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January 2016 will see a huge reduction in the Feed In Tariffs paid for PV installations

January 2016 will see a huge reduction in the Feed In Tariffs paid for PV installations

Well, we now know quite how sharp the FiT reductions will be next year. In the DECC consultation document published yesterday, and reported more accurately in the FT here - than other less fact-troubled organs - January 2016 will see a huge reduction in the Feed In Tariffs paid for PV installations and paves the way for the subsidy to be phased out entirely by 2019.

These changes will affect the domestic sector far more than the commercial; financial returns on an investment in PV will be driven by the value of the energy produced and consumed at site. Most people aren’t in their houses during the daytime so most of that electricity gets fed back into the grid. The householder still has to buy electricity from whichever utility they contract with. For businesses with big daytime electricity demand, the returns will remain attractive and at around 10-11%, will be at the level of return that the Feed in Tariff was designed to offer when the scheme started in 2010. As usual, advances in technology and free market dynamics worked faster than government and as prices of installed PV fell sharply, it was patently clear that the FiT regime was too generous.

We now expect a surge in demand up to the end of December and a slump in the first quarter of 2016. After that, we believe that companies with an eye on the long term will continue to install PV on their premises and enjoy the competitive advantage that forward buying twenty five years worth of electricity at five pence a unit gives them. We doubt we will continue to see venture capital funds loading up on schemes to cover whole estates of houses in northern England with PV. We also expect that there will be less of a rush to cover fields in the middle of nowhere with panels; farmers may have to look at other ways to earn an income from the land. Grow food, perhaps?

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