DSL’s Head of Property and Renewables, Clare Simmons, takes a measured
look at some of the current changes affecting the renewable industry.

Few will have escaped the headlines at the end of last month announcing the halving of the Feed In Tariff rate for small scale solar PV generation. By reducing the payments from 43p per kWh to 21p, the effective rate of return for most domestic or agricultural scale installations has extend payback times to nigh on 20 years – not far off the average lifespan of the equipment. Predictably, the companies which install the equipment are outraged. There has also been a degree of schadenfreude in the press that the middle classes with money to burn are no longer able to enjoy a guaranteed return on investment of circa 8% per annum, at a time when the average savings investment rate is less than half that figure. And certainly there is the legitimate point that all consumers, including those who are least well off, are paying for these subsidies in a levy on the electricity bills they pay.

But it is more interesting to ponder what this government decision means for the
renewables industry as a whole. For while nearly everyone expected the FIT levels to drop in April, the amount of the decrease and the speed did take the industry by surprise. Indeed the “consultation period” for the change ends on 21st December, 9 days after the changes come into effect! “Foregone conclusion” screams the industry.

With the timescales involved in designing installations, ordering equipment, shipping, installing, connecting and processing the paperwork taking months, the period of 6 weeks from announcement to cut-off date has left would be customers having entered into contracts which will produce far lower rates of return than they feel were promised to them at the date of signing. It is not surprising therefore that this short period is one of the grounds for a judicial review being brought by a consortium of solar providers.

Another perspective is that of employment. The solar sector has been booming. Yes, a proportion of that is artificial given the high levels of subsidy, but the effect on jobs is non-negligible. The industry currently employs 25,000 people and that in turn generates tax revenues and a decrease in state dependency. Many of these installers have re-trained in this sector following the slump in the construction industry and spent considerable time and money showing the sort of resourcefulness praised by governments of all colours. What now for them? And who, in the future, will be willing to invest in emerging sectors when policy shifts so abruptly?

The question as to the effect of the change in policy on those less well off in society is also not as clear as the Government has at times made out. Certainly the levy on the energy costs weighs proportionately more on those who are the most vulnerable; the elderly, the young and the sick. But the high levels of subsidy have enabled the expansion of so-called “rent a roof” schemes. Under such schemes, for no capital outlay, housing associations or householders have been able to use the free electricity generated PV panels, with the installer taking purely the subsidy as its return. The drop in the subsidy will mean that such opportunities are lost as installers withdraw from the market. While as a lawyer I have my concerns about the form of many such leases, they do offer those who are less well off a means of reducing their electricity bills.

Lest it be said that this article conflates what is happening in the solar industry with the whole of the renewables sector, I should also mention a recent decision in Norfolk in which the Environment Minister, Caroline Spelman, has withdrawn £16 million of PFI funding to a proposed Energy from Waste plan, in direct opposition to the current aims of her department which remain “to support the role of energy recovery from waste within the waste hierarchy and aim to improve understanding of this role.” Add to that the resistance of other local Conservative MPs, and those companies who took the risk of tendering for the project and taking it through the tortuous planning and permitting process are likely to be thinking twice before tendering for similar schemes.

Then again, EU requirements forced the government to reduce its proposed large-scale Renewable Heat Incentive rates from 2.7p/kWh to 1.0p/kWh, and delayed implementing the scheme, again denting consumer and business confidence. Many are hoping this that the scheme is only delayed and not effectively killed off. Chris Huhne, at the recent Renewables UK Conference held in Manchester said he wanted to look at what the Government can to do encourage the growth and jobs created by renewable energy. Well, let’s see.

For more information on how the changes might affect your home
or business, please telephone Clare on 01829 773 103 or e-mail her at
cls@dynesolicitors.co.uk.

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