The Government introduced the Feed in Tariff (FiT) in order to kick start the solar industry in the UK. Under the original scheme it had just this effect. The desired aim of increased renewable energy, new business and new jobs had been achieved. Yet all this is now in jeopardy following the Government’s announcement on 31 October, bringing forward the assumed deadline of March 2012 and introducing cuts. Libbie Henderson, Energy Partner with Dickinson Dees LLP, explores the ramifications.
The Government’s consultation on the comprehensive review of FiT remains open until 23 December, but it proposes some major changes that will have a serious negative impact on SMEs across the UK, including cutting rates in some cases by more than 50 percent.
All new Solar PV installations with an eligibility date on or after December 12, 2011 will continue to receive the existing FiT rate until April 2012, when the rate will drop. Any installations with an eligibility date on or after April 1, 2012 may only be viable if placed on buildings that meet minimum energy efficiency levels. Work on these buildings can be done in the 12 months between April 2012 and March 2013 to ensure that they comply to the required EPC level C, however if these adjustments are not made, only the basic FiT rate of 9p per kW will apply.
For companies setting up more than one Solar PV installation, there will be a new ‘multi-installation’ tariff. This stands at 20 percent less than the new standard FiT rate. This will apply to aggregated solar PV schemes i.e. where single individuals or organisations own or receive FIT payment from more than one PV installation located on different sites.
So what does all of this mean for SMEs across Britain? Many small businesses have relied on the existing level of FiT in building their business models. While some may have benefited from the savings in the cost of PV installations over the past 12-18 months, there is also a huge number of SMEs who will have agreed fixed costs for supply. In these cases, unless termination of arrangements can be negotiated, it is likely that these business models will no longer be viable.
Even those SMEs that have not entered into fixed-cost agreements may suffer, price renegotiation may well be necessary. Where this is not possible, SMEs may be left with installation kits that they can no longer viably install. These SMEs have effectively become the middle-man, stuck between the supplier and the end user (landlords).Particularly in larger deals, where costs need to be negotiated at both ends, or those with exclusivity arrangements, this can result in a lot of difficulties.
Other cost implications and legal issues will come into force too. For example it is likely that companies will have to lay off staff as projects are cancelled, and the time and effort spent going through these processes really should be spent focussing on making money for small businesses in this toughening economic crisis.
Even those SMEs that have not entered into fixed-cost agreements may suffer, price re-negotiation may well be necessary.
The most immediate challenge for SMEs in the solar PV sector is how to ensure that installations are eligible prior to 12 December 2011. It is only under these circumstances that they will be able to take advantage of the existing FIT rates. SMEs will also need to inform their customers buying solar PV installations of the potential drop in income if the deadline of 12 December 2011 is not met.
The major risk however for SMEs is trying to build business plans around fluid government policy. Even if solar SMEs do try to diversify into the Green Deal Finance/Renewable Heat Incentive area, the detail of these schemes is not likely to be clear until at least autumn 2012. This uncertainty may mean that SMEs in the industry are unable to move forward due to lack of concrete information on which to base their business plans.
While, at first glance, the proposals would appear to be the death knell for the solar industry in the UK, there is perhaps some hope. Entrepreneurs who have tackled and understood the solar industry will now need to diversify to take advantage of the potential benefits of the Renewable Heat Incentive and the Green Deal. The Government does not want to bring in new forms of energy generation if that energy is just going to be wasted by inefficient buildings. So ensuring that energy is saved in any way possible is the best way forward for SMEs.