FiTs under threat as energy policy unravels

First the Renewable Heat Incentive (RHI) and the now the Feed-in Tariffs (FiTs) – is the Government energy policy unravelling?

Carbon capture has also suffered a setback and nuclear is facing lengthy delays.

This week it emerged that officials in the Department of Energy and Climate Change (DECC) are pushing for a 75% cut in FiTs because they believe the current level is unaffordable. If true, this casts a huge shadow of doubt over the coalition government’s commitment to the principle of renewable subsidies.

Currently you can earn 43p per kilowatt hour if you have a solar photovoltaic (PV) array on your roof. A cut of three quarters would drop that to just 9p per kWh – and this would change everything. Current users would not be affected – their tariffs are guaranteed (for now), but it would surely slam the brakes on many proposed projects. This follows the dramatic cut to the tariff for large-scale solar schemes earlier this year.

DECC had recently decided to review the scheme, but had promised there would be no change before April 2012 “unless the review indicates the need for greater urgency”. It looks likely that the change will come sooner and could be more drastic than previously thought.

Embarrassing

The Financial Times reported a coalition source saying that money had been “flying out” of the scheme’s fixed budget and that the original tariff levels had been set “embarrassingly” high. The European Commission intervened just three weeks ago to halt the start of the RHI because it felt the tariff for large-scale biomass was, similarly, set too high. Egg is all over DECC’s face now – as it seems it got its sums wrong.

Domestic PV installations are up by over 50% since this summer on the back of FiTs and solar schemes account for 97 per cent of all projects receiving this subsidy. Some of the companies providing ‘free’ solar arrays to consumers in return for their FiTs had said that they might still be able to absorb a cut of 50% in the tariff, but anything more than that would force them out of this market because the payback on their investment would be too long.

There is justification for some reduction in the tariff because the cost of the equipment and installation is falling, but not to this degree.We are at a very delicate stage of the UK renewables strategy. The Government is, rightly, focused on affordability due to the prevailing economic situation. Consumers are paying for FiTs through increases in domestic energy bills – with fuel costs already rising steeply this has become a very hot political potato.

However, a 75% cut could kill this fledgling market stone dead. The Government had promised certainty in the system to encourage investment, but who in their right mind would invest in any government-based scheme now that they are continually moving the goalposts.

The whole of UK energy policy is in danger of falling apart with the cancellation of the UK’s first carbon capture project at Longannet and the likely delay to the nuclear programme. Gas looks like being the big winner from all of this and don’t be surprised if the UK’s shale gas reserves start to look a lot more attractive.