As widely trailed and reported in the mainstream, shortly before Christmas the Government announced significant changes to the Feed-in Tariff (FiT), one of the key support mechanisms for clean electricity generation.

The FiT awards system owners a tariff – ultimately funded by all electricity bill payers – based on the amount of energy being generated from a small distributed energy resource, solar PV being the most common. With a view to controlling costs, the Government has announced large reductions to the tariff, as well as introduced some measures aimed at slowing deployment. While the cuts are harsh, they are not necessarily surprising; in recent months we at Savills Energy have seen the Government pulling back support across technologies.

The new regime will be coming into effect from mid-February. There will be lower rates across a spectrum of installation sizes, from small domestic systems to larger commercial ones. There will also be caps on how much bill-payer funding is available in each size bracket. For larger projects, a system of pre-accreditation will be re-introduced which will deliver an increased level of certainty to investors and developers that the final returns will be those set out in their business plans.

The development pipeline is further hindered by the prolongation of EU 'anti-dumping' policies designed to protect German module manufacturers from cheaper Chinese alternatives, keeping the costs artificially high.

Critics of the changes point to the apparent inconsistency between the Government’s stated ambition to decarbonise (re-affirmed in Paris recently) and another policy change aimed at diminishing the amount of clean electricity being developed at home. The changes have already caused a number of operators to shut up shop in the UK. 

While criticism may be justified, the optimists’ view is that the reductions in support are a further testament to the falling capital costs of clean energy, which continues to become increasingly competitive with more traditional technologies.

In 2016, solar installation will offer a re-calibrated return on investment; site selection will be key. Projects which will work well will have high irradiance levels (i.e. southern and/or coastal locations), a decent south-facing roof or adjacent land and a high energy user as the occupier. 

We see a busy year ahead.

Further information

Contact Savills Energy for more details