NAPIT Trade Association Chairman Frank Bertie

If I were to sum up the Government’s response to the latest Feed-in Tariff consultation, I would say the outcome was brighter than expected.

The initial proposals to cut tariffs by up to 87% (1.63p/kWh for installations <10kW) were overturned in favour of reducing them by 64% (4.39p/kWh). Although this is still a drastic reduction from the previous 12.03p/kWh, it is not as severe as anticipated.

The deployment cap mechanism as well as the default and contingent degression steps introduced via the Government’s consultation response will, I hope, provide the industry with the necessary clarity and long term certainty to plan for the future.   However, I do have reservations about the potential this mechanism has to create a stop-start market. There is unfortunately every chance that installations may be rushed through ahead of a tariff degression trigger or cap being reached, and this could have unintended consequences for the quality of workmanship.

This said, the Government did face a tough balancing act to try to provide the industry with certainty whilst keeping a tight grasp on the total spend of the FiT scheme, and faced unavoidable budgetary pressures from the Treasury.

With £100m per year allocated to the FiT scheme between February 8 2016 and the first quarter of 2019, and provisions in place to deal with underspend by ensuring all of  the money allocated is spent, the Government’s decisions are certainly understandable and realistic in the current climate.

However, just when certainty seemed within reach, a European Commission ruling has now thrown separate spanner in the works.

They say that because the UK’s current application of a reduced VAT rate on energy saving materials is not compliant with a EU state aid rule on the “basis that their installation cannot properly be said to ‘renovate’ a property (rather, they simply serve to generate electricity)”, VAT on solar PV panels and some other energy saving measures is likely to increase in future, meaning they will cost more to purchase.

However, interestingly, this VAT increase for solar PV panels should cause an increase in future tariffs under the current policy in order for the Government to achieve the 4.8% rate of return they are striving for. It seems the Minister, Andrea Leadsom, is already aware of the implications of this and will seek to do what she can to address it – whether or not she is able to do so effectively will have a significant impact on the buoyancy of the market, so fingers crossed.

Any decision on the increased rate of VAT will not come into effect until 1 August 2016, giving the industry eight months to get used to the new system and hopefully giving DECC the time to amend the tariffs accordingly. Rest assured, the industry, including ourselves, are aware of this issue and are busy campaigning for an uplift in tariffs if and when needed.

We will keep you updated!

The Government’s full response to the FiT review consultation can be found here

Our more detailed briefing note on the implications for installers can be found here