Government hints at budget hike ahead of face-saving feed-in tariff plans

The government will today unveil a package of measures designed to secure the future of the popular feed-in tariff incentive scheme, after Climate Minister Greg Barker told industry representatives that the scheme's budget would be increased.

However, renewable industry insiders remain deeply concerned that the announcement will be accompanied by proposals for further deep cuts to feed-in tariff incentives for solar and other forms of small scale renewable energy.

The Department of Energy and Climate Change (DECC) will this morning confirm the outcome of a controversial consultation launched in October last year, which became the subject of an on-going legal battle over proposals to impose a retrospective deadline for solar installations that register for the incentives.

It will also launch new proposals to introduce a mechanism for cutting subsidies in the future, designed to provide the renewable energy industry with greater clarity over when incentives will be reduced.

The proposals will be accompanied by the second phase of the feed-in tariff consultation, which will set out new tariffs for all small scale renewable energy technologies which benefit from the subsidy, including wind and hydropower as well as solar.

DECC received more than 2,000 official responses to its first consultation on solar feed-in tariff cuts and has faced fierce criticism from industry and green groups, many of which have warned the deep cuts proposed by ministers will lead to thousands of job losses and undermine green investor confidence.

The government has consistently maintained that urgent cuts are necessary to prevent the scheme exceeding its budget.

However, today's announcement is expected to confirm that DECC has raised the feed-in tariff spending cap from £867m to just over £1bn by re-allocating funds previously earmarked for the Renewables Obligation (RO) incentive scheme for larger green energy schemes - an announcement originally trailled before Christmas.

Speaking at a meeting of renewable energy representatives yesterday evening, Barker said there would be a "significant" increase in the scheme's budget, adding that solar PV was for the first time being taken seriously by DECC.

He also told the industry meeting that there would be "a sharp intake of breath" from solar firms when the proposals are announced.

Following the speech, Barker wrote on Twitter that the changes to the scheme would see a huge increase in solar installations. "My new solar ambition a reformed FiT to deliver 22 GW of pv by 2020. Yes, 22GW!" he said.

The commitment was broadly welcomed by solar industry commentators, but some insiders remain concerned the government could yet propose deeper cuts to feed-in tariffs for solar installations.

Barker stressed that he was committed to setting rates that deliver a five per cent rate of return for households and businesses that install renewable energy technologies. But he hinted that the cost of solar was falling so fast that tariffs that might appear less attractive now would become more attractive in a year or two, fuelling fears that further deep cuts could be imposed from this summer.

Following the speech, Howard Johns, chair of the Solar Trade Association, tweeted: "Now feeling rather concerned about tomorrow's announcement on changes to the FIT. Good level of ambition but talk of painful cuts again."

Barker also confirmed this week that he has already commissioned an internal review into DECC's handling of the cuts, to ensure future consultations are more successfully managed.

Both industry and government have agreed that cuts to feed-in tariffs are necessary to ensure the subsidy is in line with the falling costs of technology.

To ensure future cuts are managed more efficiently, DECC is today expected to launch another consultation on proposals that would ensure automatic reductions kick in when a certain level of installed capacity is reached.

A study carried out by consultancy Parsons Brinkerhoff for DECC in January, and published this week, found there had been significant reductions in the cost of solar in the last year, ranging from reductions of 10-20 per cent for domestic systems to 40-50 per cent for larger installations with a capacity of 50kW or more.

It also predicted that the capex costs would drop by between 10-30 per cent by the end of 2012, with further falls of 5-25 per cent annually in 2013/2014, followed by smaller ongoing reductions in 2015 and beyond.

However, Friends of the Earth, one of the parties leading legal action against DECC, warned that today's announcement will not put an end to the uncertainty over the future of feed-in tariffs, because DECC is still seeking to reverse the High Court ruling through an appeal to the Supreme Court.

If the government's appeal proves successful installations completed between December 12 last year and March 4 this year would receive a feed-in tariff rate of 21p/kWh from April 1. But if it fails these installations will retain the higher rate of 43p/kWh for the full 25 year period. 

Friends of the Earth's executive director Andy Atkins urged the new Energy and Climate Change Secretary Ed Davey to withdraw its appeal application to the Supreme Court.

"Davey must ride to the rescue of thousands of UK solar jobs by insisting on significant changes to Government proposals to overhaul its solar subsidy scheme," he said.

"The response to the public consultation on the disastrous solar subsidy proposals is a golden opportunity to sort out the mess the Coalition has created and re-establish the Government's commitment to a clean energy future.

"Falling installation costs mean solar subsidies should be cut - but this should be done in a way that protects jobs and allows more cash-strapped households to plug into clean energy."