Feb. 9 (Bloomberg) -- The U.K. government proposed a system of regular cuts for solar energy subsidies as the price of photovoltaic panels declines, a plan it says will deliver a boom in installations by the end of the decade.
Energy Minister Greg Barker said he’s targeting solar capacity of 22 gigawatts in the U.K. by 2020, more than 20 times the current level. The government will reduce the feed-in tariff guaranteeing above-market rates every six months, with added cuts if a certain level of installations is passed. It more than doubled the budget for subsidies.
“Costs are coming down, and we’re determined that the tariff comes down with it,” Barker told Parliament in London today. “This is a very ambitious scheme and good news for the industry. There is a great deal the industry can bank on.”
The measures match efforts in Germany and Spain to control a surge in solar installations after Chinese companies led by Suntech Power Holdings Co. boosted production of panels, pushing prices lower. Environmental groups said the changes were a step forward while the solar industry’s representative said it would halt developments and threaten thousands of jobs.
“Ultimately the technology is going to have to stand on its own two feet in terms of the cost of electricity production and be able to generate power at the same cost as using fossil fuels,” said Phil McVan, managing director of Myriad CEG Power, a U.K. installer of solar panels, heat pumps, biomass boilers and wind power technology.
The government also boosted to at least 2.2 billion pounds ($3.5 billion) its budget for the tariff subsidy payments until April 2015 from the start of the program in April 2010, about 2 1/2 times the original budget of 867 million pounds.
The plan follows two rounds of subsidy cuts announced last year. The government in December lost a legal challenge from Solarcentury Holdings Ltd., Homesun Ltd. and the environmental group Friends of the Earth, which disputed the timing of the second cut. After losing an appeal, the government said today it has until Feb. 21 to lodge a new appeal.
The changes will provide for “moderate growth” in the industry, said Donna Hume, spokeswoman for Friends of the Earth. “This is a significant step forward to bring stability to the solar industry,” she said in an e-mail.
The tariff program includes technologies such as small wind turbines and biomass burners, though solar power has grabbed the majority of the spending.
Companies were divided about the impact of the changes. Jeremy Leggett, chairman of Solarcentury, the U.K.’s largest solar power installer, said the move will leave the PV industry facing “ongoing turmoil” and put 30,000 jobs at risk.
Good Energy Group Plc Chief Executive Officer Juliet Davenport said, “The industry has been asking for more clarity, and the government has moved to provide that.”
The government said the tariffs from July 1 should aim to deliver a rate of return for solar projects from 4.5 percent to 8 percent. It laid out three options for cuts that would start in July, contingent on the magnitude of installations between March 3 and April 1. All would result in cuts of at least 20 percent for projects of all sizes.
The plans are now subject to an eight-week consultation. The Department of Energy and Climate Change also confirmed plans to reduce the feed-in tariffs by as much as 55 percent from April for projects completed after March 3.
U.K. PV project costs have fallen 45 percent since 2009, when the previous Labour government was devising the feed-in tariff program.
That took the industry from having a handful of installations across the country to about 1.3 gigawatts expected by the end of March, a bit more than the capacity of the average U.S. nuclear reactor. Barker is targeting 4.5 gigawatts of installations by 2015 and 22 gigawatts by 2020.
“The reason we are able to be so ambitious is because we are going to be far more proactive in driving down the prices in the solar tariff scheme,” Barker told reporters at a press conference in London.
Caroline Lucas, the U.K. Green Party’s only member of Parliament, called the proposals a “new shock” to the solar industry after the government’s “shambolic” handling of past subsidy cuts. Caroline Flint, a Labour lawmaker who speaks for the party on energy policy in the House of Commons, said the cuts were too sharp.
“That is a 70 percent cut in six months and all out of proportion to falling costs in the industry,” Flint said, estimating the decision will cost 15,000 to 20,000 jobs.
Britain’s proposal is similar to the system in Germany, the world’s largest solar market, which reevaluates support every six months. Following the July reductions, which will be based on the level of installations in March and April, the U.K. will make cuts of 5 percent to 10 percent in October and every six months thereafter.
The plan also includes a “trigger mechanism” that allows additional cuts between the scheduled ones if the government deems installations are surging too much. It’ll allow the government to give the industry two months notice of new cuts.
The government backtracked on an earlier proposal to allow panels to be installed only on the most energy-efficient homes, rated “C” or higher in the U.K. rating system. It’ll now allow panels on homes rated “D” also, expanding eligibility from 8 percent of homes to more than half, Barker said.
The government also introduced a new tariff, at 80 percent of the full rate, for projects where one company or owner has more than 25 solar installations.
The new cuts announced for July, in addition to those in April, will be “utterly devastating”, the Solar Trade Association lobby group said in a statement.
“The government’s initial cut to the tariff was brutal, and this further cut will be utterly devastating for the U.K. solar sector,” Howard Johns, head of the association, said by e-mail.
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