Solar Policy Play: UK Could Curb Large Solar Projects

Feed-in tariffs, which guarantee premium rates for renewable electricity, are the policy of choice for many European countries, though the U.S. has been slower to adopt it. But the latest drama for the policy comes from the U.K., which indicated Monday that it will likely cut the pricing for large-scale solar projects because it wants to promote smaller, rooftop installations.

The U.K.’s Department of Energy & Climate Change said it will conduct a review of its barely 1-year old feed-in tariff program and possibly lower the rates for large-scale solar power projects a lot sooner than it anticipated.

The government previously wanted to carry out this review next year and lower the rates starting in 2014. It committed to spending £360 million ($580 million) until then. The program, which caps the size of each project at 5 MW, has attracted projects in solar, small wind and hydropower. Rates for these sources are as high as 12 times the rates for power from conventional sources.

But government officials were surprised at how many large-scale solar projects, which they define as those over 50KW, have popped up. They worry that these projects will drain the budget at the expense of rooftop solar electric systems. Last year, the U.K. added 33 MW of solar, which was twice the cumulative capacity from the previous year.

Changing the pricing scheme in the U.K. means developers will have to recalibrate their pending projects’ costs and possibly renegotiate with their equipment suppliers and financial backers. It also typically creates a mad dash by developers to complete their projects before the new incentives are in place. Germany and Spain have seen gigawatts of new solar power projects in some years because of cuts in tariffs that came after lawmakers decided their countries were adding solar energy way faster than they had expected. That translated into a faster hike in consumers’ energy bills since utilities that have to pay the premium pricing usually pass on the costs to their customers.

The U.K. is just one of several European countries that recently began considering cuts to their feed-in tariffs significantly to reduce costs and, in the case of Spain, making cuts retroactively to already-installed projects by restricting the hours when these projects’ power output can qualify for the rates.

Last December, France suspended its feed-in tariff for three months in order to figure out how to modify the program to lessen the overall cost of the program. The country saw a huge boom in solar power installations in the last two years, and the program is costing its national utility about €1 billion ($1.3 billion) a year, reported Bloomberg. The Czech Republic introduced an income tax for solar electricity producers last December to curb its solar market growth.

Italy, which grew to become the No.2 market worldwide in 2010, is likely to cut its solar feed-in tariffs as well. The generous subsidies have added gigawatts of new solar power projects last year – the exact number is apparently under debate. Barclays Capital’s equity analyst Vishal Shah said in a research note that Italy could end up spending $60 billion over the next two decades for maybe 4 gigawatts of projects that have been installed but not yet connected to the grid (utilities typically sign long-term contracts of 20 years or so for the solar electricity).

Closer to home, the Ontario province in Canada also has been re-evaluating its feed-in tariffs after seeing a huge jump in proposed projects, which raised concerns about the policy’s costs to ratepayers. The province, which launched the program in late 2009, already lowered the rate for ground-mounted projects once in 2010.

Some renewable energy advocates in the U.S. would like to see a feed-in tariff policy adopted in the country. But the chance of national policy is slim because utilities, and even states that regulate them, are likely to fight any federal effort to set electricity pricing – or at least dictate how pricing should be set. But some states and local governments have embraced feed-in tariffs.

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Photo courtesy of Roger Wallstadt via Flickr