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Solar tariffs to fall from 1 August

Camilla's PVOn 24 May the government published its response to the consultation on the future of feed-in tariffs for solar PV. For new installations completed on or after 1 August 2012 the top rate will fall from 21p/kilowatt hour to 16p/kWh, although this fall comes one month later than the original deadline of 1 July, so giving installers a bit of breathing space over the summer. Also, the export tariff will increase to 4.5p/kWh from the current 3.2p, but the tariff lifetime will be cut from 25 to 20 years. For larger installations of 4-10 kWp capacity, the tariff will fall from the current 16.8p to 14.5p/kWh.

The response also sets out the mechanism by which the tariff will be cut in future, the so-called degression mechanism. The tariffs will be reviewed on fixed dates every 3 months, starting on 1 November 2012, and cut acccording to the rate of deployment of solar PV. If take-up has been low, tariff cuts will be skipped. Tariffs will continue to be index-linked to the Retail Price Index.

End to uncertainty?

Although these cuts are another setback to the UK solar PV industry, already suffering reduced demand due to doubts over the government's commitment to the feed-in tariff, they are perhaps not as bad as some had feared, and bring some degree of certainty to what has been a constantly changing game. The government's own consultants revised down their estimates of future cost reductions, with projections of just a 10% reduction in installation costs both this year and next, compared with earlier estimates of up to 25% cost reductions. This is significant because the government has decided to set these latest tariffs on cost data, not on levels of deployment, as mooted earlier. The aim is to maintain levels of return in the range 4.5 to 8%.

Degression mechanism

Future degression dates have been set every 3 months, with future cuts to take effect from 1 November 2012, 1 February 2013, 1 May 2013, and so on. The revised tariffs will be published by Ofgem at least 2 months before the degression date, and will be based on deployment of solar PV in the previous 3-month period. Degression will operate in three 'bands' independently, for domestic (up to 10kWp), small commercial (10-50 kWp), and large commercial (over 50kWp) installations.The baseline degression is set at 3.5% every 3 months, equal to 13.3% per annum, but this can be skipped for up to two successive review dates if deployment falls below a certain threshold. However, should there be a surge in installations, the degression rate will be increased to dampen spirits again.

And what levels of deployment do the government anticipate? The thresholds for the domestic degression band have been set thus. If, for the relevant 3-month period, installed capacity is below 100 megawatts, there will be no tariff cut; deployment of between 100 and 200 MW will trigger a 3.5% cut, while greater deployment will attract deeper cuts, up to a maximum of 28% for 3-month deployment exceeding 300 MW. Deployment statistics will be published monthly on the DECC website, starting on 24 July 2012.