Solar subsidy changes could deal 'fatal blow' to industry

The government plans to restrict solar funding to homes that meet tough insulation standards

Planned government changes to subsidies on solar power may deal the industry a "fatal blow", two parliamentary committees are warning.

The Environmental Audit Committee and Energy and Climate Change Committee say ministers are right to make changes, but are doing so "clumsily".

Government plans include restricting access to solar subsidies to houses meeting energy efficiency standards.

Thousands of solar industry jobs could be at risk, the committees warn.

On Wednesday, a group of companies and environmental groups won a legal judgement against one of the changes.

Central to their campaign was the Department of Energy and Climate Change's (Decc) plan to halve abruptly the level of feed-in tariff (FiT) that small-scale solar installations attract, from 43p per kilowatt-hour (kWh) to 21p.

The FiTs are paid by energy companies to householders and communities to subsidise solar electricity generation.

It had been expected that the new tariff would come into effect from 1 April; but in October, the government said it would apply to anyone installing their solar panels after 12 December.

The High Court ruled that changing the tariffs before the end of an official consultation period was "legally flawed".

The two committees said ministers were right to cut the tariffs - but not in the way they did.

"There is no question that solar subsidies needed to be urgently reduced, but the government has handled this clumsily," said Tim Yeo, chairman of the Energy and Climate Change Committee.

"Ministers should have spotted the solar 'gold rush' much earlier. That way subsidy levels could have been reduced in a more orderly way without delivering such a shock to the industry."

The MPs described the quick tariff change as "panicky", and said it "smacks of retrospective regulation, which undermines confidence in the government's management of other energy policies".

The root cause is solar panels have proved far more popular than the government suspected when it introduced the FiT in April last year.

The cost of installing them has fallen faster than anticipated, by 30% since the scheme began. And with wholesale gas prices pushing up the cost of electricity from the grid, demand for solar panels rocketed

As a result, about 90% of the funds that the government wanted to be spent during the four-year FiT programme has already been allocated.

Industry concerns

Among the government's other proposals are changing the criteria for eligibility for FiTs.

The consultation suggests that houses should have to meet insulation standards before they qualify - for example, insisting that it should have an Energy Performance Certificate C rating at least.

Campaigners warned the changes risked thousands of jobs - and MPs agreed

Government data suggest this would require 86% of homes to get an upgrade before becoming eligible. In most cases this would cost about £5,600, but could be much more expensive.

For a semi-detached house with solid walls, the bill could be up to £14,000 - and with solar panel installation coming in at an average of £9,000, the committees fear a huge impact on uptake, potentially dealing the industry a "fatal blow".

"The government is right to encourage people to focus on saving energy before fitting solar panels, but these proposals will require most households to spend thousands of pounds on extra insulation before they even purchase the panels," said Joan Walley, who chairs the Environmental Audit Committee.

"This will stop nine out of 10 installations from going ahead, which will have a devastating effect on hundreds of solar companies and small building firms installing these panels across the country."

The Solar Trade Association, which represents more than 450 companies in the field, has surveyed industry chiefs and estimates that a third of companies could close as a result of the proposed changes.

Its chairman, Howard Johns, welcomed the committees' report.

"We are particularly pleased the committees have urged Decc to abandon the more extreme energy efficiency eligibility proposals, which could stamp out the UK solar market next year," he said.

"What is missing, however, is recognition that solar can deliver nothing less than an energy revolution at a cost to households lower than, for example, the levy imposed by wind energy."

A Decc spokesman said the report would be considered fully, but believed the changes were needed.

"We appreciate the uncertainty faced because of the changes we have proposed to the FiT scheme, but we believe solar projects will still be an attractive investment," he told BBC News.

But shadow energy and climate change secretary Caroline Flint described the report as a "damning indictment" of a government that was "out of touch".

"The government's chaotic mismanagement has put thousands of jobs and businesses in the solar industry in jeopardy, undermined confidence and investment in the whole energy sector and gives lie to the government's promise to be the 'greenest government ever'," she said.

The government sees solar playing a small role in the coming decade, certainly much smaller than wind.

But in a recent YouGov opinion survey, it emerged as the most popular energy technology, with 74% of respondents wanting the government to use more than it does at present.

The figure for wind was 56%. Only 16% wanted the use of coal to increase, while 43% preferred a reduction.