Home Consumer Your Energy Will The Withdrawal Of The Solar Feed-in Tariff Affect Small-Scale Renewables?

Will The Withdrawal Of The Solar Feed-in Tariff Affect Small-Scale Renewables?

With just over a month to go until the Feed in Tariff (FiT) disappears for good, it’s time to consider what the impact of this latest move by the government will have on the flourishing small scale generation industry.

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Solar Panels

The FiT was introduced in 2010 to encourage the public to install solar panels. Over the lifetime of the FiT, more than 820,000 homes and businesses took the leap to generating their own solar energy. These adopters benefitted from guaranteed annual payments under FiT, as well as payments in lieu of the excess energy they would be exporting to the grid, for others to use too.

From the end of March, both the Feed in Tariff and the export tariff will be scrapped, although eligible systems installed by then will not be affected. What effect will this have on small scale solar installations, and what does the future look like for solar?

Why is FiT ending?

The reasons given by the Department for Business, Energy and Industrial Strategy (BEIS) range from the scheme costing too much to subsidies no longer being needed.

They say that the scheme was costing consumers approximately £1.2bn a year and that they wanted to save us all from paying this money. However, the government’s own impact assessment showed that the saving to each household in the UK would equate to only around £1 per year.

BIES have also claimed that the cost of solar has fallen by 80% since the scheme began. While it’s certainly cheaper, facts show that the real fall in price is more like 50%.

The changing cost of solar energy

In 2010, the average solar system cost in the region of £12,000. Today, that figure has been halved, with most systems costing £4,000 to £6,000, and furniture chain Ikea selling a system for just £2,999. This makes it a much more accessible technology for many homes and businesses, and the government argue that a subsidy is no longer needed.

However, this doesn’t paint a complete picture, as the revenue from the FiT and the export tariff has, in the past, made them a solid investment stream. For example:

  • A 3kW installation would attract a FiT of around £400 a year.
  • It would also attract an export tariff payment of around £70 a year.
  • The reduction in electricity bills would be around £100 a year.
  • Over 20 years, this installation would make £11,400 in savings and FiT payments
  • At today’s prices (average £5,000) it would make £6,400 profit

If we take the same situation but remove the FiT and export tariff amounts, it doesn’t look so healthy:

  • Over 20 years the installation would make £1,200
  • At today’s prices (average £5,000) it would make a loss of £3,800

These calculations do not take into account the changing energy prices, of course, but it would be hard to make up such a large shortfall even if the cost of electricity does rise.

Will the loss of FiT stop people installing solar?

Without doubt, the removal of the FiT incentive makes an investment in solar energy a much less attractive proposition. With interest rates stagnant, solar PV has actually been a very lucrative investment vehicle when compared with putting the money into a savings account. Without FiT, it just doesn’t make financial sense any more.

Undoubtedly there will still be those who want to invest in solar for other reasons. The green revolution means more people are concerned with carbon footprints, and the carbon savings from solar remain unaffected by the FiT removal.

However, this is unlikely to equate to more than a few thousand installations a year, and nothing like the scale of uptake we’ve enjoyed for the past nine years. Without a replacement for FiT, the UK’s green energy industry and journey to our 2050 targets risk a stall of epic proportions.

What’s next for solar?

The FiT is a massive blow to the solar industry and will undoubtedly see a decline in the take up of this renewable technology over the coming months. Aside of the FiT tariff, there is now no incentive for exporting excess solar to the grid.

With the majority of solar energy being generated in the day, when people are at work, this is a major problem. People who have invested in solar are effectively being asked to simply give away their precious green energy for free, which seems ludicrous.

Without a replacement scheme, solar generators would be left to negotiate on the open market to secure payment for their excess generation. With reams of licensing laws and accreditations to be dealt with, the reality is that nobody will be willing, or capable, of doing this.

The only other way to tackle this problem is through better energy storage, enabling households to ‘charge up’ their homes with solar power during the day, ready for use in the evening.

Energy storage has come a long way in recent years, but it’s still out of reach for many small scale generators. Systems which would store a meaningful amount of energy for a home generally cost as much, if not more than, the solar system itself.

A light at the end of the tunnel?

There is a light at the end of the tunnel, at least where the export tariff is concerned, as the government is currently seeking views on a replacement scheme for small energy generators. The Smart Export Guarantee (SEG) proposal suggests suppliers themselves should pay consumers for excess energy generated and exported to the grid.

The SEG, if it comes to pass, would see large suppliers (with more than 250,000 customers) paying for fed-in renewable energy, with smaller suppliers able to voluntarily provide a SEG tariff. The proposal is currently under consultation until 5th March, so we wait hopefully to hear the outcome.

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