A report published by Cambridge Modelling, which examined the impact of Governmental plans to reduce the level of subsidy afforded to solar PV technology in the UK, has warned that proposed cuts to the solar FiT rate will significantly delay grid parity. The report contests that, under the current level of FiT, <4kW PV installations are set to attain grid parity with residential prices as early as 2016. Under DECC’s proposed reductions to solar PV tariffs, grid parity is expected to be delayed, which in turn would extend the need for a feed-in tariff subsidy by approximately three years.
The paper questions why the impact of the planned FiT changes on grid parity and the development of the UK’s solar PV industry efficiencies have not been considered by DECC in its consultation report. As a result of the omissions, areas of savings for UK electricity consumers under the existing tariffs (more than £57 million in 2020 alone) have been overlooked.
The report acknowledges that planned changes to the solar PV FiT and the resulting reduction in UK solar PV uptake would have little impact on the global adoption of solar PV. However, the level of reduction in national solar PV uptake under the new FiT would have a considerable impact on learning within the UK solar PV industry – in relation to installation costs, commercial efficiencies and labour force development. Therefore, the study recommends that accounting in the Comprehensive Review be corrected to include the cost savings associated with the domestic component of learning behaviour for solar PV.
“The proposed changes to the feed-in tariff scheme will significantly delay the development of UK solar photovoltaic industry efficiencies,” said Dr. Mark Hughes, Director at Cambridge Modelling. “In the absence of the changes, small solar photovoltaic installations are set to achieve grid parity by 2019. The changes to the scheme will delay grid parity and extend the need for feed-in tariff support by approximately 3 years.”
The study stresses the importance of DECC’s basing capital cost forecasts for solar PV on long-term module price trends. Large fluctuations in the price of polysilicon during 2011 (by more than 50 percent)have impacted significantly on solar PV module costs, leading to a general reduction in module prices over recent months. However, the sensitivity of polysilicon and PV module prices to market demand means that their contribution to recent large reductions in the cost of solar PV installations is subject to change. Given the short-term price volatility of solar PV modules, the report urges DECC not to place excessive emphasis on recent strong downward fluctuations in the price of PV modules.
The briefing recommends that DECC adopt a more conservative and sustainable approach to solar feed-in tariff legislation. Cambridge Modelling argue that DECC’s current proposals, which assume optimistic capital cost forecasts and large reductions in the rate of return on investment, leave the British solar industry with no margin for module price fluctuations in a traditionally volatile market.
Dr. Hughes concluded: “Cambridge Modelling recommends a more comprehensive approach to the determination of feed-in tariff reductions, based on long-term price trends, to ensure steady and sustainable levels of growth in the UK solar photovoltaic industry.”
The full report can be viewed here.