme (FITs), Greg Barker said today.

Reduced subsidies for domestic solar electricity production have been proposed as part of an urgent effort to keep the FITs scheme budget under control and reflect the plummeting costs of the technology.

The proposals, subject to consultation, would introduce a new tariff for schemes up to 4kW in size of 21p/kWh – down from the current 43.3p/kWh. Reduced rates are also proposed for schemes between 4kW and 250kW, to ensure those schemes receive a consistent rate of return.

Climate Change and Energy Minister Greg Barker said:

“My priority is to put the solar industry on a firm footing so that it can remain a successful and prosperous part of the green economy, and so that it doesn’t fall victim to boom and bust.

“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.

“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 in 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.

“People who are now thinking of installing solar PV need to do so with their eyes wide open and I’d encourage them to call the Energy Saving Trust for the latest advice.”

The cost of an average domestic PV installation has fallen by at least 30% since the start of the scheme – from around £13,000 in April 2010 to £9,000 now.

If the Government took no action, by 2014-15 FITs for solar PV would be costing consumers £980 million a year, adding around £26 (2010 prices) to annual domestic electricity bills in 2020. Our proposals will restrict FITs PV costs to between £250-280 million in 2014-15, reducing the impacts of FITs expenditure on PV on domestic electricity bills by around £23 (2010 prices) in 2020.

There is a finite funding allocation for the FITs scheme so as to limit the impact on energy consumers, who pay for the scheme through their bills.

A recent surge in households installing solar PV has threatened to break the budget. There were over 16,000 new solar PV installations in September alone – nearly double the number installed in June. And nearly three times as much solar PV as projected has so far been installed with over 100,000 separate installations with over 400MW of capacity.

The new proposed tariffs would apply to all new solar PV installations with an eligibility date on or after 12 December 2011. Such installations would receive the current tariff before moving to the lower tariffs on 1 April 2012. Consumers who already receive FITs will see their existing payments unchanged, and those with an eligibility date on or before 12 December will receive the current rates for 25 years.

The eligibility date of a project is based on it being commissioned (in working order) and having its request for accreditation received by a FIT licensee (schemes up to 50kW) or Ofgem (more than 50kW).

The proposed new tariffs will offer a rate of return of around 4.5% to 5% index linked and tax free (for domestic installations) for well-situated solar PV – broadly comparable to that intended when the scheme was set up. The tariffs are broadly comparable to those offered in Germany, which has also recently reduced its tariffs.

Today’s consultation also proposes:

• a new energy efficiency requirement that would mean from 1 April 2012 a property would have to reach a certain level of energy efficiency to receive the proposed new tariff rates. This could include reaching an Energy Performance Certificate level of C or taking up all the measures potentially eligible for Green Deal finance, depending on the outcome of the consultation. As a transitional arrangement, installations with eligibility dates between 1 April 2012 and 31 March 2013 would have 12 months from the eligibility date to comply with the energy efficiency requirement.
• new multi-installation tariff rates for aggregated solar PV schemes, i.e. where a single individual or organisation owns or receives FITs payments from more than one PV installation, located on different sites. The new tariff rates would apply to all new PV installations that are part of an aggregated PV scheme and have an eligibility date on or after 1 April 2012. The new tariffs are set at 80% of the standard tariffs for individual installations.

The Government will also, as part of its review into the FITs scheme, consider whether more could be done to enable genuine community projects to be able to fully benefit from FITs and whether, for example, a definition of community scheme is required and if so, how this should be defined.