Isra-Mart srl:Solar industry braced for deep cuts to feed-in tariff incentives

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The government is expected to this week launch its controversial fast-track review of feed-in tariff incentives for large solar installations with developers anticipating that it will propose deep cuts to the level of support by the start of August.

The review is widely expected to propose cuts to the feed-in tariffs available to solar installations with more than 50kW of capacity as part of government efforts to head off a rush of new solar farm developments. Ministers fear larger solar farms will eat into the amount of money available through the feed-in tariff scheme and starve domestic installations of financial support.

Solar farm developers fear the level of feed-in tariff incentives available for installations with between 100kW and 5MW of capacity will be cut by up to 30 per cent.

Speaking to BusinessGreen, one industry insider warned such deep cuts would slash the rate of return for solar farm to around five per cent, a level he predicted would not be sufficient to cover bank debt or attract the institutional investors that had previously shown an interest in backing solar farms. He added that if adopted, the cuts would kill the emerging solar farm industry.

Government sources confirmed ministers were keen to reduce the level of feed-in tariffs for larger solar installations so they are in line with the original five to eight per cent rate of return that had been envisaged when the incentive scheme was originally launched last April.

According to various reports, solar farm developers are increasingly confident that they can generate rates of return of around 10 per cent under the current feed-in tariff level. Meanwhile, government insiders are concerned that as project developers with experience of Private Finance Initiative (PFI) projects enter the market, they will drive down costs for new solar farms still further, allowing them to generate annual returns upwards of 15 per cent for the full 25 years of the feed-in tariff scheme.

The solar industry will also be watching the review closely to see if the government proposes cuts to all installations with more than 50kW capacity or limits the cuts to ground-mounted solar farms.

Speaking when the review was originally announced last month, climate minister Greg Barker said he was "sympathetic" to complaints from the industry that the review would affect larger rooftop solar projects planned for hospitals, schools and businesses.

However, government sources last week indicated that fears remain within Whitehall that large installations on the rooftops of supermarkets and other buildings could eat into available funding as much as ground-mounted solar farms.

Some companies specialising in installing domestic solar systems, such as free solar panel provider Homesun, have expressed support for the government's early review, arguing that smaller rooftop installations are the most effective means of promoting renewable energy and, as such, incentives for solar farms should be scaled back.

However, a number of other firms are furious at the coalition's decision to launch an early review and are preparing legal action that will focus on allegations that the government has capped the amount of money available to feed-in tariffs without undertaking a proper consultation, ignored its own processes by failing to announce a trigger point for an early review, and pre-empted its early review by signaling that ministers are keen to cut incentives.