July feed-in tariff cuts: what rate can be expected?

The UK solar industry is today anticipating the future feed-in tariff rates as we move from the month of April into May. After Government announced its intention to base the new rates on installation figures seen between March 3 and the end of April 2012, all eyes have been on the FiT database.

The Department of Energy and Climate Change (DECC) modelled three scenarios that could take affect from July 1, 2012 – each of which is based on the amount of solar added during the past two months.
All three models were based on advice and evidence supplied by Parsons Brinckerhoff (PB). Published on February 8, the PB report provided anecdotal evidence after discussions with the UK solar industry. This report has caused an amount of controversy since its publication, as it was compiled in just four days and is largely based on out of date data.

Nevertheless, DECC went ahead with this advice and proposed the following:

Option A

The first option targets average rates of return under PB’s central cost scenario of around 5-8 percent, with around 5 percent for domestic installations. This produces a tariff of 13.6p for ≤4kW installations. DECC states that this rate would go ahead if deployment exceeds 200 MW.

Option B

The second rate is slightly higher at 15.7p for ≤4kW installations and is based on deployment figures of between 150MW and 200MW. This reduces the current tariffs by around 25 percent from July 1. Again PB suggests this will yield an average return of 5-8 percent for most bands.

Option C

The last, and highest tariff option, is set at 16.5p for ≤4kW installations. This imposes a cut of around 21 percent from April and is expected to produce a mid-range ROI of 6.1 percent, according to PB. This option would be DECC’s preference if deployment during March and April is less than 150MW.
The proposed July 1 tariff rates are outlined below:

Band (kW)
1 April tariff Option A Option B Option C
≤4kW 21p 13.6p 15.7p 16.5p
>4kW-10kW 16.8p 10.9p 12.6p 13.2p
>10-50kW 15.2p 9.9p 11.4p 11.9p
>50-150kW 12.9p 7.7p 9.7p 10.1p
>150-250kW 12.9p 5.8p 8p 10.1p
>250-5000kW 8.9p 4.7p 6.8p 7.1p
Stand alone 8.9p 4.7p 6.8p 7.1p

Taking a quick look at Ofgem’s installation figures for the period March 3 to April 30, we see that figures of just over 190MW has been recorded. Based on that DECC is likely to choose Option B, providing a tariff of 15.7p for ≤4kW installations.

So just as people are getting used to a price level it is going to drop again for the second time and with a significant dop in only a few months - great.

The good news is that will still rpresent a good opportnity for people, especially as energy prices continue to rise and the FIT grows with inflation.