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Solar tariffs slashed by half

Drastic reductions in the feed-in tariff that householders receive for solar-generated electricity are on the way, with cuts of over 50% from 1 April 2012. Any installations not registered by 12 December 2011 will no longer qualify for the current top rate of 43.3 pence per kilowatt hour (p/kWh), and will receive only 21 p/kWh from April 2012. Rates for existing installations will be unchanged for the 25-year period.

In announcing the changes, Energy Minister Greg Barker claimed that the radical adjustment was needed so that the solar industry "doesn't fall victim to boom and bust". The government argue that the falling costs of installing solar panels mean that they are still an attractive proposition, even with the new lower tariff. However, the sudden change in policy has been greeted with dismay by many, and will herald a frantic rush to get systems installed and registered for FITs by 12 December.

Escalating cost

The FITs scheme has fallen victim to its own success. Many more households than anticipated have been encouraged to opt for solar PV panels, with over 100,000 installations in place, equivalent to over 400 megawatts capacity - nearly three times as much as projected by the government. Barker emphasized that at this rate, the cost of FITs for solar PV would rise to nearly £1 billion by 2014-15. Because the tariff is financed through electricity bills, the FITs scheme would add around £26 to the annual domestic electricity bills. Hence the need for the decisive assault on the escalating costs.

In a further move to tighten the solar tariff belt, Barker announced that, from 1 April 2012, a property will have to attain a certain level of energy efficiency to be eligible for even the 21p/kWh rate of tariff. For example, properties that cannot meet level C on the Energy Performance Certificate might get only 9p/kWh if they fail to comply after 12 months.

For a well-designed and properly situated system, the new FITs rates will produce a return on investment of 4.5 to 5%, according to the Minister, instead of the 7 to 10% or more currently being enjoyed by solar PV households. As before, the return will be tax free and index-linked.

Beating the 12 December deadline?

Much attention will focus on how to beat the 12 December deadline. What exactly will make a system eligible to attract the current highly favourable FIT rate? In broad terms it means making sure that the system is in working order and that the request for accreditation has been received by your energy company before 12 December. But you must consult with the installer to make sure everything is in order.