Solar Panels – Solar PV Feed in Tariff

Solar Panels - Feed in Tarriff (FIT) in the UK

The UK government has recently cut the Feed in Tariff rate payable for installing solar panels for electricity production installed in the UK.  What does this mean for Ireland?  Well with a decision on the introduction of a FIT for solar panels looming here there are lessons to be learned from their experience.  The reasons why the UK cut the tariffs are numerous but essentially they boil down to money available and political will.  Essentially the scheme was too successful - installing solar panels is extremely attractive when the price is right and the FIT in the UK created a huge demand which exceeded the financial projections and the budget.

Price WaterHouse Coopers (PWC) have recently released an analysis of the current situation in the Solar PV market in the UK called "Solar PV - A partial eclipse"  The information below is taken from that study.

The Market for Solar Panels in the UK

In the UK the solar photovoltaics (PV) market has grown from 5,000 to 750,000 installations in the last 5 years driven by these subsidies which have led to project returns of between 10–20%. The speed of deployment has caught the UK Government off-guard and the total solar PV subsidy is forecast to be overspent by £1.5 billion. A material reduction of subsidies has been announced to address this with tariffs slashed by 87% and 71%, for residential and commercial installations respectively, affecting new projects from 1 January 2016.

The Government has also introduced restrictive caps on the number of new projects that can receive the subsidy which will be limited to 18% of 2014 volumes.

Market Contraction

High levels of activity are expected across the supply chain ahead of the January 2016 cut to the solar subsidy. Thereafter, PWC anticipate an 18-24 month market downturn as installers struggle to make all but the best projects financially viable.

The sector is set to recover in the longer term as the performance and cost of solar panels continues to improve with market commentators indicating solar power will be on par with the wholesale market price of electricity by 2020.

As a result of the reduction in the Solar FiT a number of solar panels and development/installation companies have already entered administration (October 2015) due to the fundamental worsening of the economics of solar projects.

There has been a strong response to the proposed reductions to the subsidies from the renewables industry which has also gained support from a number of conservative MPs. As a result, the Department for Energy and Climate Change (DECC) may consider phasing-in the cuts over time rather than a sudden step change in 2016.

Summary

Solar Panels FIT

  • DECC has announced that FiTlevels will be reduced in every category from 1 January 2016.
  • Residential projects have seen the largest reductions ofnearly 90% from 12.47p to 1.63p/kWh.
  • There are further reductions on a planned quarterly degressionto remove all subsidies by April 2019.
  • DECC has also introduced caps on the total volume ofinstallations that will qualify for the FiTsubsidy.
  • The cap for 2016 is 24,140 installations which is only 18% of the 135,000 actual installations in 2014.
  • Therefore, even if installers can make projects viable under the new subsidies they will soon hit volume limits

Lessons for Ireland

The biggest message to take from all this is stability.  From the offset the FiT for solar panels has been in a state of flux in the UK.  The price has dropped for a number of years causing an unstable foundation for an infant solar industry to establish itself. The result is a boom and bust cycle which leads to job lossess and hampers the creation of a sustainabe industry. If Ireland is to introduce a FiT for solar panels it needs to be modest but enough and at all costs it must be stable and dependable if we are to avoid the pitfalls of our neighbours.

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