What is the real reason behind the government's solar cuts?

The question everyone keeps coming back to is why? Why has the government decided to impose such rapid and deep cuts to the level of incentives available to the fast-expanding solar industry, potentially resulting in millions of pounds of liabilities, tens of thousands of job losses, and countless legal actions?

The reasons put forward by the government for the cuts are well rehearsed and well understood. The scheme is over-heating with a surge of installations threatening to push it over its spending cap, raising the prospect of an unacceptable £26 a year being added to energy bills by 2020; the cost of solar installations has fallen by around 30 per cent, meaning people are getting excessive returns on their investment of between 10 and 15 per cent, a scenario that is "morally wrong" given feed-in tariffs are paid for through a levy on everyone's energy bills; too many solar panels are being fitted on buildings that lack basic energy efficiency measures, meaning emissions savings are not being maximised; and cuts to incentives must come into effect as soon as possible to avoid a gold rush that would again result in higher energy bills.

But each of these arguments are so easily countered that there must be another reason for the government's desire to push through cuts to incentives that are so deep and (more importantly) so swift that they will force many firms to the wall.

As we've noted previously, no one in the solar industry is arguing with the government over the need to take some heat out of the market and cut the incentives to a more sustainable level. Greg Barker expressed doubts over solar firms' willingness to accept any reduction in tariffs when I chaired a panel discussion with him at a Friends of the Earth conference on councils and climate change this week. But all I can say is he must be speaking to different solar companies than those talking to BusinessGreen. Everyone we have spoken to accepts feed-in tariff cuts are necessary and accepts returns that have been allowed to spiral above the original five to eight per cent target are excessive. Many of them have been calling for reasonable cuts to be imposed for months.

There is also broad acceptance some kind of energy efficiency standard for buildings installing solar panels could prove effective as a means of cutting emissions and driving take up of the Green Deal scheme, as long as it is not so demanding that it presents a major barrier to new installations.

Finally, as we reveal today, far from there being an urgent need to rush through these changes by next month, the government's own impact assessment shows the impact on energy bills of delaying the proposed cuts until April would equate to an increase in annual average energy bills of about £1 a year by 2020 - or to put it another way tuppence a week. Yes, there remains a risk the scheme could exceed its spending cap, and yes, fuel poverty remains so serious an issue that any potential increase in energy bills must be tightly managed. But surely £1 a year is a price worth paying to limit the financial liabilities that are about to be loaded on to solar firms by these rapid changes, reassure green investors that the government does not eviscerate flagship policies without proper warning, and avoid a costly and debilitating legal battle with the renewables industry.

So if the government's argument in favour of such deep and rapid cuts to incentives is so wafer thin, why are they doing it? What is the real reason behind this disruptive and job-killing manoeuvre?

Here is one theory. It is well known that there is a battle going on in the heart of government over the scale and ambition of environmental policies and the cost versus the benefits of taking urgent action to address climate change. However, there is a much less well publicised fight underway between greens within the government over the extent to which our low carbon energy infrastructure should be centralised or decentralised.

In public, lip service is paid to the desire for a balanced energy mix that features both large scale wind farms, marine energy arrays, biomass power plants, CCS facilities, and nuclear reactors, and decentralised solar panels, small scale wind turbines, and onsite renewable heat systems.

But, according to the parliamentary rumour mill, there is an increasingly tense battle behind the scenes between those who think decentralised energy such as solar should play a key role going forward, and those who believe micro-generation will always be too expensive and it is more sensible to focus the UK's efforts on large scale centralised low carbon projects. Unsurprisingly, the Big Six energy companies are lobbying hard in favour of this centralised approach, which would allow them to maintain their dominance over the market and head off the risk of millions of homes installing technologies that could slash demand for energy by anywhere between 30 and 70 per cent.

It is this context that explains why DECC was seriously considering slashing solar tariffs right back to 9p/kWh, a level that would have completely killed the industry, before a series of intense internal rows at DECC led to the more modest, but still significant, cuts now being proposed.

BusinessGreen understands Climate Minister Greg Barker fought for the continuation of a degree of support for the solar sector, while Energy and Climate Change Secretary Chris Huhne is believed to remain unconvinced over the case for more support for the sector. Further evidence for this difference of opinion can be found in Barker's increasingly heartfelt protestations that he does not want to kill the solar industry, and Huhne's admission to a parliamentary committee this week that he did not bother to contact the Treasury to ask if extra money could be found to lift the feed-in tariff spending cap, despite the huge impact on jobs and investment the proposed cuts are already having.

The scale of the cuts, the pace at which they are being imposed, and the dismissive way in which the solar industry is being treated can only be explained if you see it in the context of the government's growing support for the Big Six-endorsed plan for a low carbon energy mix that is primarily reliant on large scale centralised energy projects. A preference that was underlined by the much more modest reductions to subsidies announced last month for large scale on and offshore wind farms, and the increase in support proposed for marine energy projects.

Put simply, there are some within government who are not at all concerned if the solar industry is killed off, hence the apparent reluctance to consider a compromise approach to cutting incentives that would minimise the impact on businesses and investor confidence while having a vanishingly small impact on energy bills.

There is nothing necessarily wrong with being in favour of a centralised energy network. Personally, I think the best route to decarbonising the economy is the balanced mix the government claims to be in favour of, but there is a perfectly legitimate case for arguing that centralised energy offers the best route forward.

However, what is wrong is the unwillingness to come clean on where the current balance of thinking within government lies.

If ministers really believe there is a future for solar in the UK as part of a balanced energy mix then they need to acknowledge the injustices contained in this breakneck review and propose a more measured approach that gives firms time to adapt to the changes and the opportunity to continue to grow at a more modest pace.

If, on the other hand, they do not think solar and decentralised energy is suitable for the UK, then they would be making a grievous error, but they would also need to come out and clearly state their position in order to give green investors the clarity and stability they have once again been denied over this past week.

Instead, what we have currently is a fudged compromise between two factions that just about allows the solar industry to fight on, but only after months of disruption and market contraction. As far as I can see, that is the only plausible explanation for devastating cuts that defy all other reason. Although if anyone has a better explanation, please let me know.

Further reading

Delaying cuts to feed-in tariffs would cost households less than £1 a year

• Solar
• 03 November 2011

Ministers are wrong, a compromise on solar incentives has to be possible

• Solar
• 01 November 2011

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• Topics
• Solar
• Incentives
• Politics
• Chris Huhne
• Greg Barker
• Solar PV