The domestic market might welcome today’s news cuts to solar incentives could be delayed, but it only offers uncertainty for corporate projects
Here we go again. The crippling uncertainty which has dogged the solar industry for much of the last year is poised to continue for a few more days yet, after Energy and Climate Change Secretary Ed Davey revealed that the government was considering "tweaking" the date at which the next wave of incentives comes into effect.
It is unclear at this stage if this mooted decision to put back the proposed July 1 cuts is a co-ordinated and astute response to the collapse in demand for solar installations since the start of April or a panicked reaction to the fact that ministers missed the 40-day deadline to table changes to tariffs before Parliament.
The generous view is that ministers have responded intelligently to lower than expected demand in the market and are attempting to restore some much needed confidence. Although if this is the case it is strange the decision was not announced before the deadline lapsed at the start of the week, as this short delay gave the opposition the chance to imply Davey's change of heart was imposed upon him by an incompetent failure to meet the 40-day cut off.
Either way the decision is broadly good news for the domestic solar market. It gives customers that bit longer to complete projects at the current feed-in tariff rate and provides solar firms with some much needed breathing space as they desperately attempt to inject some confidence into the market and convince people that solar PV still pays. Yes, there is currently still no cast iron guarantee that ministers won't flout the law again and try and force through the proposed July cuts, just as there is no clarification on whether Davey's "tweak" to the timeline means cuts will come a few weeks or a few months later. However, there is confirmation that ministers are listening to the industry's concerns and have been alarmed at the manner in which demand has stalled since the most recent cuts in April.
Unfortunately, the implications for businesses considering installing solar technologies are far less positive. In fact, they are little short of disastrous.
Households can now make a decision on whether to deploy solar panels which could get them a five to 10 per cent rate of return and they know they have at least 40 days to get the installation and the paperwork completed in order to take advantage of the current feed-in tariff rate. The problem is that it is a rare business indeed which makes an investment decision based on an outlook of no more than 40 working days. Put simply there is little or no chance a finance director will authorise a mid-sized solar project knowing the project has to be completed in a little over a month or else the anticipated returns could be slashed. Some ultra-green, progressive companies might take the chance on the grounds they want to cut carbon emissions and that any subsidy cuts are only expected to trim returns slightly, but the vast majority will simply sit on their hands until clarity is restored.
Government sources insist this uncertainty will be laid to rest "very shortly" and the talk is that confirmation of the new cut off date and the response to the most recent consultation on the feed-in tariff scheme will come in the next few days. But that begs the question as to why ministers have chosen to further muddy the waters with their comments today? Why not wait until everything is in place and then announce the new rates and when they will come into effect? The most convincing answer is that the deadline was missed and they got bounced into making some sort of statement by the opposition.
We have not even had the response to the consultation on the proposed changes to the feed-in tariff regime, but we are already seeing the damage to business investment that could be done by the government's desire to introduce more flexibility in the scheme. It is clear that a mechanism is needed to stop the market over-heating, but that mechanism needs to be much clearer than the opaque and politicised comments of the last 24 hours. Businesses need to have absolute clarity on the level of returns they can get on solar investments that growing numbers of firms are keen to make and they need sufficient notice of changes to those returns. Hopefully, that clarity will come in the next few days, but as things stand currently a company considering authorising a solar project has until an undetermined date to complete the project or else risk seeing their incentive payments fall to an undetermined level.
As we've argued ever since this whole sorry saga kicked off last autumn, ministers need to either make good on their commitment to building a sizable solar sector capable of delivering 22GW of capacity by 2020 by delaying further cuts to an industry already on its needs and providing a genuinely predictable incentive regime based on clear deadlines and tariffs, or they need to admit government is not interested in the sector until it reaches the point where it can compete without subsidy and allow solar firms to cut their cloth accordingly. The former option is the only one that is compatible with the ambitions of the greenest government ever and as such ministers must bring an end to this déjà vu all over again and urgently reveal what the industry can expect over the summer.
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