On the 31st of October a consultation document reviewing the Feed In Tariffs (FIT’s) was published. Since then there has been much speculation on the impact of the solar industry. In the document there are proposals to cut the feed in tariffs for a variety of installations. These are proposals only.
The reason for the change is due to the better than expected take up of solar panels which has subsequently reduced cost of the installation. Essentially the scheme has been too successful. With the cost of the panels and installation dropping so quickly the FIT tariff shone out as a not just a great option to go carbon neutral but also one of the best investment opportunities in the UK.
The tariff was always going to be reduced at regular intervals to keep them in line with the cost of installation, which will continue to decrease. So the fact that they are being cut comes as no surprise and makes perfect sense. The industry will still be subsidised and will still continue to grow. Minister of Energy and Climate Change Greg Barker defended the proposed cuts on Monday morning, saying: ‘Being sensible with tariffs means there will be more money to go round.’
Any installs for retro fit properties registered before the 12th of December will still be eligible to receive the 43.3p per kWh. Following this date homeowners will be subject to the lower tariff of 21p per kWh. However this is all to be confirmed on the 23rd December and could still be subject to change.
So what does this all mean for the installer?
It’s not bad news; in the long term; it’s good news.
We’ve no doubt the immediate reaction to this will be panic, but that should not be the reaction. The original idea of FIT’s was to support the small individual domestic installation, not give tax dollars to ‘free roof’ companies. The review reinforces the original idea and in the long term small installer will become the dominant installers of the PV industry.
Many free roof companies are up in arms in particular about the short timescale given for these changes to come into force. The biggest issue appears to be that there will be a huge rush over the next six weeks to complete projects which have already been commissioned under the old rules. This puts a huge amount of strain on an industry which is still short of labour resources.
With just a six week window to complete installations some companies have already seen a 400% increase in orders for parts and resources in just 1 day.
‘Free roof’ companies will reduce but not disappear despite opinions at the moment , that will mean more opportunity for the small installer, sensible pricing, intelligent selling to customers, in other words proper ways to run small businesses will secure a good opportunity for years to come.
It’s good business for the installer or smaller companies that specialise in retro fit.
Although some people are up in arms about the cuts, the industry will still remain to be very heavily subsidised. For the majority of homeowners (those in the retro fit category) they can still achieve returns of around 5% per year tax free. This is still far greater than many other opportunities that exist at present. Also this return on investment will increase as energy bills for fossil fuels continue to soar in the next 25 years. So this means there will still be a market for retro fit solar PV installations which is the main stay of your average installer.
One area that will be affected negatively will be the market for free solar panels where companies fit the panels and then claim the FIT whilst home owners get free electricity. This will hit some larger companies in particular.
However the decline in free solar may also push more customers into funding their own installations meaning greater demand for smaller installations.
Long Term Impact
These changes actually mean that the solar industry will see continued and sustainable growth. Industry experts have been calling for cuts to the tariff for some time to ensure that the industry is not overrun by large corporations simply looking to suck up the subsidies available.
By bringing the subsidies in line with the cost of installation the solar industry will be forced to operate in a more completive market bringing the cost of installation down further within the reach of more home owners. Some panels are now 70% cheaper than this time last year.
It also means that many of the companies that have simply sprung up to feed off the tariffs may fall by the way side leaving those serious about green energy to continue providing green solutions to people who are also passionate about more than just their bank balance.
Regardless of the cuts it is clear that the solar industry will continue to grow as the cost of fossil fuels increases and the cost of installation will continue to drop. The recent cuts merely rebalance returns for consumers in line with their investment and at the new levels this will still run at around 5%. This is based on the current cost of installation and current cost of energy. Of course energy prices are going up at an unbelievable rate which only ever makes the figures work better. However with improved efficiency in panels, more skilled labour in the market and lower costs for technology the ROI on a solar PV will continue to increase.
So in conclusion, don’t panic, think about PV business as a sensible growth opportunity and not a fast buck deal, price sensibly, install properly and it will serve you well.
If you are looking at electrician training solar PV will still remain a key part of an electrician’s skills set. In fact it has been built in as standard to the new City & Guilds 2357 and EAL electrician courses.
Solar PV courses are also still a great addition to a domestic installer’s skillset and a worthwhile investment of time and money.