(ADPnews) - Oct 12, 2010 - The UK government last week confirmed its commitment to the recently introduced feed-in tariffs (FITs) for renewable energy, but doubts about possible subsidy cuts persist.
By Hristina Stoyanova
Following a European wave of solar power subsidy cuts, starting in Spain and ending in the Czech Republic, the new UK government has been reported to consider reducing the current generous FITs, as part of measures for slashing the country’s ballooning public sector deficit. The exact measures will be announced on October 20.
The news alarmed investors who voiced their concerns and threatened to halt projects. Cabinet office minister Oliver Letwin tried to soothe their fears, but his carefully-worded speech missed the main point -- the future size of the FITs.
THE THREAT
The UK, which had been lagging behind many European countries in terms of solar power capacities, launched a scheme for small-scale renewable power projects on April 1 in a bid to encourage the investment needed to meet its 2020 target of 15% renewables in the energy used. The scheme provides householders and communities generating their own electricity with regular payments through their energy supplier. Payments consist of a tariff for each unit of electricity generated together with a second tariff for each unit of electricity that is exported to grid.
The FITs triggered a boom in renewables, mainly in solar panels installations. Since their introduction, more than 10,000 domestic renewables have been installed and solar companies and utilities have started hiring staff to deal with rising demand. Thousands of jobs have already been created and hundreds of millions of pounds invested.
FITs were supposed to be set firm until March 2013, when a review could have resulted in changes. However, last month government advisers and officials were reported to have strongly signalled to renewable businesses that the current subsidies could be reduced well before 2013.
INVESTORS’ REACTION
Any renewable energy subsidy cuts would erode investor confidence and dramatically reduce installation rates, according to a recent report by local green energy systems provider Ownergy, specifically established to provide renewable energy systems under the FITs and the Renewable Heat Incentive.
The reduction in FiTs would mean that targets would not be hit, the current increase in job numbers would be reversed, and confidence in other subsidy schemes would be destabilised, said Philip Wolfe, Ownergy chairman and architect of the FiT scheme in his former role as director-general of the Renewable Energy Association.
“But it is apparent that the scheme has a long way to go before we are in the enviable position of having to consider dampening enthusiasm through lower tariff rates as is happening in some countries in Continental Europe. Despite the best efforts of the industry, awareness of the feed-in tariffs is still low and there are still several barriers to entry,” Wolfe said.
He argued that the FiT is paid for through a levy on electricity bills and not from public expenditure. “As such, it can make no contribution to reducing the public sector deficit.”
Local company 35 Degrees, which plans to build and manage 100 MW of PV in the UK and has already spent GBP 500,000 (USD 795,000/EUR 572,000) on start-up costs and its 18-month Wheal Jane project, has said that the company would not go ahead with its plans if there was any hint the government was going to reduce the FITs.
"Our business plan and the entire industry will be stopped in its tracks even at the suggestion that the government is going to revise the Feed-In Tariffs," 35 Degrees managing director Stephen McCable told news provide GreenWise last month. "It will have a devastating impact on the industry – what is required is absolute certainty."
As investor fears were looming the Renewable Energy Association (REA), which represents solar companies and other renewable energy firms in the UK, called on the government to make an immediate announcement to confirm the tariff rates published at the launch of the FITs would not reduce in advance of the 2013 review.
GOVERNMENT’S REASSURANCE
Last Monday Minister Letwin argued that the switch to a low-carbon economy was as crucial as economic growth. Speaking at the Conservative party conference in Birmingham, he brushed off speculation that flagship green policies such as the feed-in tariff (FiT) and the Green Investment Bank could be abolished as part of the upcoming spending cuts.
”Our system of feed-in tariffs will encourage micro-generation, stimulate diversity and decentralisation of our power supply, and turn hundreds of thousands of houses into sources of energy,” Letwin said, but did not elaborate.
Many industry officials hailed Letwin's speech, but some remained cautious.
UNCERTAINTY REMAINS
Martyn Williams, parliamentary campaigner at Friends of the Earth, said that it was too early for green businesses to celebrate. "The speech was very encouraging, but it was very carefully worded so that it says the coalition's ability to cut carbon will not be affected – that is not quite the same as saying there will not be cuts," he told BusinessGreen.com last week.
Friends of the Earth said in a statement that the UK needs to build a new economy that tackles climate change, lifts people out of poverty, and creates thousands of new low-carbon jobs and businesses, but this will only happen with a dedicated plan for green growth, joined up across government.
“But Monday's speeches didn't take us much closer to knowing whether this will happen,” the environmental group said. "It was a hopeful spring day when the coalition pledged to become the greenest Government ever. In the chill autumn reality on October 20 we'll see whether it can walk the talk.”
(GBP 1.0 = USD 1.59/EUR 1.145)
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