The solar power industry spent the latter half of 2015 in a state of shock, following controversial plans announced in August by the Department of Energy and Climate Change (DECC) to slash the feed-in tariff subsidising domestic and commercial-scale PV installations.
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Jonathan Bates, director and general manager of Photon Energy, a supplier and installer of photovoltaic (PV) systems for public and private sector clients, quoting an article in The Times, says: “The UK government is spending more on supporting grassroots football development in China than it is on supporting the UK solar industry.”
DECC’s plans – although not confirmed at the time of writing – were to cut the incentives for solar installations by up to 87% from next year, from £70m to £2m. There are concerns that the feed-in tariff (FiT) scheme might totally close as early as this month if a flood of new solar installations triggered by the announcement result in the budget having been spent by then.
“Most people in the industry are planning their businesses on the basis that there will be no generation tariff at some point this year,” Bates says.
But what will the changes, once confirmed, mean for the future of domestic PV installations on homes and flats, and how will the new market dynamics affect building-mounted PVs on commercial buildings?
Clearly, there will be difficult adjustments – and the social housing sector is likely to be badly hit. But over the longer term, with energy prices expected to rise over the medium to long term and PV unit costs still coming down, John O’Brien of BRE’s innovations team believes that the elusive goal of parity between PV-generated electricity and the grid could be reached by 2018, driving greater uptake of the technology.
The feed-in tariff was introduced in 2011 to encourage the uptake of small-scale renewable installations and low-carbon energy generation. The main component of the FiT programme is the generation tariff, a payment made by energy suppliers for each unit of electricity the installation generates. The rate varies depending on the size of the system, and this is where the cuts have fallen: the new rate could be as little as 1.6p/unit for small systems from 1 January 2016 compared to the previous rate of 12.4p.
Above and below: In 2014 Jaguar Land Rover installed the UK’s largest solar panel array, with a capacity of 5.8 MW, at its South Staffordshire Engine Manufacturing Centre
In addition to the generation tariff, the owner of a PV system can also sell any unused units of electricity to the electricity supplier; payment for this is based on the higher export tariff which works out at about 4.8p/unit and is likely to be unchanged.
Of course, organisations will also save money by offsetting electricity generated by PVs against the cost of electricity they might otherwise have bought from the grid, at a tariff of between 8 to 15p/unit.
As Bates explains, PV has always been more appealing to heavy daytime power users benefiting from the “generation” tariff – a scenario that’s largely unchanged. “What the changes are going to do is to skew the future market to the people for whom PV will still work, which is the large daytime energy users,” explains Bates.
He predicts that the bulk of PV installations over the next couple of years will be manufacturing businesses running production operations from large flat-roofed tin sheds, and the occasional large hospital, where the size of the savings from offsetting PV-generated electricity against the cost of grid electricity still make commercial sense. “PV will still be financially viable in certain scenarios, with a return on investment in the order of 9-10%,” he says.
