A lot of people who have already invested in renewable energy schemes are going to lose money.
TIM German works for Cornwall, the warmest and southernmost county in Britain, but his mood right now is anything but sunny.
In fact, Mr German, the manager of renewable energy for Cornwall council, is furious about what he sees as a cack-handed policy shift by the British government that has clouded the county’s plans for grabbing a slice of Europe’s solar energy boom.
“We’ve got dozens of companies lining up to invest here and create new jobs by developing clean energy and suddenly, bang – it could all be killed off,” he said yesterday.
To Mr German’s chagrin, Britain is joining other major European countries in rolling back the consumer-paid subsidies that have fostered the world’s most dramatic growth in solar power installations.
Europe now accounts for about 80 per cent of world demand for solar power equipment, but governments from Germany to Portugal have started to remove their guarantees of long-term artificially high rewards for anybody who puts solar panels on their roof or invests in an industrial-scale solar energy farm.
Industry experts say those feed-in tariffs, which are usually guaranteed for 20-25 years, have succeeded in their primary aim of kick-starting the solar energy industry by encouraging enough investment and economies of scale to bring down the prices of solar power equipment.
In some parts of Europe, such as southern Italy, solar power is already close to being able to compete on price with fossil-burning electricity for retail consumers, and broad areas of the continent should reach the same point by 2015.
The problem, according to Phil Dominy, a senior executive at the London office of financial consultants Ernst & Young, is that the FITs “have been too successful for their own good”.
“They have attracted much more investment than governments had expected, and suddenly governments have got nervous about imposing billions of euros in higher costs on consumers.”
The subsidies for the solar industry are paid by consumers in the form of higher electricity charges rather than higher deficits on national budgets, but this year no government is comfortable about raising utility charges in a flagging economy.
“It makes sense for them to start reducing the tariffs, but some governments like the Spanish are doing it in a very unfair way that is unsettling investors and causing a lot of upset for the industry,” says Mr Dominy.
“A lot of people who have already invested are now going to lose money in Spain, so some are taking legal action against the government.”
The problem for Cornwall council and Britain’s fledgling solar industry is that David Cameron’s coalition government has backtracked on its commitment to the FITs more quickly than any government in Europe.
British Environment Secretary Chris Huhne announced a rethink of the program last month, just 10 months after the scheme was introduced by Gordon Brown’s Labour government to encourage householders and community groups to install solar panels.
The Conservative and Liberal Democrat parties that took power last May claimed credit for having prodded Labour into introducing the scheme and promised they would expand it, but Mr Huhne now says it has to be reviewed because of a flood of applications to set up large solar plants.
“Large-scale solar installations weren’t anticipated under the scheme we inherited, and I’m concerned this could mean that money meant for people who want to produce their own green electricity could be directed towards large-scale commercial solar projects,” Mr Huhne says.
Under the scheme, anybody who installs solar panels is guaranteed for 25 years to receive up to 41.3 pence (66c) for each kilowatt hour generated, even if they use it themselves rather than feeding it into the power grid. If they do feed the electricity into the system, they get an extra 3p on top of that. Those rates are more than 10 times the market price.
Investing in a household solar unit that cost about pound stg. 10,000 ($16,060) could generate a tax-free return of perhaps 10 per cent, and many corporate investors and pension funds decided that they wanted a slice of the action.
Mr Huhne says the review will first look at excluding large solar projects or cutting their profits, and will then consider how to handle the smaller household solar units.
Mr German says the government about-face is exasperating for companies that have ploughed money into preparing for the scheme, and for Cornwall, which has already given planning permission to eight solar energy parks and has 27 more applications on its books and dozens more waiting in the pipeline.