The Government has decided not to axe the popular Feed-in Tariff (FIT) subsidy for renewable energy generation, but will introduce lower tariff levels for generators from February 2016.
The FIT scheme provides payment for generating small-scale renewable energy from solar, wind, hydropower or anaerobic digestion (AD), and currently supports over 780,000 installations across the UK.
A public consultation launched in August 2015 had threatened to cut subsidy levels by up to 87 per cent or close the scheme entirely.
The Government was widely criticised for its proposals, which contributed to over 1,000 job losses in the solar sector towards the end of 2015.
Following nearly 55,000 responses to the consultation, the Government announced in December that it will proceed with cuts at a less drastic scale than originally planned. Meanwhile, the Renewables Obligation (RO) subsidy for large solar installations of up to 5MW will be scrapped from April 2016.
From 8 February, new solar installations up to 10kW in size will receive 4.39p/kWh, a reduction of up to 65 per cent on previous levels but much higher than the 1.63p/kWh proposed in August. Small commercial projects of 10-50kW will receive 4.59p/kWh, while larger installations up to 250kW will receive 2.70p/kWh.
A deployment cap will be set to limit new spending under the scheme to £100 million a year by April 2019, with quarterly deployment caps also being put in place.
Pre-accreditation rules, which help applicants to guarantee a tariff level in advance of installation, will also be re-introduced for solar PV and wind generators over 50kW and all hydro and AD generators.
New applications to the FIT scheme will be paused from 15 January to 8 February to allow time for the changes to be implemented.
Balancing the budget
Energy and climate change secretary, Amber Rudd, said: “My priority is to ensure energy bills for hardworking families and businesses are kept as low as possible whilst ensuring there is a sensible level of support for low carbon technologies that represent value for money.
“We have to get the balance right and I am clear that subsidies should be temporary, not part of a permanent business model.”
Impact on industry
Despite dealing a softer blow than expected, the changes are still expected to cause widespread disruption to low carbon industries, with the solar sector alone facing up to 18,700 job losses.
Paul Barwell, chief executive of the Solar Trade Association (STA), said the changes were “not what we needed”, adding: “We will continue to push for a better deal for what will inevitably be a more consolidated industry with fewer companies.
“The new tariff levels are challenging, but solar power will still remain a great investment for [those] who want to protect themselves from volatile energy prices and do their bit to reduce global carbon emissions.”
In a separate consultation, the Government plans to increase VAT rates on solar panels and wind turbines following an EU ruling that the current 5 per cent rate is against European regulations.
Under the new proposals, these technologies will be charged at the standard VAT rate of 20 per cent from August 2016.