The UK and Germany are cutting solar subsidies once again, because of the big drop in the costs to install solar systems.
Solar feed-in tariffs – the fixed amount paid for sending solar to the grid – are funded by small charges on customer utility bills.
In the UK, which just initiated the program in 2010, subsidies for small installations (up to 50 kilowatts) will likely be halved and buildings will have to meet minimum energy efficiency standards to apply for solar feed-in tariffs. And subsides for large projects have already been cut 40-70%.
“The plummeting costs of solar mean we’ve got no option but to act so that we stay within budget and not threaten the whole viability of the FITs scheme,” says Greg Barker, Energy & Climate Change Minister.
“My priority is to put the solar industry on a firm footing so that it can remain a successful and prosperous part of the green economy, and so that it doesn’t fall victim to boom and bust,” says Barker.
“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 who’ve themselves acknowledged the big fall in costs and the big increase in their rate of return over the past year,” he added in a statement.
Indeed, because of generous incentives, triple the amount of solar has been installed as the government expected. Over 100,000 systems have been installed since the program began in April 2010.
The cut almost doubles the payback period from 10 years to 18 years. The financial return of about 4% a year still beats most bank offerings and other financial investments available to individuals, however.
“The REA called for a more modest reduction some time ago. Had this been done, we’d have seen less boom and bust and the transition arrangements would be more straightforward. The installation rate is likely to fall drastically, and many of the 25,000 newly-employed in this industry may end up joining the dole queue,” Gaynor Hartnell, Chief Executive of the Renewable Energy Association told The Guardian.
The solar industry says it will hurt the poor the most, who often get it installed free of charge in exchange for free electricity.
Many in the solar industry say the new tariffs are way too low and that the 50% of systems installed “free” to low income households could no longer be supported. Further, this is the third time the government has cut the program in its short tenure, making its supposed support for the industry “hollow.”
Consultancy PwC argues it’s better to cut subsidies rather than risk a bubble that leads to over-capacity in the short-term, that’s inevitably followed by cuts, which would lead to greater losses all around.
Germany Also Cutting Again
Last week, Germany announced another round of feed-in tariff cuts, this time by 15%, starting January 2012.
Depending on the size and location of the solar system, producers will receive €0.18-€0.24 per kWh.
Germany requires the tariff be reduced 9% a year, depending on the level of installation.
Over the past year, an astounding 5200 MW of solar have been registered, indicating the industry has reached levels of scale where it no longer needs such high subsidies. The rate could have been cut by as much as 24% if more solar had been added.