Are the clouds finally lifting for the UK solar industry?

On balance yesterday’s reforms to feed-in tariff should restore some much needed stability to the solar industry, but significant concerns remain

25 May 2012, 00:05

It might not come as any immediate consolation to those solar firms who have gone to wall, laid people off, or are currently struggling with cripplingly low levels of demand, but yesterday's announcement of changes to the solar feed-in tariff regime represent a good day for an industry that has spent far too long under a cloud.

The next wave of cuts have been postponed by a month, giving companies valuable extra time to get the message out that well-placed solar can deliver rates of return of up to 10 per cent, while the cuts that will come into effect in August should only take average returns back to the six to eight per cent level. Yes, some will ask how the market can expect to recover with the prospect of further cuts hanging over it, but the falling cost of solar means that even as tariffs are cut attractive returns should be possible. Now the onus is on solar firms themselves to get an effective marketing and communications strategy underway to convince domestic and corporate customers of the continued attractiveness of the solar proposition.

More important still, the new regime for cutting or freezing tariffs every three months does give installers and prospective customers more certainty than they have had at any point in the last 12 months. As Climate Change Minister Greg Barker put it there is now a "transparent and predictable" mechanism in place that gives "the opportunity for deployment at scale that is both ambitious and affordable".

Inevitably, there are a few important caveats, particularly for businesses considering deploying larger scale solar installations.

The prospect of tariffs changing every quarter will make it difficult to authorise investment on a project that could take longer than three months to complete. The reforms may promise two months of notice before any changes, but this is still unlikely to be sufficient for some larger installations.

Barker raised the prospect of community projects perhaps being allowed to pre-register for feed-in tariffs at the point they start work on a site, but a decision will not come until the summer and in any case it will not apply to corporate installations. As such, those commissioning large scale projects may have to take a punt on the tariff they will get when the project is completed. Barker suggested that with cuts being determined by the prior rate of deployment savvy businesses will be able to get a "good feel for what the rate is going to be", but in my experience the finance directors who sign off on capital expenditure are extremely wary of any project that requires them to get a "feel" for the eventual rate of return.

Add in the fact that businesses are more likely than domestic customers to spot the impact on overall returns of the shortening of the feed-in tariff payment period from 25 to 20 years, and the changes are not quite as positive as they first seem for larger corporate installations.

That is not to say businesses cannot make solar projects work, they absolutely can, it is just that they will have to find a way to complete projects very quickly or else accept some risk that returns could be fractionally lower than initially expected when undertaking an installation.

However, on balance the new plans represent as good a settlement as the solar industry could have expected - the future looks considerably brighter than it did even a few days ago. Throw in Greg Barker's (in my opinion wholly genuine) enthusiasm for decentralised power, the target for 22GW of capacity by 2020, the commitment to invest in solar technology improvements through a new R&D centre in Cornwall, and the likely inclusion of solar in the government renewables roadmap, and it has been a pretty solid result for an industry that still faces considerable challenges as it seeks to bolster tragically low levels of demand.

All of which makes it as good a time as any to try and draw a line under the events of the past 12 months.

The traumas and tensions caused by the government's initial mishandling of the cuts to feed-in tariff incentives have caused immense damage to the sector and resulted in a great deal of heartache and ill-feeling on all sides. There is now an attempt underway to suggest that fighting the government's initial cuts in the courts and the media had little effect, while the more conciliatory tone adopted by the industry in recent months has helped deliver the kind of stable and sustainable feed-in tariff regime solar firms always wanted.

This strikes me as wholly inaccurate. I'd argue the government has delivered a more attractive regime due to the combination of both the kicking it took over its initial mishandling of the cuts, followed by efforts on both sides to then co-operate and deliver a more effective subsidy system. The government was sent a necessary signal that the sector will vocally oppose cuts that are rushed, unsustainable, and just plain illegal, just as it has also seen how industry and ministers can work together to deliver a green economic success story. Greg Barker has now got as close as a minister is likely to get to apologising, acknowledging that while the government's aims were always justified, in hindsight things might have been handled slightly differently last winter. Those whose livelihoods have been damaged are obviously unlikely to forgive and forget any time soon, but while the process has been deeply flawed the end result is that for the first time we have a government that is publicly committed to a huge increase in decentralised energy.

Mistakes have undoubtedly been made on all sides, but now it is time for the solar industry to pull together and start a new narrative that highlights the considerable financial and environmental benefits associated with this remarkable green technology.

For the first time in over a year the biggest challenge facing the solar industry is not the policy environment (although as mentioned there are still issues with regards business installations in particular that need resolving), but rather the difficulty restoring confidence in a market that has seen demand fall off a cliff. It would have been nice if Ministers could have found a way to keep the incentives at their current level for longer, but with costs continuing to fall and the budget issues of last autumn fresh in their mind that was never going to happen. Instead it will be left to savvy solar firms to find ways to reach out to customers and make them aware of the many benefits associated with solar energy.

Achieve that and yesterday really would have been a good day for the solar industry.

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Previously known as the BusinessGreen Blog, James' Blog features musings, observations and occasional rants from BusinessGreen editor James Murray

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