Shirley Mathieson: 'announcement will cause a surge in activity'

The announcement by the government that it is planning to cut Solar Feed in Tariffs (FiTs) is unwelcome and regrettable news for the solar power industry which has been beset by uncertainty over the last 12-months. For solar power installations producing under 4kW the FiT is to be set at 21p/kWh as of the 1st April 2012. This almost halves and confirms the drastic cuts many industry commentators had anticipated.

The cut-off point for the higher tariff payments is proposed to be 12th December 2011, dependant on a stage a project has reached by that date – it is not necessarily required to be commissioned by 12th December. In effect this requires landowners and developers with little prospect of meeting the deadline to reappraise their proposals and their targeted returns on investment.

Shirley Mathieson, Renewable Energy spokesperson for Saffery Champness, says: “The new tariffs effectively mean that all new commercial and domestic solar schemes affected by this round of cuts in FIT payments will achieve significantly lower rates of return than were previously expected and for many will inevitably mean that projects will be shelved.  However, the reduction in PV unit cost over the last year of circa 30% and the increasing costs of power generally – giving an additional saving from providing own power or a greater sale price to the national grid - may encourage investors to continue with their proposals but accepting a reduced return. “

“The announcement will undoubtedly cause a surge in activity by developers and investors to get solar projects to the stage of qualifying for the current higher rates by the 12th December”.

Saffery Champness say that developers of solar installations ranging from 50kW to 5MW have, until now, had a choice between FiTs and Renewable Obligation Certificates (ROCS). Of the two, FiTs had better financial benefits for developers. Now, with the tariffs reduced, developers may favour ROCs to deliver the sort of returns necessary to justify investment.

Jamie Younger of Saffery Champness Renewable Energy Group says: “The new tariff will not eradicate solar power development although the profit margins will be smaller and need careful examination.  Decisions will need to be made on whether or not to embrace ROCs, which may be more attractive in the medium term. The only good news is that the uncertainty over solar tariffs has ended although a wider review of FiTs is proposed for the end of the year and extent of the cuts proposed for PV do not bode well for the other technologies where proposed revised FIT rates are due to be announced later this month.”