Last updated: February 9, 2012 7:57 pm

Solar energy subsidy faces more cuts

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The subsidy for household solar systems faces a fresh series of cuts this year, and could plunge to about a third of recent levels, under government changes announced on Thursday.

But ministers have more than doubled the pot of money available for subsidies, raising it to as much as £2.2bn up to 2015, according to the Department of Energy and Climate Change.

And in an admission critics were right about some previous proposals, the government has softened a move to slash subsidies paid for solar panels installed in poorly insulated or energy inefficient homes.

As expected, it also unveiled plans for a system similar to that operating in Germany that would see regular cuts in support, depending on how much solar power was installed, rather than the abrupt reductions imposed last year as solar installation rates soared to what ministers said were unsustainable heights.

“Instead of a scheme for the few, the new improved scheme will deliver for the many,” said Greg Barker, climate change minister.

He predicted the new system would see an estimated 22 gigawatts of solar power installed by 2020, an ambitious figure considering less than 1 GW has been installed since the subsidy scheme began in April 2010.

The changes prompted a mixed response from the solar industry, which recently won a legal victory over the speed at which the government originally said it would cut subsidies late last year.

Jeremy Leggett, founder of Solarcentury – one of the companies involved in the legal action against the government – said the new mechanism would leave the industry in “ongoing turmoil”. Others predicted “Armageddon”, insisting falling solar costs could not continue to drop fast enough to make the lower subsidy rates economically viable.

But some differed. “Make no mistake, this is a very good day for British solar,” said Robert Goss, managing director of Conergy UK, a solar company with headquarters in Hamburg. “The 22 GW target suggests the government now sees solar has a key role in delivering renewable energy targets.”

Caroline Flint, shadow energy secretary, said the government was imposing “even deeper cuts” although 80 per cent of the public thought the previous cuts were “too far and too fast”.

Concerns had already been echoed elsewhere by groups including the CBI, which has cited the solar subsidy changes as proof of the coalition’s failure to provide a stable playing field for business.

A judge recently ruled that the proposed cut in the tariff from 43p/kWh to 21p/kWh would have been too hasty, as it would come in on December 12 – a fortnight before a consultation into the move was completed.

But Mr Barker has insisted that the cut was necessary because the department had been “overwhelmed” by a huge rush of families and small companies installing solar panels to take advantage of the “feed-in tariff” (FiT).

Thursday’s proposals will see the 21p tariff applied to solar systems installed on or after March 3.

The tariff would fall again in July – to between 13.6p and 16.5p/kWh – and to 12.9p-15.7p/kWh in October, depending on the rate of installations.

People pay for the feed-in-tariff subsidy not through taxes but through a levy on their energy bills, and ministers had feared this could become too big if solar installations had continued to accelerate unchecked.

The scheme has so far enabled 250,000 solar systems to be fitted at a cost of £1.7bn, well above the original feed-in-tariff budget of £1.07bn.

The government estimates the new scheme will see an additional 620,000 installations, at a cost of £500m, a DECC spokeswoman said, though ministers hope the eventual cost will be lower.

The public has eight weeks to respond to the proposals.

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