Updated: Government confirms 50 per cent cut to solar incentives

The government has confirmed it is planning to slash solar incentives by more than 50 per cent, cutting the feed-in tariffs available to domestic and small-scale business installations, from 43p per kWh to just 21p per kWh.

The Department of Energy and Climate Change (DECC) today launched a consultation on the proposed changes, confirming it wants the reduced tariffs to come into force as early as 12 December.

Under the proposals the new tariffs would apply to all new solar PV installations with an eligibility date on or after 12 December 2011.

Such installations would then receive the current tariff before moving to the lower tariffs on 1 April 2012, assuming the government does not make further changes following the closure of the consultation on 23 December.

The timeline prompted criticism from the solar industry, with founder of Solarcentury Jeremy Leggett stating on Twitter: "So you 'consult' until 23 Dec but cut off tariff from 12th? I guess you have a good lawyer?" 

The proposed changes are largely in line with those that appeared in a document inadvertently published by the Energy Saving Trust on Friday.

If brought into effect they would cut rates of return for solar installations from current levels that have, in some cases, topped 10 per cent to just 4.5 per cent to five per cent.

Significantly, the returns would be below the five to eight per cent originally envisaged by the feed-in tariff scheme.

The consultation also proposes cuts of between 14 per cent and 55.5 per cent for larger installations with between 4kW and 250kW of capacity.

The largest cuts of more than 55 per cent are reserved for installations with 4-10kW of capacity, while larger installations with 150-250kW capacity that are typically favoured by businesses and community projects will see tariffs fall from 15p/kWh to 12.9p/kWh.

Industry experts have warned the deep cuts would lead to a severe contraction in demand, and an end to free solar financing schemes and social housing projects.

Leading solar firms are predicting significant job losses if the proposed changes come into effect and are promising to mount a high-profile campaign against the scale of the cuts and the rapid pace at which they are expected to come into effect. There are also rumours that some solar firms could pursue legal action against the government over the rapid timeline for the consultation and the manner in which the proposed cuts could come into effect before the consultation exercise is officially completed in late December.

However, climate minister Greg Barker insisted the deep cuts were essential to ensure the feed-in tariff scheme remains within its spending cap and provides more "sustainable" foundations for the UK's solar industry.

"My priority is to put the solar industry on a firm footing so it can remain a successful and prosperous part of the green economy, and so it doesn't fall victim to boom and bust," he said in a statement.

"The plummeting costs of solar mean we've got no option but to act so we stay within budget and not threaten the whole viability of the FITs scheme.

"Although I fully realise that adjusting to the new lower tariffs will be a big challenge for many firms, it won't come as a surprise to many in the solar industry that have themselves acknowledged the big fall in costs and the big increase in their rate of return over the past year."

DECC said that based on the current rate of adoption of solar panels, the feed-in tariff scheme would breach its Treasury-imposed £863m spending cap and solar PV would cost consumers £980m a year, adding around £26 at 2010 prices to annual domestic electricity bills in 2020.

It added that under the new proposals, feed-in tariff PV costs will be limited to between £250m and £280m in 2014-15, reducing the impact of PV installations to an estimated £3 a year on energy bills by 2020.

The consultation also proposed a new energy efficiency requirement that would mean any household or business applying for feed-in tariff incentives from April next year would have to meet minimum energy efficiency standards.

The consultation suggests these standards could include ensuring the building has an Energy Performance Certificate level of C or above, or requiring people to take up Green Deal measures before they can install solar panels.

DECC said that as a transitional arrangement installations with eligibility dates between 1 April 2012 and 31 March 2013 would have 12 months from entering the feed-in tariff scheme to comply with the energy efficiency requirement.

Industry insiders have warned that unless any new standards are well structured they could act as a further barrier to solar adoption. 

In addition, it proposes new multi-installation tariff rates for aggregated solar PV schemes, presumably aimed at free solar and social housing projects, where a single individual or organisation owns or receives feed-in tariff payments from more than one PV installation located on different sites.

Under the proposals the new tariff rates would come into effect from 1 April 2012 and would provide tariffs of 80 per cent of the standard tariff rate for all aggregated PV schemes.

The change would represent a further blow to free solar financing schemes and social housing projects, which are already likely to be halted if rates of return fall below five per cent – a level at which industry insiders believe it will be impossible to attract private finance.

However, the government said that as part of the review it would "consider whether more could be done to enable genuine community projects to be able to fully benefit from FITs and whether, for example, a definition of community scheme is required and, if so, how this should be defined".

Green groups accused the government of dealing a crippling blow to a fast-expanding green industry.

"This is a real setback for jobs in Britain today, with the government announcement that they are slashing funding for solar panels," said Louise Hutchins from Greenpeace. "The renewable sector is one of this century's critical growth industries, with the solar industry creating more than 20, 000 jobs in the last year alone. There's a real inconsistency with the government's approach to job creation – on the day that deputy PM Nick Clegg announced funding for 35,000 new jobs the Treasury pulls the rug out from under this vibrant industry."

Her comments were echoed by Friends of the Earth's energy campaigner, Donna Hume, who warned the changes could put tens of thousands of people out of work.

"Greg Barker says he wants to make subsidies fairer, but the new rates mean that unless you have significant savings, you're unlikely to be able to afford solar panels," she said.

"The government should be encouraging more people – not fewer – to save money by making their own electricity, freeing us from the stranglehold of the Big Six energy firms that are pushing up our bills."