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Headaches for Renewable Energy Businesses

There has been a massive boom in demand for solar panels in the UK - a 400% increase in household installations from the start of 2010 to the present day. Electricians have taken to sourcing solar panels from the large manufacturers, usually from China or Taiwan, to install this cutting edge technology instead of replacing light fittings. National companies within the UK have also sprung up, creating thousands of jobs for sales people and fitters, with millions of pounds being spent annually on advertising campaigns on television, the internet and in print.

Anyone would say this highlights the massive success of the Feed in Tariff and the government schemes introduced to help encourage a take up of renewable energy at the household level, whilst bringing a much needed boost to demand within the UK economy. However, it also highlights a weakness of the industry, that of its total reliance on government policy.

Why is the renewable energy industry so dependent on decisions made in Westminster? It could be argued that it's because the goods it provides aren't viable under normal economic conditions - the cost of producing the solar panels simply makes them too expensive for consumers without government subsidy. However, the market doesn't take externalities into account - people tend not to care that much about strangers, hence they don't fully appreciate the benefits of cutting their emissions, which is the economic argument for government intervention to prevent this market failure.

It will take time for solar panels to be viable without government help. It is sad that the FIT may be cut dramatically under the rates review in April 2012, not because they are a dinosaur that can't compete with the low costs and low carbon of nuclear energy, but because the increase in their demand, a direct result of government intervention, has lead to the industry growing and permitting economies of scale in their manufacture and installation - the prices have fallen by 10 to 15% in the last year or two, and if this trend were to continue, they'd be profitable without any extra taxpayer-funded payments, if it only it were to continue.