'Why the solar subsidy cuts are so damaging'

The Government caused uproar late last year by cutting subsidies, at short notice, paid to those who install solar panels to generate electricity. The charity Friends of the Earth has been one of Westminster's biggest critics and recently secured a High Court victory against the plans. Its energy campaigner Donna Hume explains why...

Three short months ago the sun appeared to be beating down on the UK's solar industry. Business was booming as thousands of householders seized generous subsidies to use their rooftops to harness the sun's power.

But late last year the Government announced plans that sent storm-clouds scudding over UK solar by proposing sudden plans to slash subsidy payments.

Now people up and down the country are thinking twice about whether to invest in solar.

The problem

The issue isn't so much the size of the proposed cuts to solar subsidies.

Falling installation costs meant some households could get profit margins of over 10% on their investment. In fact, many solar firms recognised this payment level was too high and had called for a planned and careful reduction in payments.

The big issue was the speed of the cuts.

When ministers announced their proposals they said the lower subsidies would apply to any scheme completed after 12 December 2011 – at the time, less than six weeks away.

Inevitably, this created a surge in demand as people rushed to fit panels ahead of the deadline, while many that couldn't get the work done in time simply cancelled their orders.

But the 12 December cut-off date also took place before the Government's consultation ended and – following a successful legal challenge by Friends of the Earth and two solar firms – the High Court ruled that the Government had acted illegally.

Ministers are currently wasting time and taxpayers' money appealing this decision and a judgement is expected soon.

Hume... Cuts came too soon

Why solar's popular

The enthusiasm for clean power was boosted by soaring fuel bills, and the strain they put on cash-strapped householders.

The overwhelming cause of our sky-high fuel bills is the soaring price of gas, and the big six energy firms that dominate the market and keep us all hooked on expensive fossil fuels.

Between 2000 and 2010, average gas bills rose by nearly 80% in real terms, while electricity bills rose by around a third. Little wonder that there have been disturbing stories of people having to choose between heating and eating.

And despite recent price cuts by the big six, analysts warn that higher energy prices are here to stay.

But recently there have been signs that, at last, the Government is taking steps to sort out the mess it has created, by introducing planned subsidy cuts that will enable solar firms to start planning for the future.

How solar can pay

We now know that whatever the outcome of the legal challenge a new reduced tariff rate – 21p per unit of electricity will apply from 3 March 2012.

This is the amount users will be paid to generate their own electricity.

If the Government loses its appeal, households will still be able to get 43p per unit between now and March.

If it wins, the 21p rate will apply retrospectively from 12 December last year.

Even with the proposed changes, solar will still represent a good investment for many people. It allows households to continue to make money from the sun – and frees them from increasingly expensive fossil fuels and a stitched-up energy market dominated by the big six.

However, a cloud of uncertainty still hangs over the financial viability off the entire scheme. If ministers want to protect jobs and enable more people to switch to clean power, they must come up with more money to finance the scheme.  

And this can be paid for by using the multi-million pound tax revenues generated by solar firms.

Need for clean energy

Last year, Friends of the Earth launched its 'Final Demand' campaign which is calling for a public inquiry into the big six's power and urgent action to stop the Government killing off clean British energy.

This means supporting, not jeopardising, the UK renewables industry – and taking urgent steps to ensure that we cut energy waste.

Encouraging people to invest in renewable home-grown energy is part of the solution – and this must include measures to allow those in council or housing association homes to benefit too.

The Government must re-examine its proposals for solar subsidies, inject fresh cash into the scheme, and ensure that more of us can play our part in building a clean energy future.

Views expressed are not necessarily those of MoneySavingExpert.com.