Government changes to the solar panel Feed-in Tariff could be a nail in the coffin for social landlord and public sector projects that are trying to encourage energy efficiency
There has been a lot of ‘green rhetoric’ coming from the government over the past few months. But after this week's announcement on tariffs, I wonder just how much is hype over substance.
As part of the consultations on the Feed-in Tariff (FIT), we hear that the ink has now dried on proposals to cut FIT rates by more than 50% for most new domestic solar PV installations. This is meant to happen on or after 12 December 2011.
To add to this, a new multi-installation tariff from April next year has been introduced, which see a 20% drop in the standard FIT rates for aggregated solar PV schemes. In a double blow for the social housing sector, the government has also proposed a new energy efficiency requirement for properties on which solar PV are installed, without which there will be reduced eligibility to receive the standard FIT rate for new installations. Very green measures indeed.
Where does this leave the many public sector organisations who believed they had longer to complete solar PV projects before a reduction in tariffs? What about local authorities with solar PV installations on more than one site?
For projects that miss the December deadline, the cut in rates will be a serious blow to public sector organisations as, effectively, there is now only six weeks for them to implement their projects and take advantage of the existing rates while they last. This time-frame will jeopardise many projects including a number of large scale social housing projects not yet off the ground.
For some social landlords there simply won't be enough time now to deliver their solar PV projects as their business cases won't stack up against the reduced FIT rates. The knock-on-effect of this on funding for projects beyond 12 December will be extremely damaging to the industry.
Where funding is still available, the level of FIT income from installations not meeting the December cut-off date will be less than 50% of the anticipated level, and roof rental income for projects through the roof rental model will be drastically reduced.
There is some hope for social landlords and other public sector organisations that have already signed contracts to install solar PV on properties beyond December, as they may be able to vary the terms of their contract. However this will still have a significant cost implication and, it may not be possible to cancel orders already placed, without incurring financial penalties.
If solar PV installation programmes are cancelled or reduced to reflect the number of schemes achievable before the December cut-off date, the expectations of those who thought they would benefit from free electricity, such as tenants, will need to be managed.
Social landlords may have already entered into tenancy variations to reflect the intended installation, so the terms of these will need to be reviewed and tenants will need to be advised whether or not their property will still benefit from solar PV and any free electricity associated with it.
The speed at which these changes will be implemented and their financial significance could mean an end to solar PV projects for many. In what are already cash strapped times for the public sector, the end game is a waste of time, resource and money.
The government may believe it needed to act swiftly because it is so concerned about the cost of the scheme. I wonder though whether the government recognises these latest developments could prove to be the nail in the coffin for one of the newest and most innovative green industries in the UK?
Libbie Henderson is a partner in the energy practice at law firm Dickinson Dees.
