Who shot the tariff?

By Mark Kebble on December 21st 2011

So, 12^th December 2011 has come and gone and with it the incentive or ‘tariff’ paid for generating clean electricity from Solar Photovoltaic (PV) systems on our homes and buildings has been reduced.  Interestingly though, what appears to have been a snap decision by the Government to bring forward and increase the level of reduction may in fact be good news.  I firmly believe that this move will be of long term benefit to both homeowners and business alike.

The Feed in Tariff or ‘FIT’ scheme was introduced just over 18 months ago. It was designed to accelerate the adoption of small-scale low-carbon electricity technologies by the public in order to contribute to the UK’s renewable energy target and thereby supporting the transition to a low-carbon economy. It aimed to achieve these noble objectives by making installations more affordable.

At inception, the Government set a benchmark return on investment of 5% for PV systems. However over the past 12 months, exchange rate changes  and pure market competition have meant that the global cost of installing PV systems has fallen by as much as 30%. As prices have fallen so returns on investment have increased and canny consumers purchased systems in greater numbers. So much so, that the scale of take-up vastly exceeded all projections and posed a serious risk of bursting the Government’s budgets.

Given this reality the Government had no choice but to act, and act swiftly. Or run the risk of the FIT scheme being unable to meet its commitments to participants and continue operating within the Levy Control Framework.

The bottom line is that a 9% reduction in tariff rates had always been pencilled in for April 2012, the Government has simply taken the step earlier in order to secure the long term future and bring the return on investment level back to where it was always meant to be.

There is no doubt that PV has been a victim of it’s own success. It is a tried and tested technology that is easy to deploy, requires minimal maintenance and therefore provides very little risk to the investor. The good news for all of us is that the scheme will now continue and has a long-term future.

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