Solar panel gains will plummet for people who install from 12 December, under government plans announced today.

The feed-in tariff, which pays people to generate electricity, will be halved from April 2012 for anyone who installs and registers after the cut-off.

Key Points

  • Solar gains to plummet for post-12 Dec installations
  • Amount paid to be halved
  • Could mean end of free solar panels

This could create a rush for people who've already ordered panels to get them installed, as the clock is ticking.

Also, the length of time it will take for panels – which can cost £12,000 – to pay for themselves will nearly double, from an estimated 10 years to 18, under the new tariff.

The move has surprised the industry because cuts were only expected to affect people who fitted panels after 31 March 2012. However, a leak on Friday indicated this shock move was imminent.

Energy minister Greg Barker says: "The plummeting costs of solar mean we've got no option but to act so that we stay within budget and not threaten the whole viability of the feed-in tariff scheme.

"People who are now thinking of installing solar PV [the most common domestic type] need to do so with their eyes wide open and I'd encourage them to call the Energy Saving Trust for the latest advice."

The cut will not affect existing solar panel owners, who will continue to receive for the higher rate feed-in tariffs for 25 years.

However, as a government consultation on the matter ends on 23 December, there could yet be retrospective changes to these plans.

What if I've ordered panels but they're not fitted?

There could be a mad rush for those who've already signed-up to solar panels but not had them fitted, as the process can take eight weeks typically, yet 12 December is six weeks away.

Not only must panels be fitted but the householder's energy supplier must also have received a 'Microgeneration Certification Scheme' certificate, which is only valid once the system is working.

How much does solar save?

Solar panels can save the typical home £90-£180/year in electricity, according to the Energy Saving Trust.

However, the real draw is the Government guarantees that for 25 years you'll get a 'feed-in tariff' which means you're paid to generate energy, even if you use it yourself.

Over 25 years, these gains are extremely lucrative. The feed-in tariff scheme could currently pay back double your spend. For example, a £12,000 system could net £27,500 over 25 years.

However, feed-in payments will be cut from their current 43.3p per kWh to 21p per kWh, slashing typical earnings and savings from £1,190 to £640 a year.

In addition, from 1 April 2012, all domestic PV solar panels sites from April 2012 must meet minimum energy efficiency standards before they qualify for feed-in payments.

End of free solar?

The move could also mean the end of free solar, were you get the panels and electricity savings, but the company keeps the big feed-in gain, as companies may no longer be able to fund the panels if they make less from the tariff.

From 1 April, solar companies who offer from panels to get the feed-in gain will only get 80% of the payments individuals get.

Martin Lewis, MoneySavingExpert.com creator, says: "This is effectively a way of shutting down sign-ups to solar panels today – and almost certainly killing off most of the 'free solar' industry.

"In itself, that's a public policy decision; after all, it's mass market energy bill payers who have been subsidising the usually wealthier homeowners who have panels. Yet the real concern here is for those who've already paid for panels but not had them fully fitted.

"Installation companies will be receiving panicked calls from every customer, desperate to get their certificates in time.

"If they don't, it will completely change the maths, and could see some people thousands of pounds out of pocket. Surely there could've been a more efficient way to close down the feed-in, so we don't have panicked, rush-job installations for those who signed up before the change.

"Surely a fairer system would've been to simply say that anyone who has signed up and paid before the announcement will get the higher feed in tariff as expected."

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