The government’s sudden decision to drastically reduce the FITs from 12 December has come as a real bolt from the blue to the solar panel industry. Up till now the UK had been developing a new, green, industry in the manufacture and installation of solar panels. These panels when fitted on the roofs of houses could provide a large chunk of the house’s domestic electricity needs. But the real bonus comes when during the day the solar panels are producing more electricity than the house needs and it is possible to feed excess electricity in to the national grid and get paid for it via a FIT which is paid direct to the consumer by his electricity supply company. The FIT for a typical householder is currently 43.3p for every kWh (kilowatt hour) of energy sold.

For an average house an outlay of £10,000 is needed to install the solar panels and the payback time is around 8-10 years, after which the solar panels could bring in an income of nearly £1,000 a year net for the remaining years of the scheme which runs for 25 years from installation..
After a slow start the demand for solar panels took off over the last year thanks to the government’s FIT mechanism which made solar panels affordable. The government wanted to boost the take up of solar panels so the FITs were raised temporarily for new installations that completed by 31 March 2012.

Already last summer the government was forced to rain back the FITs for larger installations as they noticed many country landowners were taking advantage of the generous FITs to create large scale solar farms. It produced more income than growing crops. Quite rightly the government did not want to be seen to be subsidising large landowners when the aim of the scheme was to encourage private householders.
However, the government seems to have got cold feet over the amount of subsidy it was paying out to support the FITs, and it has abruptly reduced the FITs from 43.3p to just 21p per kilowatt hour.

Many householders are now uncertain over the eventual returns on their investment as any installations completed after 12 December will only receive the new FITs, leaving them with payback periods extending to 15-20 years and greatly reducing the value of solar panel installation. There is now a real fear that the new rates will put most potential customers right off if they see the length of time it will take to recoup their investment and only a few years at the end of the scheme to reap any substantial benefit.

At a stroke, a new modern green industry has gone into a major panic. Firstly to complete as much work as possible before 12 December but then they face losing many of their potential customers who will be put off by the new FIT levels. Some 20,000 jobs may be at risk if the industry collapses as a result.