1 November 2011: FiT Consultation – Time to keep your feet on the ground

The UK government’s announcement that it is to launch a two-month consultation period into the tariff structure of the Feed-in Tariff should be welcomed. What began life as an initiative to stimulate interest in small-scale (the government’s words, not ours) renewable energy technology and energy awareness has in the opinion of independent energy efficiency advisors, ReEnergise, become a large-scale feeding frenzy.

Feed In Tariffs (FITs) provide the financial incentive to would-be small-scale renewable energy generators to make an investment look and feel more like any other financial investment by providing a regular, annual payment to offset the high upfront cost of investment. Large-scale commercial investments already had a scheme, called Renewable Obligation Certificates or ROCs, to provide a financial incentive. Small-scale investments and domestic systems did not.

However, because of the speed government can and must move, prices of solar photovoltaic (solar PV) panels have reduced significantly between the conception of the FIT scheme in 2009 and today. According to Adam Hewson, ReEnergise Director and co-founder:

Today some larger scale investors can obtain returns on investment in solar panels of 20-30%. That cannot be right in a scheme designed to encourage home-owners to take up solar PV.

The government, through the Department for Energy and Climate Change is looking to level the playing field. FIT levels were set to deliver nominal returns of 5 to 8%. Now they do not, they deliver much more and in a market that has significantly more competition and significantly lower equipment prices. However, their budget is not unlimited. Although the actual cost of FIT flows directly from a levy on all our utility bills to the beneficiaries of renewable energy, the government has sought to put some constraints on the total cost to us all.  “We think that is the right thing to do,” says Hewson.

There are three key proposals in today’s announcement of a consultation programme:

  • Firstly, reduce the financial return through the FIT back to circa 5% (most likely through a 40 to 50% reduction in the FIT).
  • Secondly, reduce the rate available to aggregators of systems (‘free solar’ or ‘rent a roof’ schemes) by a further 20%.
  • Thirdly, ensure all new systems are installed in conjunction with appropriate energy efficiency and insulation measures.

These are not retrospective, and apply only to new systems after this period.

By and large, ReEnergise is entirely supportive of these proposed changes. As  Adam Hewson says:

An unbalanced incentive scheme only leads to bubbles and the mis-allocation of funding. Reducing the incentive to large aggregators, who already benefit from significant economies of scale, leaves more funding for individuals. Ensuring energy efficiency is part of any scheme should have always been in the regulations in the first place.

How the industry reacts to this is a going to be a great test of its maturity. One element that is immediately obvious is that in order for the solar PV market to remain viable, it needs to be a little more transparent about pricing and for customers to pay the right price, not the sometimes arbitrary “quoted” price.

Most importantly, this is only a change in the return on an investment. It is NOT the end of a good return on capital. The returns on offer remain competitive with many other investment options, particularly when you consider it is still FIVE times more than an average bank interest rate. And an investment in solar PV has only ever been about the financial return, as we advise all our clients. The actual energy saving is often only a fraction of energy costs to the typical consumer.

There will be an enormous amount of entirely self-serving hysteria and hyperbole from the solar PV industry over the next few weeks,” predicts Hewson. But it is always useful to bear in mind who pays for the return that these people will claim is being unfairly torn from them.

About ReEnergise

ReEnergise provides homeowners and businesses with independent, impartial advice on how to improve energy efficiency in their homes and what role, if any, renewable technologies could play in achieving this. We provide our customers with a thorough and detailed review of their current energy usage combined with a comprehensive cost/benefit analysis of the efficiency improvement options available to them.

Tarquin Henderson


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