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What will be the impact of the August solar deadline?

For those who don't know, the Feed in Tariff will change in August 2012. The rate will decrease from the current 21p per kWh of electricity generated, to 16p. The number of years for which the scheme will pay out will also decrease, down from 25 to 20 years.

The reason why the tariff is decreasing is to make sure that as the prices of solar panels continue to fall, the systems maintain a roughly constant return of 5-7% each year as an investment.

So far, we've seen far less of a last-minute rush to install solar as this deadline gets nearer - we're now in the last week or two, realistically when people will be able to have a quote and get the panels installed on time. We think the reason for this is that there has been far less press coverage this time. Why is this the case? The reasons are several:

Firstly, this drop is a planned decrease, so in terms of whipping up a media frenzy, there is no scandal involved, as there was in December when the government tried to cut the tariff before the consultation period ended, which then lead to a protracted court case between Friends of the Earth and a couple of heroic solar companies versus the Department of Energy and Climate Change.

The drop, although significant, is nowhere near as severe as the initial dececrease - the original fall was from 43p to 21p, so a decrease from 21p to 16p will naturally have a much smaller impact.

These factors have meant that customers are either unaware of the decrease, or if they are, this time they aren't as worried about the instability of solar as an investment. Around December last year, we found very few people would even bother getting a couple of free quotes because they'd seen solar mentioned constantly in the news, thus even though the scheme was guaranteed for 25 years at the starting rate, they had zero faith in the government. This, to be honest, made good sense - the DECC trying to cut the Feed in Tariff before was lawful clearly demonstrated a disregard for the rules that were set out for them; this means that households were worried they'd buy solar on the basis that the panels would pay them over 25 years, but the DECC would try to break this rule too.

Overall, with the way the changes were made in December, both the DECC, installers and households lost out. Solar was made a worse investment for homeowners, and - due to reduced confidence - it effectively became more expensive for the DECC to get each unit of power generated by solar panels because their value as an investment, after factoring in risk, was decreased. The huge sudden drop in business had the most severe impact on installers - many of them went out of business as a direct result of the changes. Fortunately, and we've really felt it in the office, the predictable way the Feed in Tariff is falling this August has led to far less of a drop in demand for panels, and really is a sustainable way for the scheme to be run moving forwards.