By Maximilian Clarke

A deep and fast cut in UK Feed in Tariffs (FiTs) is required to protect the UK solar Photovoltaic (PV) industry from stalling or creating a market bubble before any rate changes take effect, a report suggests.

The findings from a new report by PwC - The UK solar market - dawn or dusk? - analyses the prospects for the UK Solar PV market and the impact of the FiT changes to date.

Trade unions and environmental campaigners have reacted angrily to the government's planned 12th December halving of the Feed in Tariff scheme, which pays residents up to 4 times the standard commercial rate for power generated by solar panels. PwC's report, however, suggests that cutting the UK's overly generous tariff will not damage the rapidly growing industry, and is necessary due to the escalating costs.

The report demonstrates that at current rates of installations and FiTs, against a number of scenarios examined the report, the spending envelope (the amount available for FiT payments to 2015) will run out in 2013 - long before the intended end in March 2015. At that stage, the UK is projected to have 600-800MW of solar PV installed.

Analysis in the report shows that cuts of up to 50%, in the current rates may not be enough to maintain the ‘spending envelope’ of £867m. Deeper cuts may however stall the market for 12-18 months and negatively impact an industry that has invested and recruited heavily.

Solar capacity grew six fold in the UK between April 2010 and August 2011, with over 220MW currently installed. 95% of the installations are on residential roof tops, driven by one of Europe's most generous FiT regimes. For every 30MW retrofit residential capacity installed, £55-70m is drawn from the ‘spending envelope’ of £867m until 2015.

"With falling module prices and current FiT rates higher than those in France, Germany and Italy, there is undoubtedly room for a FiT decrease without hampering demand significantly," said Daniel Guttmann, Director, PwC Renewables and Clean Tech.

"Despite the level of publicity and emotion around the Government's FiT rate changes, the impact on the majority of the market has so far been limited. Over the past 12 months, the solar PV market has grown strongly, predominantly driven by domestic systems and is likely to continue to do so in the next five years.

"The government has few options: increasing the spending envelope to allow the market to continue to grow at the current rates is a difficult option in the current economic climate. A deep and fast cut in rates would constrain spending to fit the current spending envelope while maintaining the market for new installations.

“Its a fine line they have to tread — too little a cut will still exceed the FiT envelope; too severe a cut will damage the industry.

“In the absence of additional funding for the FiT, a clearly thought through programme of regular reviews covering all technologies and size bands will be necessary to balance the economic realities of funding and the needs of a fledgling industry. This programme then needs to be adhered to in terms of reviews and any future adjustments.

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