Wind turbine and solar panels© Tim Scrivener

Solar and wind were clear losers in the long-awaited review of Feed-in Tariffs (Fits) announced by the Department of Energy and Climate Change (Decc) two weeks ago, but virtually every sector will be hit if the proposals go ahead.

Generation tariffs for domestic (<10kW) and commercial (>1MW) solar face cuts of more than 80%, while new wind turbines larger than 1.5MW could receive nothing. Rates for smaller turbines will also be slashed, making many projects unviable.

Furthermore, stringent degression and deployment-based budget caps mean a phased closure of the Fits scheme by 2018-19 and generation tariffs for new applicants could disappear as soon as January 2016 if Decc believes costs are not being controlled.

A consultation on the tariffs and a raft of other “cost-control measures” (see “Fits review summary” below) runs until 23 October, but many fear it will be hard to force change, prompting a likely rush to complete projects before new rates come into effect, as happened after the first comprehensive Fits review in 2011-12.

Head of policy at the Solar Trade Association, Mike Landy, said: “We are astonished at how self-defeating these proposals are. It will create a huge boom and bust that is not only very damaging to solar businesses and jobs, but does nothing to help budget constraints.”

Dr Jonathan Scurlock, chief adviser on renewables at the NFU, added that the cuts could hit rooftop solar particularly hard, despite it being a popular farm option that government said it wanted to encourage.

Falling technology costs meant some farm projects were closer to being viable without subsidy, but stable, effective support was needed to ensure that happened, he said.

Fisher German’s Mark Newton estimated payback time for a typical 50kW solar PV array could double under the proposed scheme (see table), while net return after running costs for a 500kW wind turbine would fall to about 9%.

With most farmers financing a project of that size, the return would be down to 5% and not viable, he said.

No AD tariffs were published, but Decc’s proposed budget caps suggest just 17 plants will be supported next year and many fear the sector will be hit hard when AD support is reviewed later this year.

All not lost for farm businesses

While the cuts suggest little scope for investing in renewables, Dr Scurlock said there were still opportunities for farmers with high electricity demand, especially if technology costs fell further.

Using 100% of electricity produced from a typical 50kW solar array costing about £45,000-£50,000 could give an annual benefit (including energy savings and Fits) of £5,000, equivalent to a 10-12% return, he said.

A similar 50kW wind turbine using 50% of electricity on site, with a 6.5m/s windspeed, could deliver a return of about 7% (before operation and maintenance costs and generation tariff) on the £250,000 investment. That could be increased to nearer 9% by using 75% of electricity on site, he suggested.

“It’s not all over. While the size of the supply chain supporting the renewables sector may shrink, many investments remain a good bet. It is an opportunity for farmers to have a realistic look at the returns and identify ways of making projects more viable.”

Fisher German estimated returns comparison (50kWp system)

  Cost (ex-VAT)* Fits rate (p/kWh) Fits payment (pa) Estimated annual gross benefit** Initial gross yield Payback (years)
Current Fits scheme £49,000 11.3 £5,085 £8,426 17.2% 5.8
Proposed (post-31 Dec 2015) £49,000 3.69 £1,166 £4,507 9.2% 10.9

* Cost based on “Tier 1” panels and inverters.

** Assumes 50% electricity generated is used on site (saving 10p/kWh) and 50% exported (earning 4.85p/kWh). Assumes irradiation of 900kWh/kWp. Excludes metering costs, replacing invertors, insurance.

Fits review summary

  • Lower-generation tariffs and bands from January 2016
  • Cap on new Fits spending of £75m-£100m by 2018-19 and deployment caps per tariff band
  • Budget cap could be reduced further, or generation tariffs for new applicants ended from January 2016 if cost-control measures are not effective – export tariffs remain
  • Quarterly default degression (cuts) for all technologies could see some support phased out by Jan 2019 (notably <10kW and >1MW solar as well as standalone solar)
  • No support for >1.5MW wind from January 2016
  • Tariffs subject to quarterly deployment-based cuts of 5% or 10%
  • Tariffs to be linked to CPI rather than RPI
  • Changes only apply to new installations, not existing schemes, but extensions to existing installations prevented from claiming Fits
  • No changes to export tariffs proposed, but future changes suggested
  • Decc is seeking views on alternative support mechanisms (PDF) with closing date of 23 October 2015. Contact to submit views