Reduced solar electricity subsidies hit council and housing association schemes

The government has unveiled proposals to reduce significantly the subsidies available for domestic solar electricity production, with Climate Change and Energy Minister Greg Barker insisting that the move was necessary to protect the wider Feed-in Tariff scheme (FITs).

However, energy lawyers have warned that the proposals represent “a real blow” to social housing retrofit projects not yet off the ground and which might struggle to meet a key government deadline next month.

The Department for Energy and Climate Change proposals, which are 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.

There will also be reduced rates for schemes between 4kW and 250kW, “to ensure those schemes receive a consistent rate of return”.

DECC said it was essential to keep the FITs scheme budget under control. It also claimed that the reduced subsidies would reflect plummeting costs of the technology, pointing out that the cost of an average domestic PV installation had fallen by at least 30% since the start of the scheme.

According to the Department, the proposals would restrict FITs PV costs to between £250-280m in 2014-15, reducing the impacts of FITs expenditure on PV on domestic electricity bills by around £23 (2010 prices) in 2020.

It said a recent surge in households installing solar PV – there were more than 16,000 installations in September alone – had threatened to break the budget.

Under the proposals:

• The new proposed tariffs would apply to all new solar PV installations with an eligibility date on or after 12 December 2011. These 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. 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
• There will be a new energy efficiency requirement that would mean from 1 April 2012 a property will 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 will have 12 months from the eligibility date to comply with the energy efficiency requirement
• There will be new multi-installation tariff rates for aggregated solar PV schemes 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 will 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 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.

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.”

The minister insisted that the government’s proposal for an energy efficiency requirement, as well as the launch of the Green Deal in Autumn 2012, would create “a massive opportunity” for these firms.

But Libbie Henderson, a partner within the energy practice at law firm Dickinson Dees, warned that the 50% cut in FIT rates for the average domestic household solar PV installation from April 2012 for those installations which do not meet the new 12 December 2011 eligibility date deadline was a real blow to social housing retrofit projects which are not yet off the ground.

She said: “The December 2011 cut-off date means that for some local authorities and housing associations, there simply won't be enough time now to deliver their solar PV projects as their business cases won't stack up with the reduced FIT rates and the time, resource and costs they have incurred developing projects will be wasted.

“For others who already have contracts in place, it may no longer be feasible to continue with their original programme where project finances assumed the current level of FIT rates applied to new installations up until 31 March 2012.”

Henderson said it might be possible to reduce the scope of current projects or depending on how advanced implementation programmes were, to accelerate their roll out. However, she warned that this was likely to have cost consequences for local authorities and housing associations under the terms of their existing contracts.

The Dickinson Dees partner said: “The new multi-installation tariff rate, which is 20% less than the new standard rate,…. is a further blow to social landlords looking at large scale solar PV projects after April next year.”

Henderson also pointed out that the new requirement for properties to meet minimum energy efficiency requirements would mean that some existing housing stock already earmarked for solar PV next year might only be eligible to receive a nominal 9p/kWh for the lifetime of the FIT Scheme, unless energy efficiency measures are installed before 31 March 2013 which would enable the property to comply with the new energy efficiency requirements.

“For cash strapped social housing providers this may rule out solar PV on a number of properties as they won’t have the capital funds to implement additional energy efficiency measures and tenants may not want to pay for the additional measures through Green Deal plans,” she argued.

Philip Hoult