U.K. to Push Ahead With Solar Subsidy Cuts Following Court Ruling

The U.K. government vowed to press ahead with cuts to subsidies for solar power after the High Court and a panel of lawmakers voiced opposition to the plan affecting as many as 29,000 jobs.

“The current high tariffs for solar PV are not sustainable, and changes need to be made in order to protect the budget, which is funded by consumers through their energy bills,” Climate Change Minister Greg Barker said in a statement yesterday.

The High Court in London yesterday ruled the government’s decision to cut a feed-in tariff for solar energy starting on Dec. 12 was “unlawful.” Today, two Parliament committees comprising lawmakers from the main parties said the incentive reductions may have a “fatal impact” on the industry.

“This undermines confidence in energy policy,” Tim Yeo, a Conservative lawmaker who leads the Energy and Climate Change Committee, said on BBC Radio 4. “The solar industry has to make very long term investment decisions, and they do so on what they think the government policy is. A retrospective change undermines confidence, and they seek higher returns. It raises the cost of capital and ultimately electricity bills.”

The court decision was a victory for companies including Solarcentury Holdings Ltd., which challenged the plan to reduce rates paid for solar power by as much as 55 percent before a consultation with the industry finishes on Dec. 23. Lawmakers in both the ruling Conservative Party and the Labour opposition say cuts are necessary to prevent a surge in solar power from jacking up electricity bills.

Timing of Cuts

The court’s decision throws into question when the subsidy reductions will take effect. Barker said ministers were planning an appeal that must be lodged by Jan. 4. The date for the cuts to come into force may be pushed back by months or by only a few weeks, said Clare King, a London-based renewable energy lawyer at the law firm Osborne Clarke.

“The situation is still far from clear, and industry players would be wise to sit tight until a new reference date is set,” King said. “The lack of certainty is going to make it difficult for solar companies, homeowners and investors to plan for the future.”

The ruling opens the way for a court review of the government’s subsidy plan that may prompt ministers to re-open their consultation with industry executives, according to Solarcentury, the U.K.’s largest solar company.

‘Significant’ Impact

Delaying cuts even a few weeks would have a “significant” impact on installers whose projects are nearing completion, allowing a number of facilities to receive the higher rates, Solarcentury Chairman Jeremy Leggett said in an e-mail.

“We encourage the secretary of state to accept the judge’s very clear ruling, not plunge the industry into a further period of uncertainty,” Leggett said. “DECC would have to make sure any reference date has to be set at the end of the correct statutory procedure.”

The U.K. started its program of solar incentives in April 2010, saying at the time that the premium rates would remain in place until April 2012.

The government trimmed incentives for the biggest projects on Aug. 1 to prevent a boom in installations. Then on Oct. 31, ministers announced cuts for smaller, rooftop plants completed after Dec. 12, four months earlier than the ministers had previously indicated.

Solar Boom

The reductions are needed because a surge in installations threatened the 867 million-pound ($1.4 billion) budget allocated for feed-in tariffs through 2015. The tariffs are paid by utilities, which pass the costs to consumers.

“Although perceived by the industry as a success, this could be but a moral victory,” Ranmali Desilva, solar analyst at Bloomberg New Energy Finance, said by e-mail. “A judicial review would only confuse the issue and delay certainty, should the government be forced to re-issue the consultation.”

Solar panel prices have plunged to 48 percent from a year ago because of slower demand growth across Europe and rising competition from Chinese manufacturers led by Suntech Power Holdings Co. (STP) Britain joins France, Germany and Spain in scaling back incentives for the industry. Companies including Sharp Corp. said the decision undermines their investments.

“Ministers should have spotted the solar gold rush much earlier,” said Yeo, the Conservative lawmaker. “That way, subsidy levels could have been reduced in a more orderly way.”

‘Sun Go Down’

Environmental Audit Committee Chairman Joan Walley, a member of the Labour opposition, said “it doesn’t make economic sense to let the sun go down on the solar industry.”

About 117,000 solar installations with 506 megawatts have qualified for tariffs so far this year, more than 10 times what was built during 2010, according to the energy regulator Ofgem. Germany and Italy are expected to have connected more than 5,000 megawatts, New Energy Finance estimates.

“Everyone accepts that the tariff level for solar power needs to be adjusted,” said Caroline Flint, a Labour lawmaker who shadows Huhne. “But the government chaotic mismanagement has put thousands of jobs and businesses in the solar industry in jeopardy.”

To contact the reporter on this story: Marc Roca in London at mroca6@bloomberg.net

To contact the editor responsible for this story: Reed Landberg at landberg@bloomberg.net

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