Whisper it quietly at the moment but you may be hearing the sound of Amber Rudd backtracking on the proposed cuts for solar electricity generation Feed In Tariff’s which she planned to implement on 1st January 2016.
We don’t claim to have any inside track on this but a number of things have happened that lead us to believe that there will be at least a partial backtrack.
Ofgem have published a rate of 12.03p kWh for Jan-March 2016
At the end of October, Ofgem produced a new FIT generation rate for January-March 2016. Now they are legally obliged to do that but since they should have known that changes in legislation were imminent you would have expected them to have mentioned the DECC proposed rate of 1.63p per kWh for the same period; instead they have published a rate of 12.03p per kWh (for a 4kWp or less installation) which is as usual deflated by 3.5% from the previous level based on the volume of installations. Ofgem have also helpfully added a new note “THESE TARIFFS ARE PUBLISHED BASED ON LEGISLATION IN FORCE AS OF THE DATE OF PUBLICATION”; presumably this is to remind themselves and Amber Rudd at DECC that some legislation is needed to lower the rate to DECC’s proposed level. I am by no means a legal expert but I understand that a statutory instrument in this area takes 40 days from submission before legislation could come into force; this hasn’t even started yet and we have the Christmas recess in the House from the 17th December 2015 to the 5th January 2016 so it seems highly unlikely that Amber Rudd will hit her 1st January target for changes. The first date the legislation could come into force if Amber Rudd proposed it today would be the 6th February 2016 and it would be unprecedented to propose the changes before the result of the consultation has been published.
DECC have not published the result of the FIT consultation
After a large volume of negative feedback to DECC’s consultation on proposals, including that from high profile senior Conservative politicians, DECC are still digesting the responses. They were initially believed to be publishing the results in the middle of November, just before the Chancellor’s Autumn spending review on the 25 November. Even this timetable would have been tight to allow legislation to be put in place ready for 1st January 2016. Yet we still have no signs of this report. Given the government’s recent backtracking in the Autumn Statement on a number of unpopular measures (such as changes to working tax credits) it is not hard to see why a Feed In Tariff proposal that was almost universally criticised may also require a significant reworking. Amber Rudd is now heavily involved in the UN Climate Change Conference in Paris. It is calculated conjecture but it would surprise me if the report was published this side of the New Year, not least because of a recent EU announcement undermining DECC’s calculations.(Update 16 December 2015: Amber Rudd made the commitment to the Parliamentary Energy and Climate Change Committee that an announcement on the consultation would be made before the end of the year. She did not specifically say that this would be the publication of the report).
DECC’s flawed assumptions on EU restrictions
The EU announced on the 5th December that the restrictions introduced in 2013 on Chinese panels are likely to continue until 2017 at the earliest. The restrictions set a minimum sales price and a limit on the number of Chinese-made solar panels, wafers and cells sold in the European Union. This extension is directly at odds with Amber Rudd and DECC’s assumption in the FIT consultation that the restrictions would be removed. The DECC argument was that slashing FIT levels would force manufacturers to pass on reductions in solar panel prices. This is now an impossibility as it would break EU restrictions which are keeping panel prices in the EU some 30% higher than in the rest of the world, coincidently giving protection to German solar panel producers. The EU announcement gives a clear justification for re-working the DECC proposals to adjust for this flawed assumption.
So what will happen in 2016?
We are now in the realms of forecasting political behaviour but there is a likelihood that:
- Jan-March 2016 generation rates will be 12.03p per kWh
- April-June 2016 generation rates could be set somewhere between 11.61-12.03p per kWh
- In Q1 2016 DECC could announce a revised scheme to be implemented from July 2016
None of this is certain; we have to wait and see what emerges but the Jan-March 12.03p per kWh rate seems a very strong possibility now. This should keep more solar pv installers in jobs for the first quarter of the New Year.
Any changes to the proposed scheme are hard to forecast but if it were me doing DECC’s job then a new solar scheme would continue the quarterly FIT deflator element of the FIT scheme (degression as DECC call it) but with a more aggressive degression than the current 3.5% level. A quarterly degression figure of around 15% followed by a figure of maybe 20% once EU restrictions on Chinese pricing were removed would see close to zero generation subsidy within 3 years and give the industry time to adapt to a new cost regime. This would also allow the solar installation industry to operate with some longer term visibility on government plans rather than the current chaos of a few weeks. Amber Rudd would need to do work in Europe to get the EU restrictions on Chinese pricing removed; the sooner she does that the sooner she could cut the FIT payments.
Watch this space.