What now, as Government cuts funding for solar projects?

by Gary Bratt

t: 0141 354 2886

e: Gary.Bratt@brucestevenson.co.uk

In February 2011, the government announced a review of the FiT (Feed in Tariff) policy, bringing forward a planned review originally scheduled for 2012. The decision was based upon a number of larger commercial solar farms ( >50 kilowatts capacity ) being granted planning permission and a concern that at such a rate of development, the projects would use up the available funding, leaving limited resources for smaller domestic and community based schemes.

In the last few years, the European renewable energy market experienced substantial growth, led by countries such as Spain and Germany. The UK market by contrast developed at a much slower rate, as unlike our European neighbours, the UK did not offer a financial tariff for those who wished to generate electricity from renewable sources. To encourage technology, expertise and renewable energy awareness within the UK, the government identified the importance of a payment scheme to secure future growth within the sector. In April 2010, the government introduced the Feed in Tariff (FiT), a system which encouraged sub-5 megawatts scale electricity generators to enter the market by offering long term, guaranteed payment rates for each unit of electricity generated, with a further additional payment for each unit of electricity exported to the National Grid. Before the advent of the FiT, UK commercial scale solar installations, using photovoltaic (PV) technology to convert sunlight into electricity, were simply not viable because of the time taken to gain a return on investment – not helped by the lower intensities of sunlight in the UK compared to the rest of Europe, generating a lower volume of electricity. The FiT was designed to remove this barrier and create the opportunity for PV projects and other technologies to be developed.

Since the introduction of the FiT , a number of new PV developers have sprung up to take advantage of the policy, working to install PV panels to domestic and industrial rooftops as well as ground based systems. Manufacturers of PV equipment have also been preparing to increase production in order to meet demand. So far the FiT has encouraged a rush for PV development within the UK.

The unfortunate consequence of the review however is that it has caused investor confidence to collapse as uncertainty in tariff rates now raises a question mark over PV project viability. Finance institutions have stopped lending to new PV schemes, while planned projects have come to a standstill, frozen until some certainty has been returned to the sector. Also of concern to the renewable industry as a whole is that the government is prepared to destabilise growth in the sector with an earlier review, despite regular scheduled reviews being already built into the FiT policy.

So what happens now? Industry experts predict PV tariff rates for projects greater than 50kW will decrease, possibly allowing anaerobic digestion (A.D.) to receive higher tariff rates to encourage further development. To date, the rate of development of anaerobic digestion plants in the UK has been much slower than anticipated. For PV developers, the review is now a waiting game until the outcome of the tariff review is known.  Also, the banks will only continue lending to PV projects once they are satisfied a return on their investment can be made

The review is due to be completed by the end of 2011, with any changes to the tariff rates becoming active in April 2012.