Bloomberg News

U.K. Proposes 55% Cut in Subsidy Rate Paid for Solar Energy

October 31, 2011

(Updates with comments from fifth paragraph.)

Oct. 31 (Bloomberg) -- The U.K. government proposed a reduction of as much as 55 percent for the price paid for solar power, part of an effort to keep a lid on electricity bills and reflect lower costs for panels.

Residential and small-scale commercial projects completed after Dec. 12 would see feed-in tariffs, or premiums for clean energy, scaled back by at least 51.5 percent starting in April, the Department of Energy and Climate Change said in a statement today. The deadline to qualify for the current rate is four months earlier than the government had planned.

“Urgent action is needed to put the solar industry on a steadier, clearer and sustainable growth path, avoid boom and bust,” Energy Minister Greg Barker said. “The plummeting costs of solar means we’ve got no option but to act.”

Solar panel prices have plunged to half of the level of a year

ago because of slower demand growth across Europe and rising

competition from Chinese manufacturers led by Suntech Power

Holdings Co. Ltd. Britain joins France, Germany and Spain in

scaling back incentives for the industry. Companies including

Sharp Corp. said the decision undermines their investments.

‘Unreasonable’

“It’s unreasonable,” said Andrew Lee, head of Sharp Corp.’s U.K. solar unit, which has a module-manufacturing plant in Rexham. “The government is asking an industry with 25,000 people to change their plans and strategy in just over six weeks. The shock to the industry is the date of the cuts more than the level of the cuts.”

The government said urgent action was justified after a recent surge in households installing solar threatened to break the 867 million-pound ($1.4 billion) budget for the four tax years through 2015. This limit, which is fixed in the budget even if costs are paid by consumers, allows for 832 megawatts.

More than 100,000 solar installations with about 400 megawatts have been built in Britain since the program started, or three times more than forecast, according to DECC. Since then, the average cost for an array of solar panels has fallen by at least 30 percent, it said.

Free installations for homeowners in exchange for the guaranteed tariffs and interest from local authorities nationwide have benefitted thousands of installers such as Solar Century Holdings Ltd., MITIE Group Plc and Southern Solar Ltd., creating thousands of jobs in less than two years.

Early Change

The industry expected the tariff changes proposed today to come into effect starting in April as envisioned when the program was created in April 2010. Under the new plan, existing plants and those built before the deadline in six weeks will get current rates for 25 years.

“The result of these changes will be a mad scramble to get solar installed in the next few weeks, and the groups most likely to lose out will be community schemes and social housing projects, which won’t have the flexibility to respond at such short notice,” said Juliet Davenport, chief executive of clean energy provider Good Energy Ltd. “That means some of Britain’s poorest households will miss out as a result of these changes.”

Britain may install as many as 750 megawatts of solar plants this year, according to Bloomberg New Energy Finance. That compares to more than 6,000 gigawatts forecast in Germany, the world’s largest market.

‘Steady Growth’

“Although these proposals halve the feed-in tariff, which will cause some installers to exit the market, the cut does not extinguish the economics for residential systems here,” Ranmali Desilva, solar analyst at the London-based research firm, said by e-mail today. “We expect continued steady growth in these installations.”

DECC’s decision today started a six-week consultation with industry about the proposals. In March, ministers fast-tracked a change that led to cuts in rates for large projects, or those with more than 50 kilowatts, by as much as 71 percent.

The department now proposes to cut incentives for residential projects with less than 4 kilowatts by 51.5 percent to 21 pence. Projects with 4 kilowatts to 10 kilowatts will receive 16.8 pence, or 53 percent less. Plants with 10 kilowatts to 50 kilowatts will qualify for 15.2 pence, or a 55 percent cut. Larger plants would see smaller reductions.

The government also is seeking views on how it could stimulate genuine community projects. It’s considering making feed-in tariffs available only for homes with a certain level of energy efficiency and giving a reduced rate to owners of more than one plant. Ministers want to ensure funds from the support program help homeowners and community projects and not big businesses investing in larger-scale plants.

Consumers vs Businesses

“Much of the growth in PV has been as much about consumers accessing the government-backed tariff as accessing the technology,” Barker said in a speech on Oct. 27. “High net- worth individuals chasing returns which are now easily reaching double figures at a time when interest rates for savers have collapsed to an historic low. That can’t be right.”

The new tariffs will offer index-linked returns of about 4.5 percent to 5 percent, comparable to those in Germany, according to DECC.

“It is essential that the government does not undermine the growth of the renewable industry, which is currently less than 5 percent of the size of the solar industry in Germany,” Caroline Flint, the opposition Labour Party’s lawmaker shadowing the energy department, said in a statement.

--Editors: Reed Landberg, John Viljoen

To contact the reporter on this story: Marc Roca in London at mroca6@bloomberg.net

To contact the editor responsible for this story: Reed Landberg at landberg@bloomberg.net


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