When the government announced a consultation to review solar panel tariffs this got reported as “Tariffs to drop to 1.9p” and “Tariffs to be cut by 87%”. “The UK solar industry will collapse as a result of the cuts” they say. Now, lets try to look at some facts rather than media hype.
If we cast our minds back to 2010, a 4kW domestic installation could cost £16,000 to £18,000, actual panel prices were between £1.80 and £2.10 per watt, and the FIT was 43p. The government objective was that people with a decent south facing roof would earn about 8% rate of return while other less favourable orientations might be down at 5%-6%. With savings rates as low as 2% the government thought this would attract householders to invest. What we actually saw was a rapid drop in installations costs to between £10,000 and £12,000 yielding financial returns as high as 25% leading to what seemed draconian, but was actually perfectly reasonable, reduction in FITS to 26p. Investors were still achieving returns of around 15%, way above the government’s objective for a ‘reasonable’ incentive. Today, panels are nearer 40p per watt, complete installations nearer £6,000, FITs of 12.8p and investors still getting returns of 10% - 18% depending on orientation; notably still way above government objectives.
So, what is so bad about the possibility of FITs dropping to 2p or even zero. We have always known that, as electricity prices rise and installation costs fall, the case for investing your savings in solar PV eventually stands up without the need for any subsidy: it will be worth it just for the reduction in electricity bills. But there is one more devil in the detail that nobody seems to be reporting yet.
The industry is currently highly regulated through the MCS accreditation process. This is good for the industry, good for consumers and good for safety. It also gives the network operators a degree of transparency and ability to monitor what is going on. Yes, you will get ‘cowboys’ and unregulated installations going on but not to any great extent as the householders cannot get their FITs without the proper paperwork. Now, what happens if you take away the FIT altogether? Every cowboy installer and even DIY enthusiast will be putting in solar PV installations without any regulation or control. Those with existing ‘legal’ installations may be tempted to extend their installations to reduce their electricity bills even further. The industry loses control and the grid will incur huge costs and outages due to the problems caused by unregulated and unmonitored over generation. Ultimately, we need to retain a token FIT just to ensure that the regulatory process is sustainable. Without it, regulation, safety and ultimately the security of grid supply are at risk.