PwC analyses UK government’s announcement on Feed in Tariffs

February 9th, 2012 by PwC

Daniel Guttmann, Director, Renewables and Cleantech, PwC, in analysing the implications of the UK Department of Energy and Climate Change‘s (DECC) announcement on ‘improvements to the feed-in tariffs scheme‘ published on 9 February 2012, said “overall, the  announcement is somewhat of a mixed bag for the industry.”

“It’s positive news that the proposals are beginning to get more detailed. It will allow the industry to at least shrug off some of the uncertainties that have persisted since the previous announcements, and the subsequent court challenge.

“The overall spending envelope was extended and government is now hoping to deploy more solar than previously envisaged. That’s good news for an industry that has to increase efficiency and volume in the face of the current (and future) reductions in FiTs.

“The emergence of discussion around the shortening of the FiT period is concerning, as well as whether the FiT should remain index linked.

These two issues, if applied will make solar yet less attractive and this discussion has the potential to add yet more uncertainty which this industry really could do without.”

“The proposed 50% cut to roof top tariffs remains and this seems unlikely to change. While the cut is steep, it only applies from March 2012, so provides a window of opportunity for high activity levels over the next few weeks, perhaps similar to the extremely high levels of installations in late November and early December 2011. It shows what the industry is able to accomplish when demand rises. Given the inevitability of the cut, much of the industry will have begun to take action to adapt to the new regime.

“The UK government has listened to concerns around the energy efficiency rating provision and has loosened the requirement to buildings with an EPC rating of at least D. While it curtails the market, it is better than the original C rating. As and when the Green Deal kicks in properly – in my view around mid-2013 – these low efficiency rating will also move back onto the radar of the solar industry.”

“We have long argued for a clear timetable and logical mechanism to tariffs, as in Germany for example and the UK government is now putting that approach into practice. I think the devil is in the detail in this package and while this gives on the whole more visibility to the industry, there are elements which will be worrying.

“The proposed mechanism post – July 2012 consists of a likely automatic degression, or reduction, and an accelerated adjustment based on deployment levels. So if deployments exceed anticipated levels, the government could reduce further the FiT rate.

“Given the current uncertainties around costs, it feels like a six-monthly 10% reduction on tariffs risk creating a severe stop/start market and I think that a lower base rate should be considered. The deployment adjustment is sensible, but it requires clear communication of the UK government’s envisaged annual deployment levels. Also, given the very different dynamics of the different bands, this needs to be considered separately for domestic, commercial and stand-alone systems.

“The emergence of discussion around the shortening of the FiT period is concerning, as well as whether the FiT should remain index linked. These two issues, if applied will make solar yet less attractive and this discussion has the potential to add yet more uncertainty which this industry really could do without.”

In PwC’s view, the UK solar PV market is unlikely to achieve the level of growth that many had forecast, however the UK Government’s target of 2.68GW of solar PV installed by 2020 still remains achievable.

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