Bloomberg News

U.K. Said to Plan Solar Subsidy Cuts at Regular Intervals

February 09, 2012

(Adds industry comment starting in fourth paragraph.)

Feb. 1 (Bloomberg) -- The U.K. government will announce as early as next week plans to reduce subsidies for solar energy at routine intervals as part of an effort to curb a boom in installations, a person familiar with the plan said.

The plan will include a deployment trigger mechanism that automatically cuts above-market rates paid for power from solar cells once installations reach a predetermined level, said the person, who declined to be identified before the official announcement. A spokeswoman for the Department of Energy and Climate Change confirmed by phone the government will propose a cost-control mechanism for solar power by Feb. 9.

The proposals aim to keep a lid on subsidies while giving developers more clarity about the support they can depend on and when the government will make changes. Ministers twice cut rates in 2011 after installations increased 10-fold. The government lost a legal challenge from Solarcentury Holdings Ltd. and Homesun Ltd. who disputed the timing of the reduction.

“Any policy change that creates a more ordered reduction in the tariffs rather than the fiasco in December is welcome,” Good Energy Group Plc Chief Executive Officer Juliet Davenport said in an e-mailed reply to questions. “A more stable market allows all of us in the industry to manage our businesses more sustainably and invest in the future.”

Germany’s Similarity

Britain’s proposal is similar to the system in Germany, the world’s largest solar market, which reevaluates support every six months. German Environment Minister Norbert Roettgen wants those cuts to come more frequently and is seeking to phase out subsidies by 2017.

The government next week is planning set out its proposals and put them to public consultation. It’s already seeking to cut in half support for small solar systems fixed to rooftops, though two courts ruled that ministers acted unlawfully in ordering the cut before a consultation with industry had ended.

After losing an appeal to December’s ruling, ministers said last week they may seek permission to appeal to Britain’s Supreme Court.

U.K. Energy Secretary Chris Huhne has said reducing support for solar power is needed to adjust for lower costs, keep the feed-in tariffs, or FITs, within their budget and put a lid on electricity prices.

Opposition View

Under the system introduced by the then-Energy Secretary Ed Miliband, “there was absolutely no way of automatically reducing the tariffs in line with what was going on in the real world,” Huhne told lawmakers on Jan. 26. “All we had to do was find out was happening in Germany and model our scheme on theirs.”

Solar panel prices fell more than 47 percent from a year ago, according to Bloomberg New energy Finance data.

“We desperately need a mechanism which allows tariffs to reduce in line with the falling costs of solar panels,” Gaynor Hartnell, chief executive officer of the Renewable Energy Association lobby group, said in an e-mailed response to questions. “Most important of all, however, is that more money is found as the FIT budget is now overspent.”

The current system started in April 2010, and also includes other renewable energy technologies, such as small-scale wind turbines. Its total budget was intended to be 867 million pounds ($1.4 billion) in the four tax years through April 2015.

By Jan. 22, about 779 megawatts of solar power had been installed since the program’s start, though not all had completed registration to get the tariffs, according to the energy department. That compares with the department’s projections before the program began for 284 megawatts by April 2013.

Utilities such as EON AG and Centrica Plc are required to pay the tariffs to consumers who install the panels, and they recoup the costs through all bills to consumers.

“The current method of fast-track consultations has been disastrous in its implementation,” Hartnell said. “Both installers and customers need forward visibility, and to understand what reductions to expect and when.”

--With assistance from Marc Roca in London. Editors: Reed Landberg, Randall Hackley

To contact the reporter on this story: Alex Morales in London at amorales2@bloomberg.net

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


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