John Barwise traces the highs and lows of the solar PV fiasco.
On 22 March 2012, the Supreme Court rejected the Government’s application to appeal against an earlier High Court ruling that its premature feed-in tariff (FIT) cuts for solar PV (photovoltaic) was unlawful. The Department of Energy and Climate Change (DECC)'s earlier decision to cut the FIT for solar PV caused chaos in the solar PV industry and panic among investors. Solar PV organisations say it is now time to move on and start to rebuild confidence in the renewables industry to secure a sustainable and renewable energy mix for the long term.
A popular scheme
The FIT scheme was introduced in April 2010 by the former Labour government under the Energy Act 2008. It is a straightforward monetary policy designed to encourage more people to invest in renewable energy technologies, by offering renewable energy producers a cost-based price for the energy they produce. The UK scheme is similar to other FIT programmes introduced much earlier in Germany and France, where solar PV makes a substantial contribution to electricity supply. Over 50 countries worldwide have now introduced tariff-based renewable incentive schemes, which have proved popular with small and large-scale investors and successful at reducing greenhouse gas emission across the energy sector.
Aims and benefits
The aim of FIT in the UK is to encourage local businesses, communities and individuals to deploy small-scale (less than 5MW) renewable energy generation. Ed Miliband, former Secretary of State for Energy and Climate Change, said at the time: “The UK is leading the way in tackling climate change. Organisations and householders can play a central role in leading the move to a low carbon economy whilst saving money on their energy bills.”
Fast forward 18 months and a new government and the benefits of FIT were paying off. DECC’s UK Renewable Energy Roadmap highlighted the contribution the FIT renewables scheme has made to reducing dependency on imported energy, meeting our carbon reduction obligations, and driving investment in new jobs and business.
According to the report, solar PV, supported through FIT, was proving a real success with over 38,000 panels installed by the end of May 2011. The scheme has proved particularly popular with schools, farmers and individual households, which will all see a return on investment within 10–15 years, and sooner in some cases.
Since FITs were introduced, PV generation has risen substantially from a paltry 26MW of solar power in 2008–9 to a massive 1000MW installed capacity in less than two years. Employment levels have also risen. Data released by the Renewable Energy Association (REA) showed employment at over 25,000 by October 2011, representing an 8-fold increase since the introduction of the FIT. This is particularly impressive given the downturn in the economy during this time.
Solar falls victim to its own success
The tariffs for solar PV were set at levels designed to provide investors with returns of around 5% — depending on location and aspect of installations and the size of the PV array. By the summer of 2011, the Government was acutely aware that returns on investment were substantially higher than this and that the “spending envelope for the FIT scheme” would be breached, limiting the availability of FITs to other renewables technologies.
In October, DECC published a consultation document calling for a review of tariffs for solar PV with the aim of building consensus on reducing FIT for solar PV. The review explained that the dramatic cost reductions of PV products and installations meant higher rate of returns that could not be justified and that all consumers who pay for the FITs through their energy bills were no longer getting value for money.
There was general consensus across the renewables energy sector that a cut in the FIT for solar PV was appropriate and necessary. The REA had been calling for modest cuts for some time to ensure a smoother transition and avoid a “boom and bust” scenario. The 43p per kWh for installations with less that 4kW capacity (small schemes) would in any case be reduced in April 2012, in line with prevailing Retail Price Index.
But the Government decided not to wait. In an unprecedented move on 31 October 2011, it announced cuts in PV FITs from 43.3p/kW to just 21p/kW — effective from 12 December 2011 and before the full consultation process was completed.
The move resulted in a chaotic scramble to install new schemes and maximise the return on investment before the December deadline. Installers were locked into a six-week panic to meet contractual obligations ahead of the tariff cut-off; other schemes that would not meet the deadline were scrapped altogether. The Solar Trade Association (STA), which represents about 4000 manufacturers, said the premature cut in FITs was a disaster for renewable energy and would lead to significant job losses.
At the time, STA Chairman Howard Johns said the cuts were “illegal and exceptionally damaging”, adding that the industry wanted “a sustainable cut that would allow us to survive and deliver green growth that David Cameron said he was committed to”.
A rally organised by a coalition of solar companies and environmentalists under the banner “Cut, don’t kill” campaign attracted over 500 protestors in central London, lobbying MPs to vote against the Government’s plans.
Friends of the Earth, together with Solarcentury and HomeSun, mounted a High Court legal challenge to the cuts in December 2011. The High Court upheld the challenge and ruled against the Government, nullifying the cuts. The Government failed to reverse this decision at the Court of Appeal and subsequently sought permission to appeal to the Supreme Court to uphold its solar FIT review cuts. DECC was refused leave to appeal to the Supreme Court on 22 March 2012. The full chronology of events can be viewed in the box below – courtesy of the REA.
The solar PV legal trail
The decision means that all PV installations with a reference date between 12 December and 3 March will receive the higher pre-consultation tariff rate (eg 43.3p/kWh for sub 4kW systems) rather than the lower tariff rates which came into effect on 3 March 2012 (eg 21p/kWh for sub 4kW systems).
Solar Trade Association (STA)Chief Executive Paul Barwell commented: “This marks the end of this particular turbulent chapter for the UK solar sector. However, the extra money DECC will now have to commit leaves us with serious concerns about the remaining FIT budget, which remains constrained under the Levy Control Framework.
“It is vital that the solar industry receives sufficient support, or we risk losing good quality firms over the next year. That will be against a backdrop of new and substantial public subsidies to the oil and gas sector.”
Responding to the Supreme Court's decision to reject the Government’s application to appeal against the High Court ruling, Friends of the Earth’s Executive Director Andy Atkins said: “This is the third court that’s ruled that botched Government solar plans are illegal — a landmark decision which will prevent Ministers causing industry chaos with similar subsidy cuts in future. The Coalition must now get on with the urgent task of restoring confidence in UK solar power. Investing in clean British energy will create thousands of new jobs and help reduce our reliance on expensive fossil fuel imports.”
Other commentators have expressed concerns that if the Government had won its appeal, a precedent would have been set that would have allowed the Government to make retrospective FIT payment changes in future in other renewables sectors.
Both the REA and STA are now keen to draw a line under the solar PV FIT debacle and start rebuilding relations with the Government to ensure that solar PV has a place in DECC’s renewables road map that will reduce carbon emissions, improve energy security and deliver a sustainable energy mix for the long term.
REA Chief Executive Gaynor Hartnell said: “We must not lose sight of the bigger picture. Government is talking of achieving around three and a half times more solar capacity by 2015 than it had originally had in mind. The realisation is slowly dawning that solar can play a much bigger role in the future.”
The Supreme Court’s ruling will come as a relief for all businesses involved in renewable energy. Had DECC won its case to cut FIT for solar PV, then other renewables sectors, such as wind, hydro or wave would be wondering if they might be next. The loss of investor confidence across the renewable industry could have resulted in the UK’s renewables sector falling back several years.
Last reviewed 27 March 2012