Tim Yeo MP, Chair of the Energy and Climate Change Committee, said:
"There is no question that solar subsidies needed to be urgently reduced, but the Government has handled this clumsily.
Ministers should have spotted the solar gold rush much earlier. That way subsidy levels could have been reduced in a more orderly way without delivering such a shock to the industry."
Plans to require homes to meet a ‘C’ rated energy efficiency standard before they can receive solar FiTs will limit access to wealthier households and could have a ‘fatal impact’ on the industry, the MPs warn. Eighty six per cent of homes would need to be better insulated before they could qualify for the scheme under the Government’s proposals – increasing up-front costs for homeowners by £5,600 to £14,000, even before the panels are purchased.
Joan Walley MP, Chair of the Environmental Audit Committee added:
"It doesn’t make economic sense to let the sun go down on the solar industry in the UK. As well as helping to cut carbon emissions, every panel that is installed brings in VAT for the Government and every company that benefits from the support is keeping people in work.
The Government is right to encourage people to focus on saving energy before fitting solar panels, but these proposals will require most households to spend thousands of pounds on extra insulation before they even purchase the panels.
This will stop nine out of ten installations from going ahead, which will have a devastating effect on hundreds of solar companies and small building firms installing these panels across the country."
Rising energy bills and the falling cost of solar panels made the original FiT rates so attractive that tens of thousands of households, companies and community groups have installed photo-voltaic (PV) systems since the scheme was introduced last year. The Government had evidence that solar panel prices were falling significantly as early as March 2011 but Ministers did not act to stem rocketing levels of small scale solar installations until the end of October.
According to the MPs, the consultation then announced by the Government was rushed. It was based on an inadequate impact assessment and unfairly set a 12 December deadline for changes to come into effect (reducing the FiTs for small scale solar from 43.3p to 21p) before the close of the consultation on 23 December. The scale and pace of the changes proposed was a shock for the solar industry and the suddenness of their introduction has damaged investor confidence across the whole energy sector.
Tim Yeo MP concluded:
"The consequence of the rushed, eleventh-hour consultation will be uncertainty among investors in all kinds of renewable energy, which will inevitably push up the cost of capital.
This is an extremely unfortunate outcome, because right now we need unprecedented levels of investment to replace ageing power stations and reduce emissions.
The Government should build predictability into its energy policies and then stick to it. There should always have been a review mechanism for FITs that responded to falling costs.
In Germany and France they have regular, incremental reviews and long lead times before changes are made."
The Government has proposed an even lower tariff (80 per cent of the new rate) for generators who have more than one solar system registered for FiTs, in recognition of the economics of scale such aggregated schemes can achieve. This will reduce the viability of ‘rent a roof’ business models and will also have an adverse impact on community solar projects, which depend more acutely on the tariff income to finance installations. This could have a disproportionate impact on disadvantaged and poorer communities for whom such schemes are a good way of accessing the benefits of renewable energy and reducing electricity costs.
Joan Walley MP added:
"The social housing sector and community owned schemes are going to be particularly hard hit by the reduced tariffs being brought in by the Government retrospectively.
All over the UK councils, community groups and social housing trusts are having to cancel projects at the last minute."
The suddenness of these changes means that some households have been forced to cancel planned solar panels and face losing their deposits. Others may have arranged loans on the basis that the interest could be covered from the current level of the tariff income. Many local authority and community renewable energy schemes have also been cancelled. The MPs are urging the Government to allow those who had already made a contractual financial commitment to install solar panels before the 31 October to receive the existing tariffs.
The report calls on the Government to:
- Develop a system to review and adjust FiT rates in an orderly and timely way
- Consider alternative energy efficiency requirements to avoid devastating the industry
- Design a ‘community tariff’ that takes in to account the wider impacts on community groups and social housing projects
- Collaborate between DECC and BIS Departments on how the FiTs scheme could be used to encourage solar panel manufacturing in the UK
- Require electricity suppliers to provide annual returns on how much FiTs have added to annual energy bills.
Feed-in Tariffs (FITs) were introduced on 1 April 2010, under the Energy Act 2008. They provide a payment for electricity generated using renewable energy technology, and a further payment for any electricity generated that is exported to the grid. This income is indexed linked and guaranteed for 25 years in the case of solar PV.
On October 31 2011 the Government announced a consultation as part of a review of FITs and proposed that tariff rates for domestic-sized solar panels would be reduced by around 50% from 43.3p to 21p per kilowatt hour (p/kWh) of electricity produced from April 2012. However, installations had to be completed and registered on the scheme by 12 December 2011 to receive the higher 43.3p rate for the full 25 years contract.