If you’re thinking of installing solar panels, you need to act quickly to beat the Government’s dramatic feed-in tariff cuts.
The Government wants to slash the amount households with solar panels are paid for generating electricity in England, Scotland and Wales.
Under the plans put forward by the Department of Energy and Climate Change (DECC) feed-in tariff rates, which set out how much users are paid for the energy they produce, could be cut by almost 90% from January 2016.
The Government is also proposing to link the feed-in tariff to the Consumer Prices Index (CPI) measurement of inflation – which tends to be lower – than Retail Prices Index (RPI).
What will the changes mean?
Installing solar panels allows households to benefit in the following three ways (average figures from the Energy Saving Trust):
Cheaper electricity bills – households can use the electricity generated from their solar panels, therefore reducing the amount of energy they need to buy. This is estimated to save £120 a year.
The ‘feed-in tariff’ – as well as saving money on bills, households with solar panels get paid for the amount of electricity they can produce. Since 2012 this has been set at a rate of 12.92p/kWh and on average can mean a boost of £435 a year.
3. The ‘export tariff’ – you also get payment for the energy you don’t use and export back to the grid, which is typically assumed to be around 50% of what you generate. The rate is currently 4.85p/kWh.
It’s the feed-in tariff that is now under threat.
From 1st October the rate will fall slightly from 12.92p/kWh to 12.47p/kWh, but the Government wants to slash rates down to just 1.63p/kWh from January 2016.
On average, households earn around £435 a year from the feed-in tariff, but should the changes be approved this will plummet to a measly £56 a year.
Why is this happening?
The proposals follow the Government’s pledge to cut energy bills back in July.
Payments to households with solar panels are subsidised by all energy users through their bills, as suppliers pass on the cost of the green levy which the Government imposes to fund the scheme.
The success of the scheme means the Government is on course to exceed the limits of the Levy Control Framework (LCF), which is the amount of money that can be added to bills to pay for low-carbon electricity generation.
Back in 2011/12 the limit was set at £7.6 billion by 2020/21, but recent figures produced bythe Office of Budget Responsibility (OBR) suggest it will be closer to £9.1 billion by 2020/21 – resulting in an overspend of 20%.
The Government's consultation states that the tariffs also need to be revised because of the fall in the cost of installing the renewable technology, which means the Government doesn’t need to incentivise them as much as before.
In the past solar panels cost around £10,000 and £12,000 to install, but nowadays households can get them for nearer £5,000.
What happens next?
The DECC consultation is open to the public as well as other interested parties like solar panel companies until 11.45pm on 23rd October.
But the Government has warned if there is no agreement on measures that would make the scheme more affordable and sustainable then it will abolish the feed-in tariff entirely for new applicants as soon as legislation can be passed, which it expects to be January 2016.
So it seems inevitable that the money you can make from solar panels is on course to plummet. It’s just a question of how much it will fall.
Are solar panels still worth going for?
Initially, when the scheme launched in 2010, the amount households were expected to earn from the generation tariffs had a ceiling of 12%. Under the new proposals the government wants to curb that return to between 4% and 9%.
But what does that means in real terms?
According to those Energy Saving Trust figures, solar panels could leave you £635 better off a year.
[SPOTLIGHT]Based on a solar panel installation that cost £6,500, a typical household would be able to pay off the cost of installation in just over ten years.
However, if the proposed cuts come into force the total earnings would drop down to £256 a year.
Based on this figure it would take over 25 years to pay off the cost of the panels. However, should installation costs continue to fall and/or electricity prices continue to rise, the time it takes to recoup the investment will shorten.
You can use the Energy Saving Trust solar energy calculator to see how the figures might stack up for your home and work out whether investing is worthwhile.
How to beat the cuts
Those that don’t already have a Solar PV system but are considering installing one should act fast to beat the proposed cut and benefit from the current feed-in tariff rates.
That’s because the amount you get paid for the electricity generated from your solar panels depends on the day your register for the feed-in tariff, which only happens once your panels have been installed.
What about people with solar panels?
The 730,000 households that already have solar PV systems and registered for the old feed-in tariffs won’t be affected, as their rates are guaranteed for 20 years from when they were installed.
Any changes to the feed-in-tariff rates, including the one planned for January 2016, only affects new installations.
The same goes for the proposed shift to the tariff being linked to CPI rather than RPI.
Are other renewable technologies impacted?
Wind and hydroelectric power systems are all eligible for the feed-in tariff scheme and under the Government's plans will also see cuts.
However, they aren’t as severe as what has been suggested for solar panels.
For hydro installations the DECC wants to slash the payout from 15.45p/kWh to 10.66p/kWh, a cut of 36%.
And with wind turbine installation payments, it wants to see a reduction from 13.73p/kWh for a system up to 100kW to either 8.61p/kWh for systems under 50kW or 4.52p/kWh for systems less than 100kW.
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