solar panels feed-in tariff halved

Householders who are in the process of having solar panels put on their roof have six weeks to complete the job or face seeing the predicted income they generate slashed after the government said it was cutting feed-in tariffs by 50%.

Despite pledging to be "the greenest government ever", the Tory-led coalition last week shocked the renewables sector by announcing that only installations completed by 12 December would get the full payments they were promised. Hundreds of householders who had signed contracts to have panels fitted have now pulled out and others are expected to follow.

More worrying, say installers, is a proposal to make future feed-in tariff (Fit) payments dependent on the home meeting tough energy performance standards. Around 85% of UK homes would need to spend around £5,600 to meet the requirements. Such a move, which is subject to the consultation exercise announced by ministers, would kill the solar industry, insiders say.

The much-trailed decision to halve the Fits – the amounts those installing photovoltaic panels on their roof get for each unit of electricity generated – sent the solar industry rushing for its calculators in a bid to work out whether solar panels will still be worth installing. It looks as though all but the most committed environmentalists will decide it is not worth the hassle.

Under the original scheme, householders had been promised the higher Fit payments provided they installed their panels before 1 April 2012. Since the scheme's introduction in 2010, around 100,000 householders have taken advantage of the generous terms.

So what do the changes mean?

• The feed-in tariff payable on installations of up to 4kW used to attract a generation rate of 43.3p per kWh. This will be reduced to a proposed 21p for all installations with an eligibility date on or after 12 December – unless the government relents voluntarily, or is forced to by a legal challenge. This slashes their viability; the financial return on the investment falls from around 12% to 5%-7%.

• If you are in the middle of an installation, you need to have it completed and registered with your power company by 12 December. If your supplier won't play ball and demands paperwork by 5 December (as some reportedly have), switch to Good Energy, which says it is planning to take registrations right up to the deadline.

• If you complete your installation between 12 December and 1 April, you will get the new Fit of 21p, but won't have to conform to any energy efficiency measures.

• Perhaps the biggest change, and the one that has attracted the least publicity, is the plan to make the payment of Fits dependent on other energy efficiency measures. Ministers have indicated they want only homes that have an energy performance certificate rating of C or better, ruling out many homes, as it will be prohibitively expensive. Most pre-1919 homes require the installation of some or all of the following measures: loft insulation, cavity wall insulation, heating controls, hot water cylinder insulation, replacement boiler and solid wall insulation – at a typical cost of £5,600.

Critics say that for the hardest-to-heat houses, solar PV is a practical way of reducing carbon emissions, and probably much less disruptive than solid wall insulation.

• The proposals are also expected to put an end to free solar installations (often called "rent-a-roof" schemes) through a new multi-installation rate – where an individual or company receives Fits from more than one installation. They will get just 16.8p per kWh for systems up to 4kW, a rate which the chief executive of HomeSun says makes the business no longer worth pursuing.

Friends of the Earth's energy campaigner Donna Hume says the changes have cast a shadow over the UK's thriving solar industry. "The government should be encouraging more people, not fewer, to save money by making their own electricity, freeing us from the stranglehold of the big six energy firms which are pushing up our bills."

A spokeswoman for the Department of Energy and Climate Change says it is consulting on proposed new tariffs to protect consumers from footing the bill for excessive subsidies: "The government stands by its pledge to be the greenest government ever. We are taking action to ensure that the Fits scheme stays within budget, and to put the solar industry on a steadier, clearer and sustainable growth path, avoiding boom and bust.

In 2010, anyone spending the typical £13,000 to fit an average sized (2.5kW) system would receive around £900 a year in payments, on top of a £140-a-year saving in reduced electricity bills. Feed-in tariffs are paid for 25 years, tax-free, and rise in line with inflation. To really make it work, you had to plan to stay in your home for at least 15 years. The price of installations has fallen by 20%, which is why the industry expected a cut to Fits from next April.

Gabriel Wondrausch, the man behind one of Britain's longest established installers, SunGift Solar, says investors will be still able to get an average 5%-7% return under the new rules. He says that by switching to cheaper Chinese panels (rather than the better European ones he favours), it is possible to make a decent-ish return. His estimates beat the government's claim that the return is now 4.5%.

However, he predicts the changes will lead to a return to pre-Fits days, which saw only the keenest "greens" making the investment – particularly if the government goes ahead with its plan to impose the energy performance requirement, which will rule out most potential buyers if they have to spend £5,000 on a new boiler and other measures.

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