The solar industry may have scored a High Court victory against government moves to halve subsidies for household solar panels, but its jubilation was tempered by signs that it is unlikely to win the larger battle against efforts to rein in the cost of supporting green power.
“The likelihood is that the ruling has simply delayed the inevitable,” said David Symons, of the WSP Environment & Energy consultancy.
Still, the High Court decision is important. What it ruled illegal was not the actual subsidy cuts, but the rushed way the government went about trying to introduce them.
The case was brought by Friends of the Earth, the environmental group, and the Solarcentury and Homesun solar companies. Their argument centred on the government plan, announced in October, to slash the amount of money paid to anyone fitting a small solar system after December 12 from 43.3p per kilowatt hour to 21p/kWh.
There would be a consultation, said Greg Barker, the climate change and energy minister. But this was due to end on December 23, nearly two weeks after the December 12 cut-off date. In other words, the industry was given just six weeks’ notice that its support would be drastically reduced.
The government will appeal against the decision, meaning anyone who installed a panel after December 12 will have to wait to see what rate of subsidy they get.
That has angered Solarcentury founder, Jeremy Leggett, who says ministers should simply “accept the judge’s very clear ruling and not plunge the industry into a further period of uncertainty”.
As for how the government has managed to get into this mess, it argues that, like many other European governments which have scaled back so-called feed-in tariff solar subsidies, it was caught out by drastic industry changes that saw an unexpected rush to install panels.
Thanks in part to the rise of low-cost competition in China, the spot price of solar cells plunged from $1.30 per watt at the end of last year to just 70 cents in mid-November, according to the Bloomberg New Energy Finance consultancy.
Companies could install solar panels more cheaply than ever before, and still get paid subsidies. That led to thousands more solar installations than the government had expected. Although the feed-in tariff subsidies are paid via a small charge on consumers’ electricity bills, not from government coffers, ministers had put a cap on such payments that was in danger of being exceeded.
As Mr Barker said in October, if the government had not acted, consumers would be paying £980m a year by 2014-15, adding around £26 to annual domestic electricity bills in 2020, based on 2010 prices.
Still, the government’s “panicked changes” were “a shock for the solar industry and the suddenness of their introduction has damaged investor confidence across the whole energy sector,” according to a joint report due on Thursday from the energy select committee and the environmental audit committee.
Tim Yeo, chair of the energy committee, told the FT that ministers were right to cut the tariff. But they should have spotted the “solar gold rush” during the summer reduced subsidies in a more orderly way, he said.
Yet, it is another part of the government’s decision that could have more worrying consequences.
Plans to limit solar subsidies to people who insulate their homes to a high standard could have a “fatal impact” on the industry, the two committees warn.
As well as the subsidy cut, homes will have to be insulated to the relatively high “C” category of household energy efficiency to qualify for payments. That would immediately bar 86 per cent of British homes from eligibility, the MPs’ report says. In order to participate, the typical homeowner would have to spend between £5,600 and £14,000 on insulation.
“These proposals will require most households to spend thousands of pounds on extra insulation before they even purchase the panels,” said Joan Walley, chair of the environmental audit committee. “This will stop nine out of ten installations going ahead, which will have a devastating effect on hundreds of solar companies.”