Jackie Gray, Director, Dickinson Dees LLP:
Assuming the government pushes through its proposed cut to the Feed in Tariff (FIT) rates for solar photovoltaic (PV) panels, we are now only a matter of days away from the 12 December deadline for installing solar PV before the rate drops from 43.3p/kWh to 21p/kWh for the average domestic PV installation. As a result, and together with other changes proposed to the FIT scheme from April 2012, many public sector organisations are currently re-assessing the future viability of solar PV as part of their energy efficiency plans.
It had been widely anticipated that the FIT rates would be reduced from April 2012. However, in October 2011, following the announcement of the government’s proposals to reduce the FIT rates for solar PV panels by more than 50%, the solar industry was stunned both by the scale and timing of the cuts. Many in the public sector had expected they would at least have until the end of March next year to complete their solar PV projects to secure the current FIT rates. To their dismay, the government also proposed that the new rates would apply to all solar PV installed on or after 12 December 2011.
The early cut-off date means there is less than a week left now for organisations (including local authorities, housing associations and schools) to implement solar PV projects to secure the current level of FIT, all of whom hoped to benefit from free electricity and a reduction in their energy bills. For many community projects, including a number of large-scale social housing projects that had been slow to get off the ground, there simply has not been enough time to deliver them. As existing business cases won’t stack up with the reduced FIT rates (due to the significantly lower rate of return), funding to finance projects beyond December has been pulled in many cases.
The cut in FIT rates was announced in Phase 1 of the consultation on the Comprehensive Review of FIT, which was launched on 31 October and runs to 23 December (and therefore after the 12 December cut-off date). The government has also proposed new multi-installation FIT rates for aggregated solar PV schemes to start in April 2012. These will be 20% lower than the standard FIT rates and would therefore mean a rate of just 16.8p/kWh for the average domestic installation. These even lower FIT rates will significantly impact social landlords and local authorities who proposed to install solar PV on a number of their properties.
In a double blow, the government also proposes an energy efficiency requirement for properties on which solar PV panels are installed before they will qualify for the standard FIT rate. Although there had been early indications eligibility for FIT could be linked to energy efficiency in the domestic sector, the consultation also proposes to extend the requirement to non-domestic buildings. This means that some existing properties already earmarked for solar PV next year may only be eligible to receive a nominal 9p/kWh for the lifetime of the FIT scheme unless the property has a Level C Energy Performance Certificate rating, or all energy efficiency measures which qualify for Green Deal finance are installed first. For cash-strapped public sector organisations this could rule out solar PV where they don’t have the money to pay for the required measures or, in the social housing sector, where tenants aren’t able to pay for the measures through Green Deal plans.
However there may be a glimmer of hope for community solar PV projects. The government has indicated that it intends to look at proposals as part of Phase 2 of the Comprehensive Review to ensure that “genuine community projects” can benefit in full from FIT. The definition of “community project” will be of interest to many and it is hoped this will cover social housing projects that aim to help those in fuel poverty, along with other community schemes, such as those involving schools. The exact proposals will be set out in the Phase 2 Consultation on the Comprehensive Review which is due to be published before the end of 2011. The Phase 2 Consultation will also look at changes to the FIT rates for other technologies and a cost control mechanism to ensure that the FIT scheme operates within its funding cap in the future, for more information, see our toolkit.
Although the time for the public sector to benefit from high level of FIT subsidies has almost run out, many still consider that solar PV is viable to install at the reduced FIT rates given ever increasing energy bills and the drop in PV panel prices. However, solar PV projects on an estate-wide basis may still depend on the detail of the government’s proposals on community projects and, in light of the reduction in the standard FIT rates from April 2012, ought to be part of a wider approach to energy efficiency. That wider approach should also consider the opportunities presented by the new Renewable Heat Incentive, which launched in November 2011 and the Green Deal, which is due to launch in autumn 2012.