The government has moved to slash renewable energy subsidies with a significant cut to the feed-in-tariff (FIT) from January 2016.

Those installing a solar PV panel system in December would have enjoyed a FIT of 12.47p per kilowatt hour. The same system, installed a month later, will only receive payments of 4.39p/kWh.

System size Feed-in tariff
1 October to 31 December 2015
Feed-in tariff
1 January onwards
4kW or less 12.47p/kWH

(5.94p/kWH if EPC rating is D or below)
4kW to 10kW 11.30p/kWh

(5.94/kWH if EPC rating is D or below)

Feed-in tariffs for wind turbines and hydroelectricity have also dropped to 8.54p/kWh (previously payments ranged from 19.01p/kWh to 16p/kWh).

The export tariff (payable for energy sent back to the National Grid) remains unchanged at 4.85p/Kwh.

All payments are tax free and will rise in line with inflation.

Why has this change been made?

The Office of Budget Responsibility reported that the amount the government had set aside to subsidise investment in renewables by 2020, via the Feed-in Tariff scheme and Renewable Obligation scheme, would be exceeded.

Changes to the tariff are aimed at reducing the overspend and will see government investment in the scheme capped at £100m up to the end of 2018/ 19.  Tariffs for new installations will continue to be regularly reviewed to ensure the viability of the programme.

The changes, though significant, are less damaging than the 90% cuts initially proposed by the Government last July and were detailed in a consultation response externallinkpublished just before Christmas.

Will the tariff changes affect existing installations?

The feed-in tariff for both existing and new schemes is fixed for 20 years from installation and means that owners of solar systems will continue to attract the tariff locked in at time of installation.

Is solar still a worthwhile investment?

From January a large household, can expect payments from the feed-in tariff of £55 a year (compared to £440 a year if they’d installed back in December), an additional £80 from the export tariff, and might expect to benefit from the tune of £100 a year by using their system-generated electricity rather than buying energy from their provider (assuming some behavioural changes like using appliances when it’s sunny). All those figures are based on averages from The Energy Savings Trust and will vary according to system installed and environmental conditions.

With a typical 4kW solar panel PV system costing somewhere in the region of £5,000 to £8,000 these figures mean householders should recoup their investment (accounting for tariff rises in line with inflation) but would be unlikely to make a significant profit. Once the FIT payments stop, a householder will still benefit from their self-generated energy but older panels are likely to be less efficient and more prone to failure so future income may not be guaranteed.

The government is keen to point out that the cost of installing renewable energy systems has plummeted since the scheme was first introduced in 2010 and the new arrangements still provide a reasonable return for those who install small scale renewable technology.

What happens next?

New applications to the FIT scheme are suspended between 15 January and 8 February to allow the cost control measures to be brought in.

The government has also announced the reintroduction of pre-accreditation for solar PV and wind generators over 50kW and all hydro and anaerobic digestion generators.

Meanwhile, the renewables industry is bracing itself for the end of the reduced VAT rate of 5% on new installations from April. HMRC is proposing a return to 20% VAT for solar PV and all wind and water turbines. The tax relief previously enjoyed by social projects ended back in November.

Related information

Consultation outcome – Changes to financial support for solar PV externallink
Department of Energy and Climate Change – Changes to renewable subsidies externallink
ofgem – Tariff tables externallink