New Feed-in-Tariffs (FiTs) for solar photovoltaic (PV) installations come in to force today, with the rate for domestic installations dropping from 21p to 16p per kilowatt hour (kWh) and the rate for commercial installations dropping from 15.9 p to 13.5p/kWh. The export rate for all new solar PV installations has increased however, from 3.2p to 4.5p/kWh.

Other changes include a reduction in the tariff period from 25 years to 20 years (for all new solar PV installations) and a review of all tariffs every three months, which can be revised according to deployment rates.

The Department of Energy and Climate Change (DECC) uses FiTs to encourage people outside of the electricity market (such as businesses, communities and individuals) to invest in small-scale, low-carbon electricity generators such as solar PV panels, in return for a guaranteed payment for the electricity they generate and use. Payment can also be had for any unused surplus electricity that is exported back to the grid.

The announcement of the new solar FiTs comes just seven days after the DECC announced changes to Renewables Obligation (RO) scheme (that encourages large-scale renewable electricity generation), which controversially gave gas favourable RO rates, and created a £500 million field allowance for large shallow water gas fields.

Commenting on the DECC’s latest reduction in solar FiTs, Tomas Freyman, Valuations Director and Renewable Energy Specialist at BDO LLP said: “The latest reduction in the solar Feed in Tariffs (FiT) allows us to think about renewable energy in its wider context. FiTs have delivered more than 1 GW of solar photovoltaic (largely residential) over the last two years, and have shown that there is a market for investments based on energy users becoming energy generators. That is indeed a great testament to the UK energy user.

“It is no surprise that the tariffs have come down; they are doing so broadly in line with capital costs. The full intention of these subsidies is to get the market started and, in time, they will no longer be needed as levelized costs of renewable energy meet those for fossil fuels.”

Despite the reduction in solar FiTs to 16p and lifetime reduction to 20 years, solar PV investments will continue to be attractive to domestic properties, says the Solar Trade Association (STA). According to the STA, if a family installs a 4kW system from today (costing £8,000), uses 50 per cent of their power and exports the remaining 50 per cent, they will be able to pay off the cost of installation in 10 years and could see returns of 9.2 per cent over the 20 year life span of the FiT.

"Our figures show that solar is a no-brainer investment. Compared to the returns you can get these days in banks and many other investments, solar provides a very solid and attractive return. That is particularly the case if you consider energy bills are rising faster than anyone expected”, said STA CEO Paul Barwell.

“Nobody knows what electricity prices will be in future but we do know they have gone up substantially over the past few years. This trend may well continue as the UK becomes more reliant on importing its energy in an increasingly competitive world. Solar gives people the opportunity to take control of their electricity bills and help us move away from damaging fossil-fuel dependence. We believe the smart money is on solar”, Barwell added.

The news of the updated solar FiTs comes after Westmill Solar farm, a 5 megawatt PV farm between Swindon and Oxford, set its targets on becoming the only community-owned solar farm in the UK and the biggest community owned solar farm in the world. With 21,000 panels and producing enough electricity to power 1,400 homes, the farm has become one of the largest arrays in the UK and on Tuesday (31 July) reached it’s target of selling £4 million worth of shares in order to ensure the farm’s future.

Recognising that the cut in solar tariffs for small PV installation "might be bad news for the industry as a whole depending on how it is perceived by householders", Frank Gordon, Project Manager at Westmill Solar said that despite the current economic crisis, and the short time period they had to raise the £4 million (six weeks), they were "really happy" with what they've achieved.

Director of Westmill Solar, Adam Twine said that though times are tough, people are still willing and interested in having a hand in generating their own electricity: “It has been a hectic six weeks since we launched at the end of June, particularly in the last week as hundreds of [share] applications came in each day. We have had over 1,500 applications, and our youngest application was on behalf of Olivia, who was born just five days ago! There is clearly a real desire for this type of opportunity and I hope that other communities will feel encouraged by this tremendous response to find ways to set up their own projects.”

The summary of solar PV tariffs for systems with an eligibility date on or after 1st August 2012 are listed below:

More information on the solar PV FiTs can be found on the DECC website.