Further FIT cuts as UK government faces legal action

The Office of Gas and Electricity Markets (Ofgem) in the U.K. has today published further feed-in tariff (FIT) regressions, despite the British government facing a $228 million lawsuit over premature FIT cuts introduced back in 2011.

The government is facing legal action brought by 17 British solar companies that claim the cuts to FIT subsidies in 2011 were "legally flawed" and led to a drastic near-collapse of the U.K. solar industry, costing thousands of jobs and shrinking the number of new solar installations by as much as 90%.

But this week Ofgem has announced new reduced FIT rates for PV systems installed in the second quarter of the year (between April 1st and June 30th) for PV systems up to 50 kW. Smaller solar installations of less than 4 kW will receive 14.38 pence (USD$0.23.52 cents) per kWh of energy fed into the grid, which is a cut of 3.5% on current rates. For installations between 4 kW and 10 kW, the tariff has also been cut by 3.5%, falling to 13.03 pence (USD$0.22.91 cents) per kWh, while larger installations of between 10 kW and 50 kW will receive 12.13 pence (USD$0.19.81 cents) for every kWh of solar power generated.

Above this threshold there are no further cuts currently, with systems between 50 kW and 150 kW set to continue receiving 10.71 pence (USD$0.17.49 cents) per kWh. There is also no change for systems between 150 kW and 250 kW, and for those over 250 kW.

The last degression for PV installations up to 50 kW was in July last year, and following impressive growth towards the tail-end of 2013 – growth that pushed the number of buildings in the U.K. with solar panels installed past half a million – the government has decided to further trim the incentive for systems of this size.

However, despite acting within accordance of its own terms and stipulations on this occasion, the government is set to face a hefty lawsuit from 17 solar companies that argue its previous cuts to the FIT scheme were implemented too soon, and too dramatically. After announcing FIT rates of 43.3 pence (USD$0.70.88 cents) per kWh in 2011, that rate was cut almost in half in October of that year, a move that reduced return rates from 7% to just 4%, decimating the industry almost overnight.

Despite defending its actions by claiming that such cuts to the subsidy were necessary in the face of falling solar equipment costs (which meant that some households were able to make "excessive returns" on their FIT), the government was accused of failing to give sufficient notice or warning. As a result, an estimated 6,000 jobs were lost in the sector, with uncertainty of solar’s future stability damaging business prospects across the board.

In response, 17 of the U.K.’s most badly affected solar companies have since lodged a legal claim, which has already passed the high court, the court of appeals and the Supreme Court. The U.K. government has since amended the regression rate and promised a more stable FIT outlook for the future.

Solar panels as nest egg

Amid the legal wranglings between the British solar industry and the government, energy minister Greg Barker has revealed his support for the country’s domestic PV sector, urging Brits to consider installing solar panels as a more lucrative and secure investment alternative to pension funds.

"Solar is a really attractive financial proposition," Barker told the Daily Telegraph newspaper. "You get a guaranteed tariff for 20 years and if your panel is well-sited, it could yield 8% or more. That is more than an annuity, particularly if you are in your 50s or early 60s."

Figures from the U.K.’s Department of Energy and Climate Change (Decc) show that the average installation cost of a domestic solar array in Britain has fallen to approximately $7,350, down from $21,000 in 2010. During the same period, returns on annuities have fallen sharply.