Elsevier

Energy Policy

Volume 52, January 2013, Pages 832-838
Energy Policy

Communication
Revised feed-in tariff for solar photovoltaic in the United Kingdom: A cloudy future ahead?

https://doi.org/10.1016/j.enpol.2012.09.062Get rights and content

Abstract

The United Kingdom (UK) started implementing a national Feed-In Tariff (FiT) mechanism on the 1 April 2010, which included specific payment tariffs for solar photovoltaic (PV) installations. However, a revised FiT rate has been put in place starting from 1 April 2012, applicable to any installations with an eligibility date of on or after 3 March 2012. This paper presents, first, an overview of solar PV installation in the UK. This followed by a general concept of the FiT in the UK before analyzing the financial impact of the new FiT rate on the consumers. Similar financial analysis is conducted with selected countries in Europe. The financial analysis investigates the total profit, the average rate of return and the payback period. It is found that the new FiT rate generates very low profit, minimum rate of return and a longer payback period, suggesting a downward trend of solar PV uptake in the future.

Highlight

► Overview of solar PV installation in the UK until present time is discussed. ► Financial analysis is presented using previous, new and degression FiT tariff. ► Comparative analysis with other European countries is evaluated. ► The new FiT rate in the UK generates very low return than other countries. ► This could suggest a downward trend of UK's solar PV uptake in the future

Introduction

Renewable energy has become a major matter of global attention in recent years as more countries are shifting their energy generation to alternative energy resources. According to the recent report by the Renewable Energy Policy Network for the 21st Century (REN21), about 16.7% of the world's energy consumption is supplied by renewable energy (Renewable Energy Policy Network for the 21st Century (REN21), 2012). The report indicates that renewable energy replaces fossil and nuclear fuels in four distinct markets: power generation, heating and cooling, transport fuels, and rural/off-grid energy services.

The United Kingdom (UK) government has implemented a number of policies which relate closely to increasing the penetration of renewable energy (Renewable Energy Policy Network for the 21st Century (REN21), 2011, Hammond et al., 2012, Owen and Ward, 2010). In 2006 for example, it was announced that all new houses in the UK require to be zero carbon by 2016 (Department for Communities and Local Government (DCLG), 2006). This ambitious requirement means that each house must be capable of independently producing the entire energy needed for its household consumption.

A typical UK household consumes about 3,300 kWh of electricity per year (Ofgem, 2012), where around 30% of the electricity is consumed by electric space-heating and cooking, and the rest by appliances including lighting (Owen and Ward, 2010). Young (2008) proposed that the electricity demand of any new zero carbon household can be supplied from a conventional solar PV panel.

The UK receives a moderate amount of sunlight, with the insolation ranging from 900 to 1,300 kWh/m2 per year (Jardine and Lane, 2003) depending on locations, with an average of around 1,000 kWh/m2 (Energy Saving Trust UK, 2005). Despite the moderate levels of sun, the UK government recognized solar potential, and has been promoting solar PV technology since the 1990 s (Keirstead, 2007). However, as of early 2010, solar PV represented only 0.1% of the renewable energy installed in the UK, with an installation capacity of just over 32 MW (PriceWaterCoopers (PwC), 2010). Most of the installations are small domestic panels with an average capacity of less than 3 kW (PriceWaterCoopers (PwC), 2010).

On the 1st April 2010, the UK started implementing a Feed-In Tariff (FiT) mechanism, which includes specific payment tariffs for solar photovoltaic (PV) installation (Department of Energy and Climate Change (DECC), 2010). It was projected that solar PV would contribute to approximately 2.1 TWh by the year 20201 (Department of Energy and Climate Change (DECC), 2009). At the end of 2010, the European Photovoltaic Industry Association (EPIA) reported that Europe is the world's largest solar PV market, in which the UK contributed to about 0.3% of installed solar PV capacity (European Photovoltaic Industry Association (EPIA), 2011). Fig. 1 shows the market share of solar PV in Europe in 2010.

Section snippets

Feed-in tariff (FiT)

FiT schemes, basically, pay renewable energy producers a set rate (tariff) for each kWh of electricity generated and/or fed into the grid, and generally oblige the power companies to purchase all the electricity from eligible producers in their service area over a long period of time usually 15 to 20 years. As of 2011, FiT has been enacted in 80 countries (Renewable Energy Policy Network for the 21st Century (REN21), 2011).

A research by the Fraunhofer Institute for Systems and Innovation

Financial analysis—the UK

It is of importance to carry out some financial analysis5 investigating the impact of the proposed reduced FiT rate on UK solar FiT participants. This section will analyze three parameters; the total

Comparative financial analysis

To compare the financial performance of the proposed rate with other European countries, a similar measure analysis is conducted. As indicated earlier, a number of European countries are cutting their FiT rate mainly due to financial reasons (European Photovoltaic Industry Association (EPIA), 2011). In the next part of the analysis, the same assumptions in Section 3 are applied (excluding assumption (iv))—to investigate the impact of the new FiT rate on the investment portfolio in each country.

Conclusions

Solar PV has good potential in generating electricity in the UK. With the introduction of the FiT in the second quarter of 2010, there has been significant growth in terms of numbers of solar PV installations, with around 98% of them in residential buildings. However, the recent announcement from the UK Government to impose a drastic cut in the FiT rate creates uncertainty in the future of solar PV. By claiming that the cut is inevitable due to the financial crisis and substantial reduction in

Acknowledgment

The authors would like to thank Glasgow Caledonian University (GCU), Scottish Funding Council (SFC) and Yayasan TM (YTM) for funding this research project.

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