Can UK’s solar industry survive without subsidies?

Published July 21, 2015

Energy experts believe a rumoured government plan to cut subsidies to solar could cripple the burgeoning industry just before it is able to stand on its own.

Late last week the government issued ambiguous warnings that the solar industry’s days of living off top-ups from bill-payers were numbered. A cabinet source revealed to the BBC that the government view had hardened further towards green subsidies and a “big reset” was coming.

After onshore wind (currently the cheapest renewable energy in the country) had its subsidies cut last month , solar looks set to be next on the chopping block. Solar insiders believe the feed-in tariff (FiT), levied from household bills and given to those who buy rooftop panels for their homes, will be severely restricted or abolished.

Last week, a source at the Department for Energy and Climate Change (Decc) said: “[Energy secretary Amber Rudd] is determined to get a grip of these out-of-control subsidies and make sure that hardworking billpayers are getting a fair deal.”

The actual amount of subsidies for renewable energy is often wildly overestimated by people paying the bills. A study in March showed people on average estimate that £259 of a typical duel-fuel bill goes in subsidies for wind energy. The correct figure is £18.Recent Research by the Policy Exchange thinktank found the contribution of FiTs and the renewable obligation (RO) amounted to £10 and £38 respectively. Jim Watson, the director of the UK Energy Research Centre said the contribution of solar to the RO was “relatively small” whereas the industry benefits from the vast majority of FiTs.

Watson estimated that, in total, solar subsidies cost billpayers £10 per year (0.7% of the average annual electricity and gas bill of £1,338 per year). Energy efficiency measures, targeted towards low-income housing, cost roughly five times more.

He said if this money were to disappear completely the government risked the industry “dropping off a cliff”.

“Were subsidies to simply stop I think activity would probably fall off very significantly,” he said.The competitiveness of any source of electricity is based on its wholesale price. Renewable subsidies allow solar, wind and other clean technolgies to compete with carbon intensive fuels like coal and gas. The current price of solar is roughly £80/MWhr, whereas fossil fuels sell to the grid at £50/MWhr.

“Eventually you’d want them to stand on their own two feet and not have subsidies,” says Watson. “ The point I’d make with solar is that costs have been reducing very rapidly. It’s not yet at that point where it can stand on its own two feet, but any government should expect that point to be within about five years.

“So the question is do you withdraw support now and risk it dropping off a cliff. Or do you maintain the support, albeit at a reducing rate for the next few years and give it that chance to demonstrate it can be competitive.”