The Feed-in Tariff, which covers electricity produced under the Microgeneration Certification Scheme (MCS) by means of photovoltaic (PV) panels, <a href="/wind-turbines/">wind turbines</a>, hydro-electric and biomass methods, was always scheduled for periodic review. It was known that the market was developing at a rapid rate, particularly so for PV which has been experiencing a massive boom in countries which have had FITs for a number of years - notably Germany, Spain and Italy, but this review is expected to be more radical than previously thought.
Being part of the Spending Review, we know that the primary objective is saving money for the Government, whereas the reviews were originally intended to encourage but balance the growth of PV and other technologies. Indeed, the stated intention of the review is to seek a saving of £40 million, about 10%, from the FIT payments budget for 2014/15.
Now this raises two very ineresting questions. Firstly, why should the Government be seeking to save FIT money when those payments are not made by the Government? The mechanism is that each producer or FIT claimant registers with an energy company which then makes the payments. The energy companies then employ a pooling arrangement where they record how much they have paid out in FIT payments compared with their overall share of the energy market and pay into the pool or receive money from it as a result. The cost of FITs is then recovered from consumers as a whole through higher fuel prices. No Government funding involved!
Secondly, I am puzzled by the statement of the proposed £40m saving as being 10% of budget - which actually is mentioned as £360m so 10% is pretty approximate. The puzzle is that nowhere can I find any previous mention of there being any such budget. I'm sure there must have been calculations about the total size of the anticipated FIT payments, if only to ensure that they did not overwhelm the cost base of the energy companies and lead to massive hikes in their selling prices, but I can't find anything published. And, in view of the first question, why should the Government have a budget when no Government funding is involved? Let me know if you have an answer on this please.
Chris Huhne, the Energy Minister has provided clear statements, intended to settle the market, saying that the Government is very firmly commited to continuing to promote and support the growth of low carbon energy in the UK. But he's a politician, so can we trust him?
The official date for any review to take effect is 1st April 2012 but it is possible for the Government to change that and bring it forward - a U-turn. They have done that for large-scale PV farms but my belief is that it will not happen for residential and small-scale installations. However, I do believe that FIT levels will be reduced significantly on 1st April 2012. I consider that the original schedule of anticipated FIT rates for new PV installations commencing in future years under-estimated the falling cost of PV so the rates for PV would have become more and more generous.
My recommendation for action? If you are considering a PV installation, plan to get it installed before the end of 2011. Prices for PV have fallen and will continue to fall but once (if) new lower FIT rates are announced for April next year, there will be a rush to buy and, inevitably, prices will rise and delays could mean some late customers will fail to get registered for their FIT before the rate drops.