The solar panel industry is reeling after the government announced that they will be cutting the feed-in-tariff for domestic installations from 43.3p per kilowatt hour to just 21p from April 1, 2012. This would be subject to consultation and would affect those schemes which produce up to 4kW of electricity. Larger scale schemes of between 4Kw and 250kW will also have their rates adjusted.

Only those homes with an energy rating of level C and above or those which have taken up Green Deal efficiency measures will qualify for the tariff. There will be a 12 month grace period for those installing next year to get their homes up to these levels.

Those people with solar installations on more than one property will receive just 80% of the standard rate under a new aggregated scheme. However there may be leeway given to community projects to allow them to fully benefit from the scheme.

Boom and bust

The Climate Change and Energy minister Greg Barker indicated that the action would be taken to reflect the changes in the cost of installing panels and to avoid a boom and bust scenario for the industry. In addition the government will be introducing the Green Deal next year which will allow solar panel suppliers to improve their foothold in the market.

A statement from the government has further highlighted the fact that there have been far more installations of solar panels than expected. The scheme is funded by the government through increases on average energy bills for the rest of the country. This funding is limited to prevent undue impact on average energy consumers.

The solar industry has said that they can bear the cuts, but smaller businesses with larger investments may struggle. They are also pointing out that the poorest consumers are likely to be hit the hardest by the cuts as they rely on deals offered by installers who pay for the system through the tariff. These deals are likely to be harder to find.

There is also some concern that the move could affect jobs in the solar industry and that it may prevent outside investment.

The government has also suggested that solar installation companies may want to offer other energy efficiency measures for their customers to help them make the most of the tariff and to qualify. Barker suggests that diversifying may be the way forward for solar panel companies.

Falling cost

Customers who installed solar panels at the 43p rate could expect to have their systems paid off within 7 years. It is expected that at the new rate the pay off time will be around 12 years. However the scheme is guaranteed for 25 years and so this still leaves 7 years for the homeowner to profit from it. This combined with the fact that the cost of installing solar panels is falling means that the feed-in-tariff reduction may not be the worrying news which it is being made out to be.

While this decrease may indicate a substantial drop in returns for the customer, it is being pointed out that those spending £10,000 on a solar panel system can still expect to make around 4%-5% on their investment over 25 years. This is more than can be achieved by placing those funds in the average bank account.

Those wanting to benefit from the current rate can still do so if they install before December 12. Those already installed will remain at the current level of tariff for the duration of their 25 year contract.